Logistics challenges, public perception change dynamics of sourcing product from China

Home Inside FCNews Logistics challenges, public perception change dynamics of sourcing product from China

September 12/19, 2016: Volume 31, Number 7

By Reginald Tucker

In recent years, momentum behind the Made in the USA movement has been steadily building as wood flooring suppliers that source primarily from China look to address quality control issues while reining in shipping/logistics costs. Amidst all the heat that Chinese manufacturers have taken in both the mainstream press and trade magazines, some companies that still import from China are working to allay the concerns that distributors, retailers and consumers might still harbor when it comes to product safety and quality.

“The concerns we’ve heard from any of these groups is really minimal,” said Bill Schollmeyer, CEO of Johnson Hardwood. “Years ago, there were many doubts about products produced in China. As quality and design improved, those concerns were pretty minimal. There was an uptick in questions about formaldehyde when the Lumber Liquidators story broke [in 2015], but I feel the impact against the more legitimate, well-known companies like Johnson was pretty minimal. It’s probably a different story for smaller, unknown companies.”

Nonetheless, large-scale changes in the sourcing of supply—particularly as it relates to duties and tariffs on some imported wood flooring products—have forced several suppliers to adjust accordingly. “We’ve always imported flooring from two of our company-owned factories as well as several contract production facilities,” Schollmeyer said. “With respect to the anti-dumping/countervailing duties, we never focused on the low-priced, commodity end of the market, so in most cases we were able to absorb the duty costs. But due to the uncertainty of the annual duty rates as well as the retroactive assessment of duties, it makes it difficult to sustain a long-term business plan. With that in mind, we’re gradually transitioning production to our newly built factory in a different country. Aside from cost savings with respect to known duty rates, we were able to upgrade production equipment, processes and technologies to help us produce a higher-quality, more attractive product. So in the end, it’s all good for us.”

Other manufacturers that import from China also stand firmly behind their products. Case in point is Eternity Flooring, which has been importing from that region of the world without incident. “We deal with a top-of- the-line factory in China,” said Doron Gal, owner and CEO. “We haven’t had any problems so far.” What’s even more telling, he notes, is his dealer partners say Eternity Flooring consistently maintains high quality levels and near-zero claims despite relatively low pricing on its various products.

Other suppliers with manufacturing operations in China attest to the quality of their products. Provenza, for example, not only has a good track record in this regard, but the company has also found a way to deliver high-margin products—something not normally associated with Chinese imports. Wood floors from Provenza may retail anywhere from $5 to $12 per square foot and higher.

“We think of ourselves as a trendsetter and the pioneer in flooring, and the products we come out with are always on the cutting edge of the industry,” Ron Sadri, principal/owner, said. “This is what sets us apart from the competitors.”

Sadri’s customers tend to agree. “Provenza is definitely a leader in style and design,” said Alan Gage, president of Tri-West, ranked No. 10 on the industry’s top 20 wholesaler list and a partner for 16 years. “They work very hard at what they do and have a good eye for product. They work very closely at the manufacturing level to make sure the designs come out the way they envisioned.”

While most companies interviewed for this story firmly support their manufacturing partners in China and stand behind their quality standards, some prefer to not draw a lot of attention to the fact they import product from that country. “We don’t want to promote ourselves as a ‘Chinese supplier’ in that way,” one executive told FCNews.

Reshoring movement strong

Industry experts believe there will continue to be a need for companies to import from China as well as other Asian countries. They cite an increasingly intertwined global manufacturing and financial marketplace as well as strong consumer demand for lower-priced products, which in turn negatively impacts margins. That being said, there’s no denying the strong movement the industry has seen toward “reshoring,” which is largely defined as the gradual return of manufacturing operations—and jobs—back to America as domestic companies re-evaluate the cost-benefit equation of outsourcing production.

This phenomenon is taking place across a diverse range of markets and industries, including hardwood flooring. Industry members report the benefits of keeping hardwood production stateside (i.e., faster delivery times, lower inventory commitments, increased quality controls, closer proximity to resources and R&D) vastly outweigh the once-significant labor and material cost savings achieved by moving production offshore.

A prime example was Armstrong’s decision to shutter its Kunshan, China, facility and onshore its scraped engineered hardwood flooring to the U.S. back in 2014. “With energy and transportation costs accelerating at a faster pace than exchange rates and import fees, it is more cost effective to produce in the U.S. for domestic consumption,” Joseph Bondi, vice president of North America residential floor products, told FCNews at the time. “This is true not just for hardwood but LVT and other products.” In the months leading up to that move, Armstrong began investing significantly in its Somerset, Ky., engineered plant, where it manufactures the popular American Scrape hardwood line. “We now have a team trained in the manufacture of scraped products—two years since the launch of American Scrape—that can make other scraped products in our portfolio,” Bondi said.

Another case in point was the decision by Kentucky-based Somerset Hardwood Flooring to discontinue sourcing of its engineered flooring products from China and instead construct a state-of-the-art plant dedicated to producing engineered hardwood products in its own backyard. At the time it was considered a bold move for Somerset, and the industry took notice. Distributor Elias Wilf realized a dramatic difference when Somerset began producing its new engineered products right here at home. Although the decision entailed millions of dollars in capital investments to build a modernized, state-of-the-art plant in Crossville, Tenn., the expenditures were worth the risk.

“When Somerset moved its engineered production from China to the U.S., it was a fundamental change based on the quality of what they were getting there vs. what they could make stateside,” Jeff Striegel, president of Elias Wilf, told FCNews.

For Somerset, the decision to reshore production of the once-outsourced engineered line meant making a strong statement to distributor partners, the industry and consumers. “We manage the raw materials and supply chain from the forest to the finished flooring, and we are personally involved in all aspects of quality control,” said Steve Merrick, Somerset president and CEO.

Another exemplary reshoring case study entails Adairsville, Ga.-based MaxWoods. After dealing with issues from its mill source in China, MaxWoods turned to American OEM, a domestic supplier, for help. Launched in 2014 by Don Finkell, former president of Anderson Hardwood Floors, American OEM stepped in and put together a complete program for MaxWoods that not only entailed product and inventory but also sample development, merchandising and customer service support.

Some U.S. manufacturing advocacy groups and associations that closely track reshoring activity are convinced the trend is not only real but also sustainable over the long term. One such agency is The Reshore Initiative, which promotes factory-location choices in the U.S. By the group’s count, approximately 60,000 U.S. manufacturing jobs were created in 2014 as a result of reshoring and foreign direct investment.

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