Latest Industry Data Shows Improvement for Furniture and Related Wood Products Sector

While the furniture and related wood products manufacturing sector has struggled to improve its performance over the past decade, data from the most recent Annual Survey of Manufacturing (U.S. Census Bureau) published in January of this year, shows several encouraging and notable signs of improvement. While some of the gains appear small, they are significant when considering the size of our industry and when comparing it to other manufacturing sector companies.

Although the industry continues to contract in some areas such as the number of companies, 2015 showed meaningful gains in key areas such as total revenues and revenue per employee. It also shows gains in total employment numbers. Indeed over the years from 2102 to 2015, the rate of contraction slowed as the rate of improvement seems to be gaining strength. The data suggests that the industry may now be in a steady recovery as 2015 posted the most encouraging numbers.

Companies and Employees

The number of furniture and related products companies (NAICS 337) declined in 2015 to 17,624, down from 17,735 in 2014. The loss of 111 companies represents 0.6% if the total, but has slowed from the 3.4% rate of decline for the period beginning 2012. As a percent of total manufacturing companies in the U.S. the wood industry has declines 0.2% to 5.2%, down from 5.4%.

Despite a decline in the number of industry companies, employment in 2015 increased for the first time in three years. Total wood industry employment reached 345,920, up by 10,433 over 2014, a gain of 3.1%. Also of note is that our companies are getting bigger: the average number of employees per company increased during 2015, from 18.92 to 19.63.

While the 2015 data reveals some interesting and positive insights with respect to employment as companies apparently absorbed workers displaced by closures, it also says something about demand for industry goods.

Revenues

The most encouraging data from the 2105 ASM report is in the total revenues for the industry. In 2015 industry revenues as measured by total shipments increased by 5.3% or $3.9 billion to a total of $73.5 billion. This increase is the largest seen during the past four years and is more than double the increases seen the previous three years. The average revenue per wood industry company increased from $3.9 million to $4.2 million.

It is also worth noting that when compared to All Manufacturing (NAICS 31-33) the wood industry fared much better as the combined group posted lower 2015 revenues: down 1.3% from prior year.

These positive numbers indicate, despite the contraction of the number of businesses, that demand for industry output is indeed on the rise; a very welcome sign for business owners and leaders.

Revenue Productivity

Equally as encouraging as the revenue data are the numbers related to productivity. Again in 2015, the revenue per employee increased by a meaningful 2.4% to $212,431 per employee. Improvements in this measurement have increased in each of the past three years, but still lag well behind the All Manufacturing Group which although posting a decline of 7.5% for 2015 still outpaces the wood industry by more than double: $496,733 per employee.

Although the contributing factors for the gross disparity in revenue productivity between the wood industry and all other manufacturing sectors remains unclear, the 2015 AMS data does shed some light on areas where we might look for opportunity.

Four Important Differences

In analyzing the data, three areas of further investigation are indicated. First, the wood industry is more labor intensive and less material intensive then All Manufacturing by comparison. Wood industry production workers comprise 74.3% of the total workforce versus 69.9% for the All Manufacturing group. This percentage is increasing for the wood industry while it is decreasing for the all other manufacturers.

Next, the wood industry spends a greater percent of its revenue on wages for production personnel than does the All Manufacturing Group: 11.5% versus 6.3%.

Third, wood industry companies spend less as a percent of revenue on total materials than do its peers in the All manufacturing group: 47.1% versus 56.2%. This data coupled with the production worker data suggests that non-wood industry manufacturers are more material intensive while wood products producers are more labor intensive. This data may suggest that the difference may be one of the effective application of technology – in both the front office as well as on the factory floor.

Lastly, the wood industry, and I think most importantly, while spending virtually the same percent of revenues on information technology, there is a stark difference in their respective spending when measured on a per-employee basis.

In 2015, wood industry manufacturers expensed $514 per employee on information technology, its counterparts in the all manufacturing group spent more than double that: $1247 per employee. In 2015, wood products manufacturer’s expensed $178.1 million on information technology. They capitalized another $109.8 million on computers and peripheral data processing equipment.

In total industry companies invested $287.9 million on information technology. Yet, we still lag substantially behind other manufacturing sector companies when it comes to revenue productivity. One has to wonder why.

Wood industry companies showed some real gains and there are some signs that we can be optimistic about the future for our industry. At the same time, there are some indicators of opportunity for improvements that will further stabilize and grow our industry companies.

Benchmarking our performance helps us all better understand where and how to drive operating improvements in our businesses. Using data to help you and your team better understand the dynamics of your cost structures will help you make informed decisions and prioritize the work being done to improve your performance. In the end, our goal is to strengthen the industry…one company at a time.

If you need help assessing your performance or prioritizing your improvement initiatives, I can be reached at dshultz@jemoran.com or 608.279.8089

Sources

https://www.census.gov/data/tables/2015/econ/asm/2015-asm.html

https://data.bls.gov/timeseries/ENUUS00020531-33?data_tool=XGtable