Shop Talk

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While business conditions remain favorable, today’s cabinet shops face several key challenges, including shortages of competent labor and the rising costs of health care. Additionally, fast-changing technology, increases in material and gas costs and fierce competition from cheaply priced imports are forcing smaller cabinet shops to re-examine their business practices in order to stay competitive.

These were the findings of a recent spot survey of cabinet shops, which polled a sampling of cabinet shops across the nation about their business practices, current market conditions and future plans.

The vast majority of those polled expressed optimism about the market, with some 86% of those surveyed rating current business conditions as “excellent” or “good,” compared with only 13% who rated conditions as “fair” and a mere 1% who saw them as “poor” (see Graph 1).

In light of these positive business conditions, it’s no surprise that shops were looking at increasing everything from staff size to number of door styles carried in order to meet growing demand for their products and services.

Labor Shortages
But while growth seemed to be on the horizon for many shops, staffing issues were cited as a key issue faced by survey respondents. Of the more than 130 cabinet shops surveyed, 35% said they’d increased the number of employees in their shop in the past 12 months (see Graph 2), with respondents saying their shops currently averaged 12.4 employees. However, many more survey respondents said they’d like to increase their staff…but couldn’t find the right people.

Indeed, the problem for most was less about whether or not to add staff, but rather how to find competent labor.

“Finding and keeping skilled and motivated cabinetmakers is a real challenge,” said Daryl Nigon, president of the Rochester, MN-based Nigon Woodworks, Inc. His firm’s solution? “We are working with the schools [to find trained people] and buying CNC equipment [to minimize staffing requirements].”

“Qualified workers are hard to find, and this is an ongoing problem,” agreed Richard Rix, owner of Distinctive Woodworking in Fresno, CA.

“The problem stems [in part] from no one teaching the trades anymore,” he believes. “In fact, a lot of schools have totally eliminated shop classes [and related trade programs]…you have to wonder, in 10 years, who’s going to build anything?”

Steve Nicholls, KBDN columnist and president of the Oakland, CA-based Mueller Nicholls, concurred: “Getting your shop filled with skilled labor is like having a bill go through the Senate without any amendments – it just doesn’t happen anymore. As our high schools and colleges move away from vocational training, the only option we shop owners have is to train from within.”

Rix believes there’s another answer. “The automation of computer equipment allows you to have a smaller work force and have a production level three or four times that of your work force. It’s an investment comparable to that of your payroll, except [once it’s paid off], you don’t have to keep paying it,” he noted.

“I used to have five guys [working for me at my shop], but now that my shop is totally automated, I’m down to one guy. And I’ve taken him off my payroll and work with him through an employment agency.” This, he points out, not only saves having to pay for Workers’ Compensation and health insurance, but also eliminates the possibility of wrongful termination suits, in cases where the work dries up and a shop has to let someone go. “There’s no question about it – automation is the way of the future.”

While not every shop is jumping on the automation bandwagon, Rix believes this is partly because not all shop owners are seeing the big picture. “There’s a misconception that if you buy a large piece of equipment, you have to use it 40 hours a week [to justify the purchase]. But if it produces in two hours what used to be produced by two guys in two days, it still [may make sense] to invest in it,” Rix noted. “You don’t have to run it 40 hours to cut costs and make it pay for you.”

However, he added one caveat: “Automating your shop requires a computer literate work force, which means investing in training and living with the learning curve of getting people up to speed.” But he also believes the results can be well worth the short-term inconvenience.

Are other shops following his advice? Some certainly are. In fact, of those shops surveyed, a little more than one fifth (22%) said they have added CNC or computer-driven equipment in the past 12 months. And, another 22% said they expect to add CNC or computer-driven equipment over the course of the next year in order to speed up production processes and mitigate the need for more staff.

Others noted they were addressing the labor shortage and rising cost of health care by outsourcing more work.

A number of shops also reported investing more time and money in training, apprenticeship programs, etc., but as one put it, “there just aren’t that many applicants in my area.”

With a smaller pool of available and qualified applicants, competition for top-level talent has become fierce in many areas, and cabinet shop owners said they were increasingly being forced to offer enhanced benefits and perks to try to retain quality employees. Some now provide quarterly bonuses, while others have focused on planning more “fun events” to create a more employee-friendly workplace.

Nicholls says at his own shop, “Providing good health care coverage for our employees and their families has been one of the single best ways we have been able to retain employees.”

Indeed, many shops believe that offering more and better benefits is essential to finding, hiring and retaining skilled employees.

Unfortunately, this is something of a Catch-22, as the rising costs of health care make it increasingly difficult for shops to keep paying these benefits. As one shop owner noted, “We keep shopping for the best rates for health insurance and Workers’ Comp, but the costs are astronomical, and as a small shop, we’re getting killed on this.” Still, he noted, “We don’t have a choice. If we don’t offer health insurance, we risk losing staff. So we just absorb the costs and hope they don’t go any higher.”

Sophisticated Shops
Adding to these challenges is the fact that cabinet shops are feeling pressure to become more diverse and upscale. In fact, while the perception of the cabinet shop has long been that of a small operation servicing a limited client base, today’s shops are becoming more sophisticated, with a larger customer base and a greater breadth of offerings.

More than half (52%) of respondents said they have a complete showroom (see Graph 3), with the vast majority saying the bulk of their work comes from builders/contractors and homeowners/consumers, who collectively account for 87% of their sales (see Graph 4). Another 7% of their work comes from commercial/retail jobs, while 3% comes from kitchen/bath dealers, 2.5% comes from other sources, and only 0.5% comes from home centers.

And sales are definitely on the upswing: More than half of those surveyed expected to increase their sales to homeowners/consumers (51%) and builders/contractors (52%) in 2007, while 15% said they expect to increase their sales to kitchen dealers in 2007, 23% expected to increase sales to the commercial/retail sector and 6% said they expected to increase sales to home centers/building supply dealers.

Not surprisingly, more than half (50.3%) of shops’ sales come from kitchen cabinets, a number that cabinet shop owners expect to stay consistent for 2007. Another 13.3% of their business comes from institutional cabinets and commercial work, while 12.6% comes from bath vanities, 8.2% comes from entertainment centers, 6.6% comes from countertops and 3.8% comes from home office furniture (see Graph 5).

When asked what type of work they handle, 77% said they take on trim work (moulding, crown, baseboard, etc.), 63% cited furniture, 62% mentioned closet work and shelving, 32% noted paneling, 23% said they handle boxes/carcasses and 17% mentioned refacing.

Cabinet shops also continue to buy out drawers, according to the survey, with 38% saying they currently buy out drawers, and 17% more saying they plan to in the foreseeable future. Of those who report buying out drawers, 85% are buying out between one and three kinds, 3% are buying out between four and six kinds, and 12% are buying out 10 or more different kinds of drawers.

Shops also seem to be getting more high tech, with a whopping 61% of respondents reporting that the amount of computer-generated detail work done by their shop is increasing (see Graph 6). The other 39% said it was staying the same – and no one saw this decreasing.

Another function of the growth reported by today’s cabinet shops is that the majority (54%) are planning to accommodate customer demand by increasing the number of door styles they carry over the next five years. By contrast, only 1% expect to decrease their door style offerings.

More than a third (36%) noted they are also considering adding a line of manufactured cabinets in the next five years in order to meet demand (see Graph 8).

Other Issues
When asked about the most significant challenges facing cabinet shops, survey respondents had plenty to say. From the impact of rising gas prices and increased involvement from the EPA and other governing agencies to time management issues and problems with customers who don’t understand the true meaning of “custom,” shop owners reported a host of challenges.

While most agree that labor shortages and the rising costs of materials and health insurance are the most pressing issues, these certainly aren’t the only challenges today’s shops face.

For instance, one shop owner cited time management and increasing profits as his two top concerns. He stated, “To address the time issue, [we need to do] more effective ‘batching’ of work, streamline processes and [focus on] mechanization. To address profits, we need to focus on more accurate job costing, elimination of waste in both time and materials and better purchasing.”

Another shop owner pointed out, “It’s a real challenge to provide the breadth of product offering that is equivalent to that offered by large manufacturing companies.” He suggests that the answer to this challenge involves playing to cabinet shops’ strengths. For instance, he noted, “We can and do provide greater continuity and quality of personal service to tailor the product to the individual need, and build customer confidence long term. So that’s what we try to focus on promoting.”

Many shop owners also mentioned the need to educate their clients to the true meaning of “custom.” As one explained it, “We do completely custom work, and we see the lack of quality control that’s [evident] in the big manufacturing plants. But people don’t always understand the difference…and that quality and craftsmanship are worth paying more for.”

Another shop owner agreed: “As a custom shop, we are faced with having to justify our cost against semi-custom lines of cabinets.” Sometimes, he believes, that just means educating clients to help them understand the benefits of true custom work. Unfortunately, he adds, “Sometimes it also comes down to budget. This year, we are adding two semi-custom lines to our custom cabinets. That way we’ll be able to work with any client’s budgetary needs, at times using custom or semi-custom, and at other times using both to create the desired look.”

Educating clients can also be about getting rid of misconceptions. As one shop owner stated, “We’re working at showing the market that ‘green’ doesn’t mean inferior or settling for lesser quality. And we’re educating ourselves in order to show others the [value] of custom work.”

Other shop owners cited such key challenges as dealing with competitors’ underbidding, keeping up with the growing array of door styles and having all the necessary appliance information available so cabinets can be built to fit.

In the end, though, the issues cited seemed to be mostly about growing pains – and those surveyed admit that there are worse problems to have than growth-related challenges. As one points out, “We’re getting bigger and more successful, and that comes with all sorts of challenges. But it certainly beats the challenge of not having enough work!”