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Resilient: Domestic vs. imports – Manufacturers weigh in on best methods

January 19/26, 2015; Volume 28/Number 15

By Ken Ryan

A number of major flooring companies have recently invested millions of dollars to onshore their LVT production to the U.S. as a way to control costs and accelerate speed to market. However, other large suppliers continue to import products, trusting in that business model because of long-standing factory alignments, manufacturing capacity and experience.

FCNews spoke to suppliers on both sides to get their perspectives.

Domestic advantages: Shorter lead times, reduced working capital

Screen Shot 2015-01-19 at 3.54.36 PMSeveral of the industry’s leading flooring manufacturers—including IVC, Mannington, Armstrong and Shaw—are building LVT plants in the U.S. to try and satisfy the insatiable demand for luxury vinyl tile, a red-hot market that is expected to continue to grow at a rapid pace for the next few years.

But why are they doing this? To create jobs? To burnish their Made in the USA stories? Yes and yes. But beyond that, it’s also about business. Significant benefits such as shorter lead times and reduced working capital allow these manufacturers to realize a more competitive cost structure. At the same time, onshoring does not tie up money for inventory and warehousing.

“The main advantages of producing LVT domestically are that we will be able to provide faster turnaround time, better quality and better service to our customers— both current and future,” said Ed Duncan, president of Mannington Residential.

When it purchased Amtico, Mannington sourced 100% of its LVT from China. The company found the supply chain difficult to manage. By onshoring, Mannington said it is able to significantly reduce the long lead times of sourcing from China to relatively minuscule lead times domestically. Another advantage: Mannington uses a continuous rotocure process that feeds up to six layers into a roller press, resulting in faster, less labor-intensive production. Therefore, Mannington’s LVT is available to ship faster, becoming more cost effective.

In early 2014, Shaw announced it was exiting the area rugs business and repurposing the Ringgold, Ga., plant for LVT manufacturing, a $100 million investment. Carr Newton, the company’s vice president of resilient, said investing in domestic manufacturing allows it to further enhance product development, service and overall customer satisfaction.

“We are fine tuning the details of the production rates and capacity,” he noted. “The new facility will augment our supply with domestic product while we continue sourcing LVT from key supply partners.”

Donald Maier, Armstrong CEO, said the company’s under-construction LVT plant in Lancaster, Pa., will improve its competitive edge on quality and service by taking out freight and duty costs while increasing speed in delivering innovation and leading designs to customers. “We were a little late to the LVT game, but this state-of-the-art plant in Lancaster will give us a cost position second to none and will allow us to bring innovative products of the highest order to the market.”

Armstrong’s new LVT plant will allow it to be more cost competitive and responsive to the needs of the marketplace, Maier noted. “Our new line will use a proprietary technology developed by Armstrong. Ours is a completely different process; there will not be a line like this anywhere in the world. This will allow the luxury vinyl tile to be made with less labor than other manufacturers’ methods require.”

As an illustration, Maier said it takes 10 weeks for LVT to be shipped from China to an Armstrong distribution center in the U.S.; with the new line it will take about five minutes. “Not only will that be an exponentially faster trip, that means it will be a far cheaper trip. This strategy of putting production in the same place as customers is an approach Armstrong is using worldwide.”

Flooring executives said there is no doubt that price will be under pressure as supply is added in North America. As such, being a low-cost producer is going to be critical. However, as more supply comes on stream, product features and benefits, in addition to styling and quality, will be more important differentiators over and above speed to market and reduced capital advantages.

Companies like Mannington believe their heralded innovation and styling will help separate it from the pack. According to Duncan, Mannington has been successful because “we’ve been able to stay ahead of the competition in both of those areas. It’s a core competency that we stay true to. Our investment in domestic LVT manufacturing is evidence of our belief in the strength of the category’s future.”

More big news in domestic production came in 2014 when IVC US broke ground on a luxury vinyl tile and plank plant in Dalton. The 300,000-square-foot site will enable the company to keep all of its domestic manufacturing activities on the same grounds. It is anticipated to be completed and fully operational in the first quarter of 2015. An IVC spokesperson told FCNews at press time that the company was not yet ready to provide updates on its domestic LVT plant or its plans for domestic production.

And with good reason, as Mohawk announced on Jan. 14 that it was acquiring the IVC Group.

Import advantages: Manufacturing capacity, long-standing alignments

Screen Shot 2015-01-19 at 3.54.45 PMThe majority of LVT sold in the U.S. today is sourced out of Asia, despite the inroads made by domestic manufacturers building plants stateside. And, according to experts, the import market figures are to remain vibrant for years to come.

A large established infrastructure in Asia and long-standing factory relationships and partnerships dating 40-plus years give companies like Metroflor an advantage in importing, according to Russ Rogg, CEO.

“From our very first joint venture with a Taiwanese factory in the late ’70s to subsequent joint ventures with two additional Chinese factories that materialized in the ’80s, the company has built significant manufacturing capacity and technological capabilities that would be difficult to replicate in the U.S.,” he said.

Technological capabilities include hot press, a method that allows a company to react to customer needs with smaller minimum order quantities, numerous format sizes, varying gauges and wear layers, and a number of embossing textures.

Today, Metroflor uses as many as eight manufacturing facilities across Taiwan, South Korea and China, each specializing in particular product types and possessing unique technologies that Rogg said Metroflor can leverage in product development. From these sites the company can coordinate design development with its print suppliers, perform regular quality control inspections at its factories, handle all logistical arrangements for the containers it ships across the world, and conduct product testing at its lab in China. “This diverse capability is a definite competitive advantage and one that could not be achieved through a single factory, regardless of location.”

Raskin Gorilla Floors is another LVT importer that relies on a long-term relationship with its Chinese factory. “Our factory’s 40 years of experience is a key strength, where newer domestic factories will be starting on day one when they actually produce their first pieces of LVT,” said Michael Raskin, president.

Raskin said the company’s loose lay/perimeter glue products like Elevations, Loft and Concrete Alternatives require a much more sophisticated manufacturing process. “We have spent years engineering the machinery to perfect this process. We believe this will continue to give us a competitive advantage to deliver our unique multi-layer construction.”

Referring to possible issues with domestic production, Raskin said, “With any factory there are issues that arise with operating and maintaining equipment. People take for granted how long it takes new factories to get production lines up and running efficiently.”

Raskin stocks product in a Georgia warehouse, which allows the company to maintain the proper depth of domestic inventory support. “The philosophy is depth in the right products instead of supporting SKUs with less turns domestically, in combination with shortened lead times from our factory. Our efficiency improvements are key to competing with domestic suppliers.”

EarthWerks also continues to see the benefits in importing product over domestic production. Jonathan Train, president and CEO, said that since the overwhelming majority of design layers in LVT comes from overseas, most U.S. factories will have to source from out of the country as printing capabilities here have not yet been developed. “Printing capacity still exists overseas, which, in our opinion, is the most critical part of the process because style and design are the most important pieces to differentiate designs. Until all pieces of the puzzle are made in the U.S. there will be some difficulties in ensuring timely production.”

One area in which domestic production would appear to provide an advantage is lead-time/turnaround time from order to receipt of goods. However, Rogg maintains this “disadvantage” for importers can be overcome through supply chain investments. Metroflor established a distribution center in Shanghai two years ago in which it inventories finished goods on its entire Engage (Clic) portfolio. The company’s distributors can build containers from this inventory and receive goods in as little as two weeks (West Coast), he said, but in most cases, four weeks from the PO date. “This is a significant advantage versus a typical 12-week lead time.”

Executives who rely on imports said there remains an undeniable cost advantage to producing LVT in Asia vs. other parts of the world. Yes, there are shipping costs associated with this model that must be taken into consideration, but many believe the combination of Asian production expenses and the associated shipping expenditures still provides a better value model than the cost of domestic production.