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Made in the USA: Domestic doesn’t have to mean more expensive

Volume 26/Number 25; April 29/May 6, 2013

By Matthew Spieler

For companies like Armstrong, which has 14 U.S.-based factories, local production provides numerous cost benefits, such as greater speed to market.

One of the main reasons companies have cited for exiting the U.S. in favor of making or sourcing their products internationally is price, namely the cost of labor and regulations, which they say hamper their ability to effectively compete with products coming from countries that do not put a value on either.

While this is something with which it is hard to argue, many flooring companies point out the cost differential is not as steep as most think, allowing them to offer products and services equal to or better than those that are imported.

“Do I believe some of the manufacturers that compete with us are cutting costs by ignoring health, safety and environmental laws?” asked George Kelley, president and CEO of Kronotex. “The answer is yes. Kronotex USA, as a manufacturer in South Carolina, takes pride in the fact we are a good steward in our community and are concerned with our environmental impact. Our manufacturing plant keeps up with the latest technology to ensure air and water quality. This is done because it is the right thing to do and at no extra cost to our bottom line.”

James Lesslie, assistant to the chairman at Engineered Floors, said the company can compete because “our productivity in the U.S. carpet industry has never been higher. The wages are higher, the output of carpet per labor hour is higher here due to the technology used in the U.S. and the unbridled spirit of the American worker helps offset any wage difference. Given our investment in new technology, and the fact we keep the entire carpet making process under one roof, we eliminate the wasteful inefficiencies of using multiple locations and forego shipping expenses, freight costs, etc.”

The ability to save on shipping expenses is not the only appeal, noted Roger Farabee, senior vice president of marketing for Mohawk’s Unilin division. “Domestic production allows manufacturers to offer customers quicker lead times. Most retailers and distributors are maintaining lower levels of inventory, requiring more rapid service.”

This also helps wholesalers and dealers, he added, as “dealing with imports saddles them with the negatives of having to order container shipments and experience long lead times, both of which tie up precious inventory dollars.”

Brian Greenwell, vice president of sales and marketing for Mullican, agreed. “One of the key advantages we have over imports is freight. In order to manufacture red oak in Asia, a company has to ship the raw material from America to Asia, where it’s made into flooring, and then ship it back to the states. Ocean freight has continued to increase, and this has helped level the playing field in terms of being able to bring our engineered production to Tennessee.”

Many executives rely on automation as another key element of competition. “We take advantage of automation so our people are more productive, and that helps offset higher wages,” said Al Collison, founder and president of MP Global Products. “Also, the difference paid in salary out of the country is now more than made up with freight costs.”

Allen Cubell, Armstrong’s vice president of residential sales and marketing, pointed out in many flooring products, “labor is a small part of the overall cost of the product, so the key benefits are reduced costs, greater speed to market and less inventory for us and our customers. We also benefit from being better aligned to local tastes and performance requirements. Even within a country as large as the U.S., being ‘local’ matters—which is why Armstrong operates 14 flooring manufacturing facilities in this country. Locally produced products can be key to many consumers and impacts their purchase decision process.”

In some cases, though, companies need to make difficult decisions as to whether a product is produced in the U.S. or imported, especially with the economy still outside full recovery mode. “No company in the world makes carpet more efficient and at lower costs than the major mills in the U.S.,” explained Piet Dossche, president of USFloors, “but if you are talking about creating a true handscraped antique floor where all the deeply brushed and carved areas can only be stained by hand, it would not make sense at all to manufacture this in the U.S. or Europe. The cost of the hourly wages would not make the product commercially viable.”

That is why Xavier Steyaert, co-CEO of IVC US, said, “Every company needs to go through a thorough evaluation for its specific situation. Companies have an obligation to dive into details to see if it really applies to them to the point that it makes them uncompetitive. From IVC’s experience in north Georgia, the business sense of local policy makers, the labor markets, land acquisition, etc., have definitely allowed manufacturing to be competitive. The pro-business mindset of our local policy makers, authorities and community is one of the reasons why Dalton will always be a strong manufacturing region.”

In the end, Randy Merritt, president of Shaw Industries, said much of the time it comes down to educating the consumer on the value and quality they are getting from domestically produced product.

Earlier this year, a study by the Boston Consulting Group found more than 80% of Americans are willing to pay more for domestically produced goods, with 93% of them saying it is because they want to keep jobs in the U.S.

“Shaw has been headquartered in Dalton since 1946,” Merritt said, “where we first began producing the most beautiful and high quality flooring product available at affordable and competitive prices. When this is explained in an effective way, whether through brochures or P-O-P materials, the sincerity and transparency of our local, made in the U.S. commitment is clear.”