Made in Dallas

Watch out China. CEO Bob Duncan applied the Japanese model of manufacturing to furniture making, and American Leather has been successful ever since.

AMERICAN MAN: Thanks to innovative thinking, Bob Duncan of American Leather is sitting comfortably, despite a declining U.S. furniture market.
portrait by Dan Sellers

Bob Duncan stands next to a sophisticated, impressive water jet cutter. The hulking machine looks like an oversized air hockey table surrounded by a three-foot-tall fiberglass shielding. As it operates, the jets cut sharp as lasers, shooting an extremely fine, super-pressurized stream of water that can slice through materials as hardy as marble and steel.

Today, however, the machine sets about a less-Herculean task. In Duncan’s furniture factory in southwest Dallas adjacent to Mountain View Lake, the water jet carves oddly shaped pieces of a cardboard-like material designed to fit into the backs and bottoms of leather furniture.

Duncan admits the use of the high-tech cutter is a little over the top—the industrial equivalent of killing an ant with an elephant gun.

“It is a real overkill in this application,” Duncan says with a laugh.

The CEO of American Leather squats next to the machine and watches the animated jet dart back and forth, cutting dozens of pieces every few seconds. There is a look in Duncan’s eye that seems to offer a simple reason why the company uses the water jet for such a facile application: It’s because it can. After all, it is a really cool contraption.

“We’ve recycled this machine,” Duncan says. “It does cut leather but it doesn’t cut it nearly as fast as we had hoped it would. It was a failed leather experiment, but we had this machinery, and we thought, ‘Hey, let’s use it to cut this material.’”

There’s a reason Duncan sounds more like the type of guy who would rather be in shop class than steering a company in an industry under siege: It’s because he is. Duncan, a manufacturing engineering graduate of the University of Texas, is a CEO who treats the office like a huge garage workshop. Within the four walls of American Leather’s tilt-roof warehouse factory is a collection of some of the most state-of-the-art machinery ever created for the seemingly simple tasks of cutting, measuring, and sorting.

THE TAKEAWAY
1. Machinery and technology can save American manufacturing.

2. Using Japanese methods of yesteryear help companies compete with Chinese manufacturing today.

3. Knowing what your company does is almost as important as knowing how it does it.

Individually, the noisy machines are sources of envy and wonder for anyone familiar with a drill press and miter saw. As a whole, the cutting-edge technology is the backbone of Bob Duncan’s business plan for American Leather, a manufacturing model that does more than distance the Dallas company in terms of manufacturing, quality, and design from its domestic peers. As the furniture world is turned on its head with the sudden arrival of the Chinese manufacturing giant, American Leather’s furniture lab may have stumbled upon a model for saving American manufacturing.

Charles Eames and harry bertoia are furniture-designing icons who have inspired many manufacturers to get into the business. Bob Duncan, on the other hand, looked to Toyota. He took his cue from Taiichi Ohno and Shigeo Shingo, the pioneers of the Japanese modular manufacturing styles that took the United States by storm during the 1980s, around the time when Duncan was leaving school and entering the workforce.

“Japanese was in vogue in the late 1980s,” Duncan says. As a manufacturing consultant fresh out of school, “I got to meet a number of executives of larger [furniture] companies at the time who said, ‘That’s neat, but we could never do it in our factories.’ And that intrigued me.”

Duncan found a few partners who were similarly intrigued and launched American Leather in 1990 with a business plan he charitably describes as “rosy-eyed.” The idea was to do exactly what the chief execs of the competition said wouldn’t work: applying the lean manufacturing styles of the Japanese, with their just-in-time work-scheduling, low inventories, and modular structuring, to the furniture industry. Duncan, a man with a boyish grin who still peers into the powerful water cutter as if it were the front window of FAO Schwarz, came up with a smarter factory.

The factory floor of American Leather hums with the whirring of sewing machines and high-powered drill cutters. To the untrained eye, the sight from above seems to be what you would expect any factory to look like: long rows of seamstresses, piles of half-built furniture surrounded by packs of men, hammering, stapling, pulling on dark, rubbery fabric.

Duncan points out yellow tape on the floor, marking off large squares surrounding the work stations. The tape groups each selection of sewers and assemblers into a unit he calls a “focused factory.” The one big factory is actually several smaller ones.

BY THE NUMBERS
American Leather

$1.1 million
Amount of sales with 20 employees in American Leather’s first year, 1990


370
Number of employees today, representing 21 different nationalities


2,500
Number of hides inventoried at any time


12
Number of tanneries supplying leather, in Sweden, Germany, Italy, Brazil, and Argentina.

“The mentality is a focused factory layout or cellular manufacturing,” Duncan says. “We try to encompass into each of these mini factories as many of the operations as possible. For example, sewers sew, upholsters prep the piece, put on the legs, even package—each is designed to produce a family of furniture similar in how it is built.”

Rather than traditional manufacturing methods that try to maximize the workers’ efficiency by producing a lot of the same product at once—called “bulk” manufacturing—Duncan’s method allows for individual pieces of furniture to be built consecutively, as if each piece was being made by one craftsman with forty hands.

“This is a true first-in, first-out,” Duncan says. “We don’t care what you order or when. We’re not going to wait until there are 10 orders for red sofas before we build red sofas.”

By categorizing each task, there is no need for individual pieces of furniture to sit around and wait for a run of similar types.

For the sake of comparison, Duncan summarizes the processes of other manufacturers. “Sometimes the sewing department is in a different building or a different city, and they get brought a week’s work at a time,” Duncan says. “It only takes eight to 12 man-hours to build one piece of furniture. Why is it taking 10 to 12 weeks to get my order shipped?”

Duncan says American Leather’s structure allows them to go from  an individual order to finished product in about a day and a half. The remarkable production speed distances American Leather in the marketplace—domestically and worldwide.

The consequences of this rapidity of production trickle down the industry. For Duncan, it means he can get his product into stores faster and save money on creating expensive inventories. For the retailer, they sell a high-end product without having to create inventories of their own or guess their customer’s desire.

Speedy delivery is only half the equation in american Leather’s success.

In the early 1980s, leather furniture accounted for only around one to two percent of the furniture market share. It had grown to about 12 percent when Duncan and his partners founded American Leather. At the time, Europe was leading the growth and supplying the demand thanks to an inexpensive labor force. Duncan knew he could easily outpace the competition in terms of speed to market—but not price. So American Leather had to come up with another way to justify the 60 percent more customers would have to spend on a piece of American Leather furniture. Duncan had to concentrate on more than what a couch cost or how long it took to build. He also had to focus on how it looked.

“I approached [the industry] as an engineer and it took me about five years to figure out, ‘Holy cow, I’m in a fashion business,’” he says.

WITH LEATHER: Among hundreds of thousands of designs, American Leather offers the Clever chair and ottoman, Cabo sectional (above), and Sabina chair.
products courtesy of Michael Burns and Associates

To truly set the company apart, Duncan turned to style.

“Once I figured out we were a fashion business, then let’s make fashion important,” he says. “There weren’t that many companies innovating at the time in terms of fashion, other than the Italian companies. If we could become really known for fashion and for product, people would look to us.”

Duncan hired a number of designers known in the fashion industry, such as John Mascheroni and Vladimir Kagan, but almost as important, he set about implementing fashion—and the idea of variety—into the way things were made on the factory floor.

American Leather became the first furniture manufacturer to go completely digital, storing patterns and designs in computerized cutters that would allow the average worker to create an incredible amount of variety without the cumbersome tools of the past like wooded templates, paper, and scissors. The result was a speedier and more efficient way to create American Leather’s customized product lines: families of furniture that can be ordered to specification in terms of style, color, leather type, and features.

“Everything we cut here, whether it is wood or fabric or leather, is cut by some sort of computer-controlled devise,” Duncan explains. “It gives more flexibility. There are 750,000 possible configurations of furniture styles that we could be asked to build on a given day. Throw in the different types of leather, and it gets to tens of millions of possibilities. The computers can keep track of that.”

The computers also allow for a complete maximization of material used, which can be tricky in the leather business since each hide is unique.

“Leather is by far the single-highest cost component for us because labor doesn’t drive us,” Duncan says.

A laser projection pattern nesting system allows for maximized use of natural cow hides, and what scraps are left over are resold by the pound to manufacturers of small leather goods. Wood scraps are also resold as mulch for brick makers. Everything in American Leather’s factory is fast, efficient, and precise.

“We’ve been 100 percent digital for six or seven years, and it is really the only way we can manage that complexity,” Duncan says.

To get a sense of what has happened to the American furniture industry you have to leave Dallas and drive 16 hours east to High Point, N.C. Each year the little town of 92,000 hosts the major national furniture trade show. High Point is the Wall Street of the furniture business, the place where anyone who has something they think you might want to sit on, eat on, or lounge in needs to go to find a buyer or a retailer.

But to see how the industry has truly changed, you might also need a time machine. While wood furniture is the tradition that defines the town, it may not remain in High Point for long.

“Las Vegas wants to take over High Point,” Duncan says.

The reason, on the surface, is that Las Vegas can sell itself as a place that was conceived for convention-style business, where the desert air has the uncanny ability to lubricate wallets.

But the reason Las Vegas has been so successful marketing itself  to the furniture industry is not about hotel space, slot machines, and strip clubs.

It’s about China.

Ten years ago, High Point was at the center of the wood furniture manufacturing world. Five years ago, China, with its cheap labor, cheap materials, cheap everything, moved into the picture and stripped the United States—taking wood furniture away from its artisan roots in places like High Point and moving them toward the glitzy, frenetic world of Las Vegas conventions. Now it’s estimated that over half of all wood furniture is made in China. As a result, thousands of people have been laid off in North Carolina.

The move of furniture manufacturing to China hurts down the line. For places like High Point, factories are shuttered, and with Chinese manufacturers slicing prices on furniture, retailers have seen large cuts in their cash flow. Italy too, once the center of leather furniture, is hurting.

Who’s not hurting? American Leather.

“The Chinese have come in and blown everyone away,” Duncan says. “But we’ve always been used to a substantial export competition in some kind of subsidized fashion. Even when we started our business we couldn’t touch the price point of the Italians.”

Duncan’s idea was never to saturate the U.S. leather market. That was impossible when the company started because Italian manufacturers were heavily subsidized by their government for employing workers in the notoriously underdeveloped southern half of the Italian peninsula. To justify the higher sticker price, American Leather had to offer a superior quality product, a product in as many styles and customizations as possible, and a product that would take half the shipping time as the competitor.

“For us it has meant more features, more options, more models, more unique designer products,” he says. “It’s tripled the complexity of our business in the last five years.”

Duncan has expanded his staff of in-house designers and engineers with people like Andrew Nelson, who can put together a digital model on a computer, and after the prototype is built and the kinks worked out, upload the design into the factory’s automated system, adding a completely new product into the inventory of what factory staff can produce. The process keeps American Leather nimble, despite the rising pressure of foreign competition.

“For the last five years our average growth rate has been 13 to 14 percent each year,” Duncan says casually, making small reference that the industry as a whole has been in deflation during this time. In the last three years, American Leather has added 70 employees, and between 2005 and 2006, annual revenues jumped from $64 million to $71.5 million.

“It is even more requisite for us to be looking down the road and seeing what the future looks like,” Duncan says.

To that end, the company finished a corporate governance restructuring in 2006 that did away with the previous “committee of three” approach, instead making Duncan the sole CEO. Duncan says the move was necessary to stay flexible and open to adaptation for the future.

Now, as sole CEO, figuring out how to sell premium leather furniture is a lot of what occupies Duncan’s time. But for the company built on engineering innovation, Duncan is still focused on what got him to where he is today: manufacturing strategy.

“What we have in place is a structure for a bigger business, what will give us the ability to have a $100 million company instead of a $70 million one,” Duncan says. “And in our case in particular, because we ship quickly, if we don’t stay ahead of the game in terms of managing capacity, machinery capacity, and stacking capacity, if we are not careful we’ll outgrow our lead time. And if we outgrow our lead time, we’ll lose our whole advantage in the marketplace.”

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