Steelcase Needs To Modernize

April 30, 2004
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GRAND RAPIDS — Balancing the need to modernize the company in a fiercely competitive global business world and retaining a hometown commitment is the task facing Steelcase Inc. President and CEO James Hackett.

As the world’s largest office furniture maker continues to restructure in the wake of a devastating three-year industry sales downturn that’s finally beginning to turn around, the Steelcase chief executive vows that the changes that occur will come with the interests of Grand Rapids in mind. The downturn led Steelcase to reduce its West Michigan work force from approximately 11,000 to about 5,100.

“I want to make the point that this is home and home is where the heart is, and so my heart is with the people who were affected, but we have other things to think about,” Hackett said last week during an address to the Economic Club of Grand Rapids.

“We have to modernize our business,” he said. “It’s the thing we have to do to compete.”

Continued restructuring of Steelcase’s manufacturing operations and supply chain through global sourcing and reducing production space as productivity and efficiency increase is needed to keep up with competition from, and to take advantage of cheap labor in, markets like China and India, where millions of low-cost manufacturing workers reside, Hackett said.

Cheap overseas labor markets, automated Internet-based supply systems and global business practices “all shifted simultaneously” and emerged rapidly. They “changed the supply dynamics dramatically,” forcing Steelcase to undertake changes in its operations, he said.

The need to respond to those fundamental changes runs headlong into a desire to remain loyal to Steelcase’s hometown roots, Hackett said.

“This is a social question. The economic question has already been settled,” Hackett said. “My commitment as CEO of Steelcase is to modernize the operation and stay true to our values, which is a company that’s a good neighbor, that you can trust, that’s committed to the environment, that believes in taking care of people.”

Even as Steelcase globalizes its supply base, there remains a need to assemble products in the United States and West Michigan in order to meet the made-to-order nature of the industry, he said.

“There’s a demand for jobs here in West Michigan,” he said.

Steelcase in March reported revenues of $2.34 billion for the 2004 fiscal year, a 7.3 percent decline from the $2.52 billion in FY2003. Steelcase reported an annual net loss of $23.2 million.

Since the industrywide depression began in 2001, Steelcase’s annual sales volume has fallen 40 percent, or $1.54 billion, from a peak of $3.88 billion.

Within 22 months of hitting that peak, Steelcase’s business was falling off like never before, Hackett said, leaving the company with excess capacity and an inefficient operation. Since then, the U.S. economy has lost millions of jobs and is seeing more manufacturing positions move offshore.

Rather than bemoan the loss of current manufacturing jobs to foreign countries, “We should be working on the question of what we should do to help those people” who’ve been displaced and how to create new jobs, he said.

“It’s building a false sense of security that we can outdo the economics of this. We can’t,” Hackett said.

In responding to the downturn, Steelcase has lowered its break-even point by more than $1 billion, jettisoned 7 million square feet of production space and reduced global employment by 11,000 positions.

“We probably will be a statement of how companies make this transition and how to do it globally,” Hackett said following his Economic Club address.

Steelcase is positioned to meet the coming rebound for the industry through a collection of furnishings and technology products for the office that are designed to help people work more effectively and efficiently both on their own and in teams, he said. That push, combined with competition for talent, will elevate Steelcase from “the bottom as a furniture builder” to a top vendor that partners with clients in planning and organizing office spaces, Hackett said.

Business should improve as job growth in the United States improves, Hackett said.       

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