Optimism growing in office furniture industry

November 8, 2010
| By Pete Daly |
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Local individuals and organizations that monitor and analyze the health of the office furniture industry don’t seem to be in complete agreement at the start of November, but it sounds like there is some distinct improvement in the industry.

The 26th edition of the quarterly Michael A. Dunlap & Associates Office Furniture Industry Trends survey, just completed in October, indicates that the industry’s executives are feeling much more confidence now than in April 2009.

The Overall Survey Index of 56.65 as of October is the highest since the declines after the July 2007 Overall Index of 58.49.

“I’m very pleased in the results this quarter,” said Dunlap, whose business consulting service is based in Holland. “The improvements are almost across the board for office furniture manufacturers and suppliers. I am not surprised at the significant increases in Gross Shipments and Order Backlog, and I am delighted to see the increase in the personal outlook.”

“It appears that the supplier community is almost as optimistic as the OFMs,” he added.

Tom Reardon, executive director of BIFMA, the U.S. office furniture industry’s trade association, said their shipment volume in the first quarter of this year was 11 percent below that of the same quarter in 2009. The second quarter, however, grew by 3.5 percent, compared to 2Q 2009.

“The third quarter was up almost 12 percent” over the same period last year, said Reardon. “Very encouraging, as we’ve gone through the year, to see the shipment numbers improve as they have.”

A monthly survey compiled by Brian G. Long, director of Supply Management Research in the Seidman College of Business at Grand Valley State University, indicates the office furniture companies in the region turned in a “mixed performance” in October, according to Long.

“Although there are no obvious new problems with the market for office furniture, the industry is blessed with the revival of the industrial market, but cursed by the prevailing slow rate of overall economic growth,” he said.

Long, whose survey is not limited to furniture production, noted that automotive parts suppliers in the region are still doing well.

His survey results are based on data collected in the last two weeks of October using an index of business improvement called new orders. The greater Grand Rapids industrial economy is still good but less robust than the previous month, according to his report. 

The OFI Trends survey, according to Dunlap, provides “enough strong indicators, beginning with the April and July surveys, that demonstrate that the worst is clearly behind us and that we are finally seeing some solid signs of recovery. I think we will see this industry come out of this recession more rapidly than was previously predicted. However, it will be led by the health care and education markets, with the office market trailing well into 2011.”

The majority of respondents continue to cite the economy, increased health care costs and competition from low-cost countries as the “largest threats to the industry,” he said.

Described by Dunlap as a method of measuring the current business activity level of the office furniture industry and its suppliers, the OFI Trends Survey focuses on 10 key business activities, with respondents rating the activity level of each on a scale of 1 to 100, down to a two-digit decimal point. For example, an index rating of 50.00 reflects a neutral situation, with no change up or down. An index of 100 means that things “couldn’t be better,” said Dunlap, and an index of 1.00 is “absolutely the worst” it can be.

The business activities are Gross Shipments, Order Backlog/Incoming Orders, Employment Levels, Manufacturing Hours (Overtime vs. Reduced Hours), Capital Investment, Tooling Expenditures, New Product Development Activity, Raw Material Costs, Employee Costs and the respondents’ Personal Outlook on the industry.

In January, the Overall Index value was 50.64. In April, it had improved to 51.51. The lowest ever recorded was 41.45 in April 2009,and the average Overall Index value since the survey started in August 2004 is 54.09.

The October 2010 survey highlights are:

  • Gross Shipments jumped to 68.55, and Order Backlog has increased to 62.36. In the last survey done in July, those numbers were 64.44 and 61.73, respectively.

  • The Employment Index increased to 53.75, compared to 52.96 in July, while Hours Worked is now at 54.60, compared to 52.04 in July.

  • Both Capital Expenditure and Tooling Expenditure Indexes improved significantly in the 3rd Quarter of 2010 to 55.09 and 58.20, respectively.

  • New Product Development increased to 65.00, above the overall average of 63.58, for all 26 surveys that have been done.

  • Raw Material Costs (43.77) and Employee Costs (47.41) have improved from 1st and 2nd Quarter values, although both remain below 50.00. “This is normal,” said Dunlap.

  • The Personal Outlook Index score of 57.17 is the highest since October 2007, when it was 59.10.

The October survey was e-mailed to more than 600 individuals involved in the manufacture of office furniture, including suppliers of parts, industry consultants, and service suppliers to the industry. Dunlap said just over 10 percent responded, with responses coming from nine countries in a total of three continents. More than 62 percent of responses came from executives who are the chairman, CEO, COO, or president of their organization, according to Dunlap.

Michael A. Dunlap & Associates LLC, founded in 2003, is a business consulting service that specializes in the office furniture industry. Dunlap has had more than 30 years of experience at companies that were suppliers to office furniture, home appliance, electronics, and medical equipment manufacturers.

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