Today, Dallas-based American Leather is a $70 million business, and it has carved a niche by manufacturing and delivering customized high-end upholstered furniture in three weeks or less. Duncan built the company on lean principles, so much so that he insists lean is his business model. IndustryWeek recently asked Duncan about his company, the importance of lean principles and his commitment to manufacturing in America. IW: Of all the possible business ideas you could pursue, why did you choose high-end furniture? BD: One of the clients that I had consulted with was involved in the furniture industry. They own their own stores, and they had a factory, and in the course of doing some work for them as a consultant, I learned about the industry. I learned that for the most part, the furniture industry from a manufacturing standpoint was still a very old approach to manufacturing -- it was more of a batch-based manufacturing mentality, and lead times were very long, even for domestic producers. ... So if you wanted to special-order a leather sofa, or for that matter a fabric sofa, probably the standard lead time for a domestic producer was 10 to 12 weeks. Eight weeks was really fast. At the time, Italy was the dominant offshore producer, subsidized by its government, and it was very price-competitive. Italian goods had an even longer lead time -- I'd say probably 16 weeks. And so our whole idea was that we would apply Japanese manufacturing methods to an old-line industry, and allow consumers to have a lot of choice -- everything made to order. So allow a consumer to come in and really customize exactly what they'd like, and then ship dramatically faster than was the norm in the industry. IW: So lean was the foundation of your business model? BD: When we started our business, our mentality was, 'If Toyota was going to build furniture, how would they do it?' Lean was our business model and our business advantage from Day 1. IW: How has the industry changed since you started American Leather? BD: A lot of our domestic competitors now do a substantial amount -- if not all -- of their production offshore, mainly in China. And when you do that, obviously it affects the lead time. And typically that model isn't really set up for custom or made-to-order business. So they're able to produce and sell a brown sofa at a much lower cost than they were four, five years ago in their domestic factories. But if you want a different color, if you want other options -- we have hundreds of options, and ultimately we have tens of millions of configurations that could be ordered from our factory at any given point in time -- that's just not typically what a Chinese manufacturing model is going to be set up to do. They're normally large, very efficient batches, but it's going to be less custom-ordered. So in some respects, we have less competition in our niche than we did say five to seven years ago. IW: What is the biggest operational challenge that you face? BD: We're two or three times more expensive than a mass-market price point because [the overall price of furniture] has gone down. And so we have to explain to a consumer why are we worth it. To do that, the pressure on us hasn't been so much to make things less expensively, but it's been to offer more choice, more features, more options, more innovation. (Duncan notes that the company now offers 87 different leather colors and approximately 400 fabrics.) So the complexity of our process today is easily two to three times higher than what we would've had say just five or six years ago. ... The manufacturing model certainly, but even just keeping track of all the data and getting everything right, is a huge challenge. The only way I think you can pull that off is through lean principles. IW: Why is it so important for you to keep your manufacturing operations in the United States? BD: There are two reasons. The first is for our business model, I think it would be very challenging to do it offshore. Certainly to do it in China with the [shipping] times and the distance over water would be very challenging. Maybe you go to Mexico -- we're not that far, we're only 300 miles from the Mexican border -- so maybe you could replicate that in Mexico. I grew up right on the border with Mexico, and it's a different country. There are just challenges to doing business in a different country, and our model is extremely demanding. Plus I just think from a communication standpoint, from a supply chain standpoint, I think that there's a good chance that it would kind of fall apart if you tried to replicate the model outside of our market, outside of the U.S. So from a business standpoint, I just think that there's a very high likelihood that it would fall apart, that it wouldn't be sustainable. And the second reason is that I love manufacturing, and I like to build things. I suppose some people would say you could buy your own factory somewhere, or have a strategic partner, but what's been more typical in our industry is that they simply outsource and just contract with somebody else to build their product. For me personally, the passion and the enjoyment is making things. And so if I wasn't making it, then why do it? ... Personally, this is only fun for me if I'm building my own products and building them in the U.S. If I had to go offshore to do that, then I think I'd just like to do something different.
|For American Leather CEO and co-founder Bob Duncan, lean is the business model. |