Helping the Competition

By Edward Cone  |  Posted 2003-08-01 Print this article Print

How does U.S. Furniture maker Vaughan-Bassett compete against cheap imports? Start with a tightwad who's averse to hiring software developers.

Helping the Competition

There have been other technology disappointments. Vaughan-Bassett has the systems to do electronic data interchange (EDI) with its retail customers, but doesn't get much use from them because each customer has its own system. Furniture retailers range from department stores to specialty chains to mom-and-pop outlets.

"We've had more than a dozen customer accounts come to us in two years saying, 'Go on EDI,'" says Doug Bassett, the company's sales manager and another of John's sons. "If it's 15 accounts, then it's 14 different systems. People aren't looking at each other's inventory, they're spending money to send glorified e-mail—90% of our orders are e-mailed or faxed in."

There is no doubt that John Bassett regards technology spending warily. "We have no programmers, because they can only talk to other programmers," he says. "They're like rabbits; they multiply." Vaughan-Bassett contracts its programming needs to a North Carolina company, Designed Data Systems, which customized and maintains its office and accounting software.

The technology Bassett embraces goes on the shop floor to save money on labor and materials, so that Vaughan-Bassett can make a profit on low-cost wood furniture. At plants in Elkin, N.C., and Galax, the company spends more than $1 million a year on manufacturing equipment upgrades. "We're willing to take risks on stuff that makes sawdust—production equipment. We know we can make back our investment there in six to 18 months, so we lose money if we don't modernize every few years," says Wyatt Bassett. "Things like a warehouse system are in our future, but only when we know we can put it in painlessly."

The savings start with the stacks of aromatic maple and oak boards, waiting to become bedroom suites on the floor of the old plant in Galax. The cost of materials is about 45% of the wholesale selling price of wood furniture for both U.S. and Chinese companies. By using computer-controlled saws in the "rough in" process, during which lumber is cut for use in furniture, Vaughan-Bassett has increased its utilization of wood to about 50% from 35% in the mid-'90s—a gain of about 40% over the old yield rate.

Instead of cutting out an entire strip around a knot or imperfection in the wood, for example, the saws cut around the flaw in the most efficient pattern identified by the computer. The automated rough-in not only gets more yield from the lumber, it also allows Vaughan-Bassett to buy a less-expensive grade of wood. Wood is graded on the number of flaws in a board, not the strength or appearance of the unflawed portions, so the ability to cut around flaws efficiently makes cheaper material usable.

Fewer workers are now required for the rough-in, and the level of skill required is lower, too. With labor costs on a bedroom suite made in China running about 3% to 5% of its wholesale price, versus 20% at an efficient U.S. manufacturer, head count is a key issue for Vaughan-Bassett. Says Sandy Mullin, president of equipment-company Barr-Mullin in Raleigh, N.C., which includes turnkey Microsoft NT-based systems with its products, "Before, it took a huge amount of skill to cut out a knot and leave in others to send to the rip saw."

Also critical to operating efficiency are Vaughan-Bassett's 18 computer-controlled routers, each costing about $250,000. The room-sized machines use spinning metal bits to shape solid wood into usable pieces. Here, making workers more efficient lets Vaughan-Bassett add to its top line instead of just eliminating positions. "When we add 1% to head count on the routers, we add 6% to 7% to output," says Wyatt Bassett. "We have more people there now than we did three years ago."

Even a critical rapid-delivery program called Vaughan-Bassett Express (VBX), which guarantees delivery of the company's most popular products within two weeks, is a low-tech endeavor. Rather than investing in software to help it minimize inventory and expedite delivery to retailers, Vaughan-Bassett leaned on its trucking firms, and chose to increase its own inventory in order to make sure it always has what its customers order.

Today the company carries about $15 million more in inventory than it did three years ago. "It's the kind of decision that would drive an MBA crazy," says Wyatt, who holds an MBA from Northwestern (his brother, Doug, has an MBA from Georgetown).

The program leverages the major advantage that domestic manufacturers have over imports—proximity to market. A container of furniture shipped from China spends 30 days on the water, then has to clear customs before it's trucked to a retail outlet. Freight costs add up to about 20% of the price of imported furniture—about the same percentage as Vaughan-Bassett spends on labor. "As long as our labor cost stays under their freight cost, we're on a level playing field," says Doug Bassett.

The VBX program includes only Vaughan-Bassett's most popular lines—the 40% of its products that represent 80% of sales—and aims at prices imports have trouble matching. Chinese factories can make money selling a $2,000 suite for $1,300, but competing with one of Vaughan-Bassett's $700 suites is much tougher, especially when it's available in days instead of weeks.

The express delivery process helps retailers by reducing their inventory—instead of ordering and paying for imports, then hoping they all sell, stores can pass orders through to the manufacturer and still handily beat traditional delivery cycles of six to eight weeks. "It gives me the impetus to carry more Vaughan-Bassett, because it frees up my money," says Mark Butler, general manager of Price Cutters: The Georgia Furniture Mart, a retailer in Carrollton, Ga. "We don't have to forecast demand if they have it in stock."

Born in Bassett, Va., a scion of an old furniture family, John Bassett chafed under the family management of Bassett Furniture Corp. In 1983 he joined what was then called Vaughan Furniture in Galax at the edge of the Blue Ridge Mountains.

Today his offices are drab but never dull. In one brief conversation Bassett might invoke Churchill and Patton, Dunkirk and Masada. Last year he got a lot of publicity for a line of Elvis Presley-brand furniture, even though the product didn't sell as well as was hoped. "Elvis left the building pretty quickly," says Bassett ruefully.

In July, 14 U.S. manufacturers of furniture said they would file an anti-dumping petition with the U.S. Department of Commerce and the U.S. International Trade Commission. John Bassett points to China's fixed-rate currency and state investment in factories as culprits in the decline of the U.S. furniture industry, but he also blames managers who are more focused on marketing than manufacturing.

Not all furniture companies are as averse to information systems as Vaughan-Bassett. "There is such a broad population of companies that there are a lot of haves and have-nots," says David Purvis, who is working at the American Furniture Manufacturer's Association in High Point, N.C., to establish EDI standards for the industry.

Ashley Furniture, for example, a $1 billion manufacturer and retailer of furniture, uses EDI to manage inventory between its retail stores and factories, and gets about four times the industry average of 2.5 inventory turns per year.

Hooker Furniture in Martinsville, Va., put in a radio-frequency warehouse management system and converted ordering and other systems from an old mainframe architecture. The company achieved a return on investment of at least 25%, says Chief Information Officer Talmage Fish, as measured by improved responsiveness to customers and quicker delivery cycles.

And high-end vendor Century Furniture is working on Web-based ordering and a rapid delivery system for custom pieces.

At Vaughan-Bassett's June staff meeting, there was a lengthy discussion of new technology seen at a German trade show, including an automated finishing process that makes use of advanced robotics. "That could cost us millions, but it could save us millions, too," muses John Bassett, who is considering making the investment. No information systems projects were mentioned during the two-hour meeting.

Senior Writer and author of the Know It All blog

Ed Cone has worked as a contributing editor at Wired, a staff writer at Forbes, a senior writer for Ziff Davis with Baseline and Interactive Week, and as a freelancer based in Paris and then North Carolina for a wide variety of magazines and papers including the International Herald Tribune, Texas Monthly, and Playboy. He writes an opinion column in his hometown paper, the Greensboro News & Record, and publishes the semi-popular EdCone.com weblog. He lives in North Carolina with his wife, Lisa, two kids, and a dog.

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