Manpower and Merger: The Impact of Merger upon Personnel Policies in the Carpet and Furniture Industries 9781512820409

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MANPOWER AND HUMAN RESOURCES STUDIES

Study No. 5

MANPOWER AND MERGER: THE IMPACT OF MERGER UPON PERSONNEL POLICIES IN THE CARPET & FURNITURE INDUSTRIES by

STEVEN S . PLICE

INDUSTRIAL RESEARCH U N I T

The Wharton School, Vance Hall/CS University of Pennsylvania Philadelphia, Pennsylvania 19174 U.S.A.

Other Industrial Research Unit Carpet and Furniture Industry Studies: 1. The Economics of Carpeting and Resilient Flooring: An Evlauation Comparison, by George M. Parks. Major Study No. 41, 1966. $2.95.

and

2. The Economics of Carpeting and Resilient Flooring: A Survey of Published Material and a Questionnaire Summary, by David C. Stewart. Miscellaneous Series, Report No. 14 (Mimeo.), 1966. $1.00. 3. The Carpet Industry: Present Status and Future Prospects, W. Kirk. Miscellaneous Series, Report No. 17, 1970. $5.95.

by Robert

4. The Negro in the Furniture Industry, by William E. Fulmer. The Racial Policies of American Industry, Report No. 28, 1973. $5.95.

Of Related Interest: 1. Negro Employment in Southern Industry: A Study of Racial Policies in Five Industries (Paper, Lumber, Tobacco, Bituminous Coal, and Textiles), by Herbert R. Northrup, Richard I. Rowan, et al. Studies of Negro Employment, Vol. IV, 1970. $13.50. 2. The Negro in the Apparel Industry, by Elaine Gale Wrong. The Racial Policies of American Industry, Report No. 31, 1974. $5.95.

Copyright © 1976 by the Trustees of the University of Pennsylvania Library of Congress Catalog Card Number 76-21151 ISBN: 0-8122-9092-5

Foreword In 1974, the Industrial Research Unit inaugurated a new series, Manpower and Human Resources Studies, as part of its commitment to continue the type of research which dates back to the forming of the Unit in 1921, and which was continued in later years in the thirty-one monographs of the Racial Policies of American Industry series and the seven volumes of the Studies of Negro Employment. Recent studies published in the Manpower and Human Resources Studies include Educating the Employed Disadvantaged for Upgrading, by Richard L. Rowan and Herbert R. Northrup (1972), Manpower in Homebuilding, by Howard G. Foster (1974), and the encyclopedic analysis of government manpower activity, The Impact of Government Manpower Programs, by Charles R. Perry, Bernard E. Anderson, Richard L. Rowan, and Herbert R. Northrup (1975). In this study, Manpower and Merger, the carpet and furniture industries are examined to determine what impact the merger movement has had on the management of personnel. Both industries feature many small companies, concentration in a southern state, and little brand name recognition, and both are part of the broad, home furnishings group. Both industries were heavily involved in mergers with companies outside their industry in the 1960s. The author finds surprisingly little impact on personnel policies as a result of these mergers, primarily because the basic structure and economics of the industries have as yet been little affected, and organized labor has yet to penetrate significantly the industry concentrations in the South. The author, Steven S. Plice, wrote this study as part of his work in the Graduate Division of The Wharton School where he received the Master of Business Administration degree in December 1975. Prior to this, he attended Southern Methodist University, enlisted in the U.S. Army where he attained the rank of Captain in the Special Forces (Green Berets), and completed his undergraduate education at Methodist College, iii

Foreword

iv

Fayetteville, North Carolina. He is now employed in industry in the personnel field. He is the twenty-eighth author of an Industrial Research Unit monograph who completed his study while a student. Mr. Plice wishes to thank numerous company officials for assistance, as well as spokesmen for the Carpet and Rug Institute, the Southern Furniture Manufacturers Association, the National Association of Furniture Manufacturers, the Textile Workers Union, the Upholsterers' International Union, and the United Furniture Workers who were all very helpful. The manuscript was typed by Miss Mary M. Booker, Mrs. Deborah T. Kelsall, Mrs. Marie A. Dwyer, and Miss Linda J. Henzel; it was edited by Mrs. Dianne D. Stephens, Rochelle R. Bookspan, and Mr. Michael J. McGrath. Mrs. Margaret E. Doyle, Office Manager, handled the numerous administrative details associated with the project. The project was financed in part by specific grants from Aldon Industries, but primarily from the Industrial Research Unit's unrestricted funds. Funds for publication were allocated from the Gladys L. Palmer Memorial Fund for Manpower Research, an endowment provided by the late Dr. Palmer, my predecessor as Director of the Industrial Research Unit. The author is, of course, solely responsible for the facts and opinions set forth, and they should in no way be attributed to his present employer or to the University of Pennsylvania. R. NORTHRUP, Director Industrial Research Unit The Wharton School University of Pennsylvania

HERBEET

Philadelphia June 1976

TABLE OF CONTENTS PAGE FOREWORD

_

iii

CHAPTER I.

NATURE OP THE STUDY

1

PART ONE THE FURNITURE INDUSTRY II.

HISTORY AND

STRUCTURE OP THE

FURNITURE

INDUS-

TRY

Historical Development The Early Years Factory Development, 1720-1870 The Migration of Industry Concentration, 18301970 The Production Process Industrial Structure Fragmentation and Personnel Policies Labor Intensive Nature of the Industry The Market Structure and Its Implications III.

5

5 5 6 7 9 11 12 14 16

MANPOWER AND PERSONNEL POLICIES

20

Manpower Variations by Geography and Product Type

20

Wage Structure Fringe Benefits Turnover and Absenteeism Employment Levels of Women and Minorities

24 26 31 35

Furniture Unionism

44 ν

vi

Table of Contents

CHAPTER

IV.

PAGE

Union History and Status Current Union Activity

45 48

Collective Bargaining Practices

53

THE

IMPACT

OF

MERGER

ACTIVITY

ON

PERSONNEL

POLICIES

58

Merger Activity

58

Impediments to Structural Change

61

Technology

62

Influence of Structural Change Upon Personnel Policies

64

Internal Motivation for Change External Motivation for Personnel Policy Changes.. Government Policies Competitors' Policy Public Opinion Organized Labor Drexel Enterprises Stanley Furniture Company Union Impact and Potential

64 67 67 70 71 71 72 73 75

Concluding Comment

77

PART TWO THE CARPET INDUSTRY V.

HISTORY

AND

DEVELOPMENT

OF THE

TRY

CARPET

INDUS81

Textiles and Carpets

82

Carpet Industry History.

83

American Development World War I to 1950

84 86

The Emergence of Synthetic Fibers

88

Table of Contents

vii

CHAPTER

PAGE

Nylon

89

The Tufting Revolution

..

Transfer of Industry Leadership to Dalton.

89 92

Industrial Structure

95

The Production Process

96

Manpower Requirements 99 Cost Factors 100 Carpet Tufting—A High Variable Cost Industry.- 103 The Marketing System

104

Lack of Brand Names Integrated Home Furnishings Cyclical Factors

106 107 108

Merger Activity and Its Impact on the Industrial

VI.

Structure

109

PERSONNEL POLICY

110

Manpower Wages and Skill Levels

110 Ill

Skill Levels Required

116

Turnover

119

Minority Employment.

121

Unionization in the Carpet Industry 122 History and Development of Labor Organizations.— 124 Current Organizing Activity 126

VII.

The Administration of Personnel Policy

127

STRUCTURAL CHANGES AND PERSONNEL POLICIES

129

Recent Structural Changes .— Mergers and Acquisitions

129 131

Textile and Home Furnishings Mergers

—

132

viii

Table of Contents

CHAPTER

PAGE

Technological Developments

133

Impact on Personnel Policies

136

The Location and Personnel of New Manufacturing Facilities - 136 Internal Personnel Management 138 Policy Development 139 Governmental Impact 139 Impact on Labor Organizations 140

VIII.

INDEX

Summary

142

SUMMARY AND CONCLUSION

144

Final Comment

148 151

LIST OF TABLES TABLE

PAGE

C H A P T E R II

1. Household Furniture Industry (SIC 251), Historical Productivity and Wage Data, Selected Years 19471972

15

C H A P T E R III

1. Furniture Industry, Numbers of Employees in Selected States, Selected Years 1947-1972

22

2. Furniture Industry, Percentage of Labor Force Located in Major Producing States, Selected Years 19471972

22

3. Household Furniture Industry, Average Employment Size of Establishments in Selected States, 1972

23

4. Furniture Industry, Distribution of Employees by Occupational Group, 1970

25

5. Household Furniture Industry, Hourly and Incentive Wage Rates, 1966-1974

27

6. Household Furniture Industry, Wage Payments: Hourly and Incentive Rates, 1970 and 1974

28

7. Household Furniture Industry, Hourly Wage Payments, 1970 and 1974

29

8. The Wood Household Furniture Industry (SIC 251), Turnover Compared with All Manufacturing, Selected Years, 1958-1974 -

32

9. Furniture Industry, Detailed Occupation and Sex of Employed Persons, 1970

37

10. Furniture Industry, Location and Sex of All Employees, 1970 -

37

11. Furniture Industry, Percentage of Employed Persons by Race and Sex, 1970

38 ix

List of Tables

χ TABLE

PAGE

12. Furniture Industry, Location and Race of Male and Female Employees, 1970

39

13. Furniture Industry, Location and Race of All Employees, 1970

39

14. Furniture Industry, Minority Employment Distribution as a Percentage of Total Employment, United States, 1966, 1969, 1971

40

15. Furniture Industry Minority Employment, in New York and Pennsylvania, 1966, 1969, 1971

41

16. Furniture Industry Minority Employment, in Carolina and California, 1966, 1969, 1971

42

North

17. Furniture Industry, Occupational Distribution of Female Employment for Selected States, 1966, 1969, 1971

43

18. Furniture Industry, Some Employers' Associations that have Negotiated Joint Contracts, 1973-1975

56

CHAPTER I V

1. Furniture Industry, Types of Industry Mergers and Acquisitions, 1960-1975 CHAPTER

60

V

1. Carpet Industry, Consumption of Face Yarns, Broadloom Carpet by Type, Selected Years, 1960-1974....

90

2. Carpet Industry, Shipments of Broadloom Carpet, Selected Years, 1951-1974 3. U.S. Carpet Shipments by Type, 1951-1974

93 94

4. Comparison of General Statistics and Selected Operating Ratios, Furniture and Carpet Industries, 1972.. 101 5. Summary of Cost Factors in the Production of Piecedyed Nylon Shag Carpet 102 6. Comparison of Selected Operating Ratios, 1972

104

List of Tables TABLE CHAPTER

xi PAGE

VI

1. Carpet Industry, Annual Employment Figures, Selected Years, 1958-1974 Ill 2. Carpet Industry, Location and Size of Major Producing Areas by Product Type, 1972 112 3. Industry Comparison, Average Hourly Earnings for Production Workers, 1958-1974 113 4. Carpet Industry, Wage Rate Comparison Between Jobs and Geographic Locations 114 5. Carpet Industry, Production Workers as a Percentage of Total Employment, 1958-1974 117 6. Carpet Industry, Distribution of Employees in WhiteCollar and Blue-Collar Occupational Groups, 1970.. 118 7. Comparison of Monthly Quit Rates: Carpet, Furniture, and Durable Goods Industries, 1958-1974 119 8. Carpet Industry, Female Employment by Occupation, 1970 123 CHAPTER

VII

1. Selected Textile Companies with Carpet Manufacturing Capabilities, 1976 132 2. Diversified Companies with Interests in Carpet Manufacturing, 1976 134

LIST OF FIGURES FIGURE

PAGE

CHAPTER V

1. Diagram Showing Sequence of Short Loop Tufting and Cut Pile Tufting

97

CHAPTER V I I

1. Fusion Bonded Carpet Flow

xii

137

CHAPTER ONE

Nature Of The Study Manufacturers in the carpet and furniture industries in the United States were important participants in the merger movement that became so popular during the mid-1960s. In manycases, companies within these industries have combined and outside manufacturers have completed mergers and acquisitions of carpet and furniture industry companies. Diversification, growth, apparent high profits, and the development of a coordinated home furnishings industry are some of the reasons frequently offered to explain this trend. This study examines the personnel policies common to these industries and investigates the impact that the merger movement has had upon those policies. The history and development of each industry is traced from the early colonial period to the present day, and prevailing personnel policies and problems are examined in the context of historical, economic, and legal influences. These two industries are presented together in a single volume for a number of reasons. First, as noted, several companies within these industries have attempted to develop an integrated home furnishings manufacturing capability that includes both furniture and carpets. Although these efforts have not yet created an identifiable home furnishings industry, the fact that some large corporations now own and operate both carpet and furniture manufacturing facilities allows comparison between the new, diversified companies and the older, specialized ones. Second, both of these industries have traditionally been characterized by small, family-owned companies, operating predominantly in the southeastern portion of the United States. Third, these industries have been operating for the most part without union organizations, yet many have recently been acquired by highly unionized, major corporations.

1

2

Manpower and, Merger

These two industries provide an example of developing personnel practices and manpower policy; together they represent an important segment of southern industry rich with significance for future development in that part of the country. The increasing presence of major corporations in carpet and furniture manufacturing represents an important change in industrial development. The impact of this change on personnel policy is herein analyzed through examination of these two related but distinct industries. Growth and merger, seen alongside of important economic and structural differences between the carpet and furniture manufacturers provide a basis for comparison and analysis of the industries.

PART ONE The Furniture Industry

CHAPTER II

History And Structure Of The Furniture Industry The American furniture industry as it exists today exhibits many characteristics that have developed throughout the industry's history. This chapter examines the development of production methods and industrial structure to provide the background necessary to understand the industry's personnel and labor problem. HISTORICAL

DEVELOPMENT

The manufacture of household furniture began in this country almost as soon as the first European settlers commenced constructing houses. Necessity dictated that any furnishings for these early homes be produced by the colonists themselves. These early American products were utilitarian, rough, and unsophisticated, with little attention to style or design. High-quality furniture, to the extent that it was available in the early colonies, was imported from European manufacturers. 1 The Early

Years

American capabilities and craftsmanship advanced rapidly as the colonies progressed toward self-sufficiency. As early as 1623, for example, a sawmill was operating in New Amsterdam. 2 In addition, skilled craftsmen trained in the furniture shops of Europe, were among the many immigrants into the colonies. As 1 William E. Fulmer, The Negro In The Furniture Industry, The Racial Policies of American Industry, Report No. 28 (Philadelphia: Industrial Research Unit, The Wharton School, University of Pennsylvania, 1973), p. 36. 2

Frederick S. Deibler, The Amalgamated Wood Workers' International Union of America, Bulletin of the University of Wisconsin, No. 511 (Madison: University of Wisconsin, 1912), p. 253.

5

Manpower and Merger

6

early as 1640, the combination of available materials and skills made it possible for the American colonies to produce "solid furnishings with a certain amount of sophistication. . . . " 3 By 1700, furniture making easily fell within the classification of established colonial enterprises. The colonial furniture produced in the 1700s came mainly from one-man furniture shops or itinerant cabinetmakers. These craftsmen could be classified as artists as well as businessmen since they created, with their sophisticated skills, customized pieces desired for their aesthetic value as well as their utility. Furniture shops run by such artisans developed in all of the early colonial population centers. The shops remained smallscale operations, however, with only a few employing a single apprentice, and, the most successful, perhaps two or three. 4 Factory

Development,

1720-1870

The one-man shop structure of the furniture industry slowly incorporated factory production methods beginning in the early 1700s. This transformation process was not completed until about 1870. During this period, the industry developed geographic concentrations, adopted power machinery, devised a marketing system, and experienced some union organization. Because of the growing industrialization of Massachusetts and New York, the earliest concentrations of furniture manufacturers developed there. Shipbuilding in New England contributed to the pool of skilled woodworkers, and this region early became America's foremost furniture producer, a status it maintained for 200 years.5 The furniture shops of New England began to expand during the nineteenth century. The expansion included the use of apprentices and skilled carftsmen trained to do specific jobs. By the early 1800s this gradual change in the industry's structure could be dramatically seen in shops like that of Duncan Phyfe of New York, in which over 100 journeymen, including cabinetmakers, carvers, turners, and upholsterers, were employed. 6 3 Elizabeth Stillinger, The Antiques Guide to Decorative Arts in 1600-1875 (New York: E. P. Dutton & Co., Inc., 1972), p. 10. 4

America

Fulmer, op. cit., p. 37.

5

Paul A. Falcigno, "The Furniture Mart" (MBA thesis, University of Pennsylvania, 1958), pp. 12-25. 6

Fulmer, op. cit., p. 37.

History and Structure

of the Furniture

Industry

7

During the period between 1815 and 1825, the furniture factories increased in size and job specialization. Both trends were furthered by the adaptation of water power for use in furniture factories. 7 The application of steam power a few years later made it possible to activate more individualized and fragmented operations. 8 The advent of job specialization and larger furniture factories caused an important change in the role of furniture manufacturers, transforming them from craftsmen to employers, from artists to businessmen. This development was accompanied by the growth of a furniture industry labor force. The industry grew progressively less dependent on skilled craftsmen and more reliant on unskilled and semiskilled labor. With the development of an employee group that did not own its production facilities, the industry was confronted with personnel administration and labor relations' problems. The first furniture-oriented labor unions started organizational attempts at this time. 9 The Migration of Industry Concentration, 1830-1970 Although the earliest concentrations of furniture manufacturers were located along the northeastern seaboard, the industry continued to expand into other geographic areas. The westward movement of Americans during the 1800s created many markets and opportunities for furniture entrepreneurs outside of the New England and Middle Atlantic population centers. Cincinnati, for example, had become an important furniture center as early as 1833. Manufacturers in this area commanded wide markets throughout the Ohio River Valley and even along the Mississippi Waterway. 10 As late as 1860, however, these areas still depended on New York, Boston, and Philadelphia to supply the better quality furniture items. During this period, high-quality hardwood was often felled in the Ohio area, shipped east where it was made into furniture, and then shipped back to markets very near the original hardwood forests. 11 T

Falcigno, op. cit., p. 16.

8

Deibler, op. cit., p. 258.

9

Ibid., p. 276.

10

Falcigno, op. cit., pp. 18-19.

11

Ibid., pp. 19-20, 22.

8

Manpower and Merger

The eastern manufacturers' ability to compete in the midwestern markets depended on the quality differential of furniture produced in the two areas. The eastern advantage was destined to be short-lived, however, for in 1870, fine furniture manufacturing began in Grand Rapids, Michigan. With the added impetus generated by demand for furniture after the great Chicago fire of October 9, 1871, Grand Rapids manufacturers were faced with a seemingly insatiable demand, and that city soon became this country's largest producer of quality bedroom furniture. 12 As the center of the furniture industry was shifting westward, some manufacturing was beginning to take place in the Piedmont region of the Appalachian Mountains. Most of these manufacturers were local businessmen, but some of the northern plant managers had gone south in search of good locations for furniture plants. 13 The Appalachian Piedmont area offered many advantages for the new assembly-line type of furniture factory. There were an abundance of excellent hardwood forests, a welldeveloped railroad network (built in part to facilitate the export of raw lumber to northern furniture plants), and an available, inexpensive labor supply.14 Although all of these factors have been important to the industry, the labor force available to these furniture manufacturers has continued to provide a competitive advantage to the Piedmont portion of the industry. The southern industry enjoyed rapid growth from the beginning, and held its first "furniture mart" in 1913. By 1921, there were at least 200 furniture factories scattered throughout the Piedmont region.15 Today, North Carolina is this country's largest producer of furniture products, and High Point, North Carolina, is generally considered the center of the United States's furniture industry. Other parts of the country developed furniture manufacturing capabilities as the populations and markets of these areas grew. West Coast furniture manufacturers enjoyed the advantage of proximity to that rapidly growing population center, but 12

Ibid., pp. 19-20.

13 D. N. Thomas, "A History of Southern Furniture," Furniture Vol. 175, No. 18, Sect. II (October 12, 1967), p. 14.

" Ibid. 15

Falcigno, op. cit., pp. 22-24.

World,

History and Structure of the Furniture

Industry

9

were forced to import lumber or use redwood or oak since there are few native hardwood forests in that part of the country. 16 Throughout the development of the industry, the centers of concentration noticeably shifted. During the industry's early years, the New England area was dominant in the production of furniture products. By 1870, the Midwest had begun to produce a substantial portion of the country's furniture, with the cities of Cincinnati, Grand Rapids, and St. Louis becoming important centers. The modern southern portion of the industry had its inception after 1900, and it has continued to grow rapidly since that time. Toward the end of World War II, the Federal Reserve District Headquarters in Richmond, Virginia, proclaimed the Southeast to be the center of the furniture industry. By this time, North Carolina had surpassed New York as the nation's largest furniture producer. 17 This pattern of shifting growth has had an important impact on personnel policies in various geographic areas. As a result of the manner in which the industry developed, there are concentrations of furniture manufacturers in many parts of the country. Some of these concentrations are highly unionized while, in other areas, there are almost no labor organizations. Some parts of the country have experienced rapid growth and expansion in furniture manufacturing while, in other areas, there has been an actual decline over the past three decades. As a result of these geographical differences, overall generalities about the furniture industry, including its personnel policies, must be made with caution, and observations must be analyzed with respect to a number of factors which duly account for regional and local variations. THE PRODUCTION

PROCESS18

A typical wood furniture manufacturing process begins with the timber being felled and transported to the sawmill where it is cut into stock of a predesignated pattern. After milling, 16

Ibid., pp. 24-25.

17

Thomas, op. cit., p. 76.

18

Much of this section is based on the following works: Julius Eisen, "A Survey of the Wood Household Furniture Industry, Past, Present and Future" (MBA thesis, University of Pennsylvania, 1960), pp. 59-73 and Fulmer, op. cit., pp. 3-4.

10

Manpower and Merger

the lumber must be kiln-dried at a uniform rate. The lumber is then transported to a finishing mill where it is sawed and glued into the required size and shape. The final wooden forms are then created through additional sawing, shaping, boring, planing, and sanding. The finished pieces are assembled into the final form—the article of furniture. Since the wooden pieces are often of inconsistent size and shape, a good portion of the final assembly work is done by hand. Tolerances are often so loose in this process that the assembler must use a knife and a "filler" to obtain an adequate fit of the assembled pieces. Some industry experts claim that this size inconsistency is not attributable to an innate quality of wood, but rather is a result of manufacturing procedures that the industry has deemed uneconomical to correct.19 If the finished item is to be upholstered, the spring assemblies, padding, and upholstery are applied to the wooden frame after the assembly process. If, on the other hand, the finished item is a "casegood" (nonupholstered), the assembled piece will have the final sanding and finishing (paint, stain, varnish, etc.) before it is prepared for shipping. In many plants that use this type of production process, the jobs have been subdivided to the point that most of the tasks require only semiskilled or unskilled laborers. Since much of this work is done by hand, capital investment tends to be lower than in many other industries. The entire production process has seldom been integrated into the operations of a single manufacturer. The typical plant begins its wood processing after the kiln-drying stage, although some manufacturers begin processing as late as the assembly stage. Manpower requirements, therefore, depend heavily on the type of furniture to be produced, the materials and manufacturing methods employed, and the stage at which the particular manufacturer begins the production process. Job types and skills required in a furniture factory can range from unskilled laborers employed in jobs such as rearranging stock to highly trained machine operators. Other skills, such as carving or upholstering, require considerable training and experience. Most of the labor force, however, must be classified as either unskilled or semiskilled. 19 Field notes from personal interviews conducted by the author in October 1974.

History and Structure of the Furniture

Industry

11

The production process in the larger plants has typically been subdivided into many tasks according to general assembly line methods. Each employee, therefore, performs a specific task on each piece of furniture to be produced. This arrangement diminishes the skill and training requirements of most industry employees. Conveyor belts or other systems for moving a product along the assembly line have generally not been adopted. One company claims to have installed systems for transporting upholstered furniture along an assembly line on at least three occasions. Each time the system was dismantled. This company claims that the many styles being produced preclude the use of conveyor systems. As a result, products are loaded on carts and pushed between assembly stations.20 The large number of styles and the frequency of style changes common in the industry have made automation of the furniture manufacturing process difficult. Many manufacturers claim that they do not produce enough items of a particular style to warrant an investment in sophisticated machinery. As a result, the industry has remained essentially unautomated. The production process is characterized by low fixed costs with materials and labor representing the greatest part of finished product cost. Although this gives manufacturers a high degree of flexibility, it also enables new firms to enter the industry with relative ease.21 Some manufacturers have experimented with new production methods in an attempt to change the labor intensive nature of their operations. These experiments are primarily confined to furniture made from materials other than wood, i.e. metal, and plastics. There has been a high degree of success in this area with the production of office, institutional, and public building furniture, but limited success in the home furnishings industry.22 INDUSTRIAL

STRUCTURE

The furniture industry in the United States includes more than 5,000 companies and at least 9,810 separate plant loca20 Field notes from personal interviews conducted by the author in August 1974. 21 Field notes from personal interviews conducted by the author in August 1974. 22 Field notes from personal interviews conducted by the author in August 1974.

Manpower and Merger

12

tions.23 Just under two-thirds of these plants employ fewer than twenty people while more than 25 percent of the industry's 509,707 employees work in plants that have more than 500 employees.24 In 1972, only two furniture plants in the nation employed more than 2,500 persons. 25 As seen hereby, the furniture industry is characterized by relatively small plants. Fragmentation and Personnel Policies The fragmented nature of the industry is one of the most important factors influencing personnel policies. By examination of both the causes and effects of fragmentation, a perspective on current conditions and the implications of future structural changes can be developed. The ease of entry into the industry helps explain the large number of furniture manufacturers. Initial capital costs are extremely low, especially if a manufacturer chooses to begin the production process at late as the assembly or upholstery stage by purchasing primary materials. 20 Easy entry into the industry is likely to remain an economic fact for the foreseeable future, although conceivably, large capital requirements in the f u t u r e could erect significant cost barriers. Such barriers, however, would not effectively prohibit entry merely because larger firms make use of expensive machinery. Capital assets must also prove efficient enough so that their use is essential to remain competitive in the industry. In the absence of this sort of efficient but expensive mechanical production process, entry costs are likely to remain low. The effects of fragmentation on personnel policies are pervasive. Sixty-two percent of the wood household furniture manufacturing plants employ fewer than twenty persons. 27 As might be expected, employee relations in this type of firm are generally 23 U.S. Department of Commerce, Bureau of the Census, County Business Patterns, 1973, United States CBP-73-1 (Washington, D.C.: Government Printing Office, 1974), Table IB, p. 17.

™ Ibid., and Table 1C, p. 29. 25

Ibid., Table IE, p. 31.

26

Field notes from interviews conducted by the author in October 1974.

27

U.S. Department of Commerce, Bureau of the Census, Census of Manufactures: 1972, Industry Series, Wood Household Furniture MC72(P)-25A-1 (Washington, D.C.: Government Printing Office, 1974), Table 1, p. 2.

History and Structure of the Furniture

Industry

13

of a personal nature, with little need for professional personnel managers. In such situations, the employer has close contact with his employees, and personnel problems that might arise in larger firms can be avoided. The atomized nature of the furniture industry has also presented barriers to union organization. The cost per employee of organizing and administering a union is high in a small establishment. Unions, therefore, have tended to concentrate their efforts on the larger plants, and the small manufacturers have generally not been the targets of organizing drives. A detailed examination of the union situation is presented in Chapter III. Fragmentation has also affected the intense competition within the industry. Furniture making, perhaps more than many other U.S. industries, fits the classic economic model of small enterprises: none can unilaterally control either supply, demand, or price. This phenomenon results in a management profoundly sensitive to any cost increases, including wages and employee benefits. The analogy of the furniture industry to the classic economic model of perfect competition persists through examination of the structure of the furniture marketing system. Almost all furniture manufacturers rely on the furniture exposition as their basic method of distribution. This periodic showing brings competing firms' products together so that potential buyers may easily compare price, style, and quality. The furniture mart has accurately been described as a cutthroat institution in which only the most efficient manufacturers can survive.28 In an industry that functions under these conditions, the prevailing personnel policies are competitive, and understandably, managers have been reluctant to experiment with, or to implement, new or "progressive" policies. The fragmented and competitive nature of the industry increases the manufacturers' sensitivity to labor expenses because the cost of labor, like all other factors of production, is reflected in the cost of the finished goods. The importance of labor, however, may be even greater in furniture making than in most other United States industries. 28 Thomas O'Hanlon, "5350 Companies: A Mixed Up Furniture Industry," Fortune, Vol. LXXV, No. 2 (February 1967), p. 145.

14

Manpower and Merger

Labor Intensive Nature of the Industry Although the wages and benefits paid to employees of furniture manufacturers are low by most United States standards, the cost of labor to these manufacturers is relatively high. This phenomenon is a result of the labor intensive nature of the industry. A good measure of labor intensiveness is the value added to a firm's product by an hour of labor. This value-added concept readily shows the inflexible nature of the wage structure at current levels of productivity. The value added per production man hour for furniture ($7.29 in 1972) is low when compared with industries such as meat and poultry ($9.95 in 1971) and photographic equipment ($34.53 in 1971). These figures are not presented as representative of all United States industry, but rather to illustrate the range of some value-added data for comparison purposes.29 Table II-l illustrates the labor intensive nature of the household furniture industry in selected years, 1947-1972. It is clear from the table that, historically, wages have been closely related to productivity (i.e., value added per man hour). Increased productivity has, to a great extent, resulted in increased wages, and "value added per dollar production worker cost" has therefore remained relatively stable. Relatively low productivity has far-reaching effects on the nature of the personnel policies that can be adopted by furniture manufacturers. In whatever policies are implemented, managers must maintain a narrow margin between the production costs and productivity relationship. Observers are often puzzled by the fact that an industry with the sales volume and assets of furniture making has failed to become automated, to improve productivity, and to become more capital intensive. This problem has usually been explained in terms of the lack of barriers to entry. A detailed examination of the static nature of the industry is presented in the following section. The issue highlighted here, however, is the industry's high labor intensiveness, and the severe constraints on personnel policies which result. 29 U.S. Department of Commerce, U.S. Industrial Outlook 1975 ton, D.C.: Government Printing Office, 1974), pp. 197, 249, 265.

(Washing-

History and Structure of the Furniture Industry

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15

Manpower and Merger

16 The Market Structure and Its Implications

Furniture was apparently the first American product to be produced that was too bulky to be transported and sold by traveling salesmen or so-called "drummers." Some of the earlier manufacturers in the Boston area attempted to market their products by shipping them up and down the eastern coastline where the furniture was sold at auction on the wharves. This was an unsatisfactory system since it required that all items be sold at whatever price the buyer would offer. Other manufacturers attempted to market furniture by bringing retail salesmen directly to the factory showrooms. This system presented difficulties for the retailers who were interested in obtaining only a few samples of many styles and product lines.30 These distribution problems can be described in terms of conflicting interests between manufacturers and retailers. The retail merchant is interested in providing potential customers with the widest possible selection of products while insuring that a shipment of slow-moving merchandise will not remain in his inventory. In order to accomplish this end, each retail outlet attempts to stock only a few samples of many types of furniture. Retailers, therefore, are interested in dealing with many manufacturers in order to obtain the widest possible range of product lines. At the same time, manufacturers find it more economical to produce large volumes of a given type and style of furniture product. This dichotomy of interests is one explanation for the fact that few manufacturers of furniture have enough styles and product lines to supply a retail establishment fully. Retail establishments, on the other hand, seldom sell the necessary quantity of a given style to warrant economical production runs. To overcome these problems, the furniture industry has developed a marketing system that exposes manufacturers' products to a large number of customers while allowing the customers ready access to, and comparison of, their products. This marketing system, known as the "furniture mart" or the "furniture exposition," has its roots early in the development of the industry. The first exclusively furniture exposition was held in New York City in 1891, and the marketing system has remained 30

Thomas, op. cit., p. 14.

History and Structure of the Furniture Industry

17

essentially the same until the present day.31 As the name implies, the exposition is a showing of manufacturers' products, and the showings are confined to dealers and retail representatives. There is no exchange of ownership at the exposition. Today, a number of national and local furniture marts serve areas with concentrations of furniture manufacturers. The furniture mart is actually more than a series of product displays. The system provides rapid and complete communication between manufacturers and retailers, and results in a number of characteristics that have dominated the industry throughout its development. The rapid style changes, the large number of product lines, the lack of brand name identification, the importance of price competition, and to some extent, the fragmented nature of the industry are all characteristics that result from, or are perpetuated by, the marketing system. As a result of the market system, furniture manufacturers are oriented toward creating a favorable reaction with the retailers' representatives rather than the ultimate consumer. The propensity of the retail representatives to change suppliers as a result of the products shown at the exposition encourages the manufacturer to produce more styles and expand his product line in an attempt to attract or retain relationships with retail outlets. Some studies have suggested that this system contributes to excessive style changes on the part of furniture manufacturers. 32 The retailers, on the other hand, have little loyalty to, or dependence on, a particular manufacturer, a situation that de-emphasizes the importance of manufacturers' brand names and removes entry barriers for small manufacturers. As noted, retail establishments have tended to de-emphasize the name brands of furniture manufacturers. There was a time when furniture retailers habitually obliterated any markings that would identify the origin of a piece of furniture. 33 These retailers apparently believed it more important to promote their particular firm and perhaps even counterproductive to identify furniture by its manufacturer. Even today, with many of the larger firms making a great effort to establish na31

Ibid., p. 15.

32

Arthur D. Little, Inc., Impact of Industry Activities on Consumer Purchasing of Home Furnishings, report prepared for the Home Furnishings Marketing and Research Council, Inc. (Cambridge: Arthur D. Little, Inc., 1967), p. 14. 33

Eisen, op. dt., p. 39.

Manpower and Merger

18

tionally recognized brand names, the relationship between the retailer and the manufacturer is almost casual. As one prominent research firm explained: We feel that the lack of close affiliation between manufacturers' and retailers' advertising is a natural result of an industry structure in which retailers have many supply sources and manufacturers characteristically seek wide distribution of their own products. 34

Because multitudes of styles and product lines are encouraged, few quality standards remain, and the rapid communications at an exposition have allowed prices and styles to become extremely important selling points. Consequently, only a limited number of furniture companies have been successful in developing reputations, product lines, or retail outlets that allow them to dominate a market or to sell their products through systems other than the furniture mart. The nation's furniture retailing and distribution system is, therefore, standing by. It is ready to serve all new entrants into the industry who have the ability to operate within low margins and who need undertake few advertising or marketing expenditures. This is a major reason why the industry offers a multitude of product lines with varying styles, and supports over 5,000 separate manufacturers. 35 The requirement for rapid style changes and long product lines that is encouraged by the market system appears to have limited the industry's ability to develop automated production techniques. A common complaint among furniture manufacturers is that so few items of a particular style can be sold that it does not pay to automate the production process. As a result, much of the furniture industry remains unautomated and labor intensive.30 Therefore, significant economies of scale are unlikely to be developed in the furniture industry as long as the manufacturers are dependent on the furniture mart to sell their products. The furniture mart system requires a few items of varying styles, while economies of scale must depend on many items of a standardized style. Arthur D. Little, Inc., op. cit., p. 26. 35

O'Hanlon, op. cit., p. 145.

30

Field notes from personal interviews conducted by the author in August

History and Structure of the Furniture

Industry

19

The industry's marketing structure may explain its rapid style changes and varying product lines. Many observers claim, however, that these conditions would prevail even in the absence of the current marketing mechanism. These observers point to many marketing studies that demonstrate consumer preferences for unique and stylish furniture. This theory claims that the American consumer will purchase a refrigerator, an automobile, and a lawn mower that is just like his neighbor's, but he will not purchase a couch or a dining room table that he has seen in a neighbor's or friend's house.37 To the extent that this theory of consumer behavior is valid, it can be argued that style changes are inherent in the nature of the industry and not a result of the marketing mechanism. Whatever the reasons for rapid style changes, clearly they contribute to the fragmented nature of the industry, inhibit the potential for automation within the industry, and preclude basic changes in labor supply and compensation practices. Whether such situations will change remains a question. One study pointed out that: At any given moment the furniture industry is probably offering the consuming public in excess of 300,000 different items. When this number is appropriately subdivided into categories of "kinds" of furniture, i.e., tables, chairs, chests, desks, etc., there still remains a variation in style that is breathtaking. Or is a selection of 10,000 different styles of tables a "normal" amount of variety? Is the industry's policy of using variation in style carried to extremes? Can demand be stimulated more effectively by this type of product-line development than by other means available? Is there justification for the fact that a firm like Dunbar with an annual sales volume of $2,500,000 has over 1,000 numbers in its showrooms ? 38

We shall return to this issue and its impact on personnel policies after discussing the merger movement. First, however, we will examine manpower, personnel, and union policies in the industry.

37 Field notes from personal interviews conducted by the author in July 1974. 38 Kenneth R. Davis, Furniture Marketing North Carolina Press, 1957), p. 101.

(Chapel Hill: University of

CHAPTER III

Manpower And Personnel Policies In the previous section, the nature of the industry's personnel policies was presented as a product of the industrial structure and marketing system. Here we focus on manpower, its nature, the personnel policies developed by the industry, the efforts of unions over the years to establish bargaining rights, and the results when unions have been successful. MANPOWER

VARIATIONS PRODUCT

BY GEOGRAPHY TYPE

AND

The household furniture industry (SIC 251) had 315,500 employees in May 1975. Of these, 261,700 or 82.9 percent held production jobs. The average production hourly wage paid in May 1975 was $3.53.1 These statistics correctly describe the national averages for the household furniture industry, but they bear little relationship to the conditions of any geographic section of the country. For a clear understanding of these conditions it is necessary to investigate the local influences in each geographic area. Each element of personnel policy must be investigated not only as a national standard but also as it relates to local conditions. The importance of various geographic areas to the furniture industry has, of course, changed over the years. New England was the dominant furniture-producing area for the first two hundred years of the industry's existence, but today, North Carolina is the leading furniture-producing state. This shift in the relative importance of furniture-producing areas has been the result of the profitability of the industry in each area. The portion of the industry that is concentrated around North Carolina cur1

U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, Vol. 21, No. 12, June 1975 (Washington, D.C.: Government Printing Office, 1975), Tables B-2, p. 61 and Table C-2, p. 84.

20

Manpower and Personnel Policies

21

rently appears to have an advantage over other areas, and is, therefore, growing more rapidly. Many industry observers, including union personnel, have recognized the inexpensive nonunion labor force as a primary advantage to the southeastern furniture manufacturers. 2 Tables III-l and III-2 show the growth of production employment in the industry since 1947 and the relative position of selected states during this period. Significantly, New York, which enjoyed prominence in the industry for 200 years, has maintained a relatively stable labor force since 1947. These employees, however, have represented a progressively smaller percentage of the national labor force. The practices in each area must be viewed not only as characteristics of the furniture industry, but also in relation to the economics of each area. The ability of a furniture manufacturer in a given area to compete on a national scale has tremendous influence on the practices within that area. The New York area, for example, with its history of relatively stable numbers of furniture employees, has formulated personnel policies from a different perspective than that of furniture manufacturers in North Carolina. There the labor force has grown by a factor of ten over the same period. Promotions, for example, come much faster when an industry is expanding than during periods of stability or decline. Clearly, the personnel problems faced by a New York manufacturer differ from the problems common in North Carolina. Although the "furniture belt" of Virginia and North Carolina now contains the country's largest concentration of furniture manufacturers, the industry remains well dispersed; although North Carolina is the country's largest furniture industry employer, California is second and New York is third. 3 There are differences, however, in plant sizes, numbers of employees, and types of products produced in the different geographical areas. As might be expected, there are significant differences in the personnel practices of the small specialty plants of New England and the large, more automated plants of North Carolina. Table III-3 shows the differences in plant 2 United Furniture Workers of America, Proceedings, tutional Convention (New York: UFWA, 1972), p. 40.

Seventeenth

Consti-

3 U.S. Department of Commerce, Bureau of the Census, County Business Patterns, 1972, United States CBP-73-1 (Washington, D.C.: Government Printing Office, 1974), Table 2A, pp. 41, 69, and 70.

Manpower and Merger

22

TABLE III-L Furniture Industry Numbers of Employees in Selected Selected Years, 1947-1972 (in thousands)

States,

F u r n i t u r e Industry Employees State

1947

1953

1958

1963

1968

1972

1974

North Carolina California New York Tennessee Pennsylvania Virginia Illinois Indiana Ohio United States

29.8 23.0 39.1 9.1 19.8 13.5 33.2 23.1

34.6 25.7 40.5 10.5 24.7 14.4 30.6 25.3 27.5 369.9

39.4 29.0 35.4 12.7 23.9 15.2 27.7 19.5 20.9 360.8

49.7 32.0 34.2 17.9 23.6 20.1 28.5 21.9 18.3 389.9

65.4 35.6 35.1 25.5 29.1 24.5 30.1 25.8 18.3 471.6

75.0 41.2 29.9 28.4 27.0 26.9 26.6 26.3 18.3 492.9

79.9 45.3 29.5 26.6 28.1 28.8 27.3 26.7 19.3 527.8

Source:

—

336.0

U.S. Department of Labor, Bureau of Labor Statistics, Employment and Earnings, States and Areas 1939-1972, Bulletin 1370-10 (Washington, D.C.: Government P r i n t i n g Office, 1973), pp. 37, 189, 220, 422, 478, 495, 541, 607, and 651; Employment and Earnings, United States 1909-1972, Bulletin 1312-9 (Washington, D.C.: Government Printing Office, 1973), p. 66; 1974 data f r o m work sheet in author's possession, provided by Bureau of Labor Statistics.

TABLE III-2 Furniture Industry Percentage of Labor Force Located in Major Producing States, Selected Years, 194-7-1972 F u r n i t u r e I n d u s t r y Labor Force State

1947

1953

1958

1963

1968

1972

1974

North Carolina California New York Tennessee Pennsylvania Virginia Illinois Indiana Ohio

8.9 6.8 11.6 2.7 5.9 4.0 9.9 6.9

9.4 6.9 10.9 2.8 6.7 3.9 8.3 6.8 7.4

10.9 8.0 9.8 3.5 6.6 4.2 7.7 5.4 5.8

12.7 8.2 8.7 4.6 6.1 5.2 7.3 5.6 4.7

13.9 7.5 7.4 5.4 6.2 5.2 6.4 5.5 3.9

15.2 8.4 6.1 5.8 5.5 5.5 5.4 5.3 3.7

15.1 8.6 5.6 5.0 5.3 5.5 5.2 5.1 3.7

Source:

Table I I I - l .

—

Manpower and Personnel

Policies

23

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Manpower and Personnel Policies TABLE

2d III-7

Household Furniture Industry Hourly Wage Payments 1970 and 1974 Industry

Casegoods

Upholstered 1974

Operation

1970

1974

1970

1974

1970

Machine Dept.

$2.62

$3.21

$2.56

$3.10

$2.94

$3.75

Veneer Dept.

2.54

2.97

2.46

2.88

2.81

2.77

Cabinet Dept.

2.63

3.17

2.52

3.04

2.97

3.95

Finishing Dept.

2.50

3.03

2.83

3.03

2.14

3.29

Trimming-Packing Dept.

2.48

3.16

2.45

3.02

2.74

3.53

Upholstering Dept.

3.13

3.97

2.95

3.28

3.15

4.04

Miscellaneous

2.72

3.37

2.55

3.09

2.85

3.65

All Factory Labor

2.75

3.41

2.54

3.06

3.06

3.93

Source:

National Association of Furniture Manufacturers Wage Survey, 1970 and 1974.

panies tend to expend a smaller percentage of payroll costs on fringe benefits than do larger companies. In addition, companies in the Southeast appear to lag behind those in the rest of the country. 8 Since the furniture industry generally comprises both small and Southeastern firms, not surprisingly its fringe benefits lag behind the rest of the U.S. manufacturing establishments. Two recent surveys on personnel policies in the furniture industry have been used to determine prevailing benefit levels. One dealt almost exclusively with furniture plants in the southeastern part of the country (North Carolina, Virginia, and Tennessee), and the other sampled manufacturers in thirty-three states and Canada, thus including all the areas with major furniture concentrations. From these surveys, comparisons between national trends and southeastern practices can be drawn, and an analysis of furniture industry benefits with respect to benefit levels in other manufacturing establishments can be made. 8

"Employee Benefits in Private Industry," Roadmaps 1674, September 15, 1971.

of Industry,

No.

Manpower and Merger

30

Most plants in the southeastern furniture belt traditionally cease operations for a one- to two-week period as a means of providing vacation time for all employees. Most of these plants pay normal wages or some form of bonus during these periods, but a few companies treat these annual closings as a layoff, and employees receive no pay while the plants are not operating.9 On a national basis, however, the industry provides paid vacations, allowing one week after one year of service, two weeks after three years, and in some cases, three weeks after ten years. Pay for holidays not worked is almost a universal practice throughout the industry. Ninety-five percent of the companies provide at least eight paid holidays. Only 6 percent of the furniture companies offered 10 paid holidays as compared with 33 percent of all U.S. companies.10 Some form of pension plan is available in about 71 percent of the furniture industry plants throughout the United States. 11 The southeastern portion of the industry provides pension plans in only about 53 percent of the plants. The larger plants appear to provide more and better pension plans than many of the smaller plants. For example, the 53 percent of the southeastern furniture plants offering pension plans employed 79 percent of the employees covered by the survey. 12 The pension plans available to furniture industry employees appear to be significantly fewer than industry offers nationally. One survey, for example, indicates that 85 percent of all U.S. companies provide pension plans.13 Profit-sharing plans have been used as a method of promoting productivity and company loyalty. Twenty-three percent of the furniture industry 1 4 and 26 percent of the companies in the southeastern portion of the industry reported having profit-sharing plans.15 A number of personnel managers in southeastern furniture plants have expressed an affinity for profit-sharing plans along with the belief that these plans do promote loyalty and concern over pro9

Field notes from personal interviews conducted by the author, July 1974.

10

National Association of Furniture Manufacturers, op. cit., pp. 8-14.

11

Ibid., p. 6.

12

Southern Furniture Manufacturers Association, op. cit., Part 1-6.

13

Meyer and Fox, op. cit., p. 7.

14

National Association of Furniture Manufacturers, op. cit., p. 16.

15

Southern Furniture Manufacturers Association, op. cit., Part 1-6.

Manpower and, Personnel

Policies

31

ductivity. Other companies, however, have indicated that profitsharing plans have been discarded in favor of pension plans and savings or t h r i f t plans. One of the primary reasons given for disillusionment with profit-sharing plans was the belief that profits in a given year have little relationship to the employees' performance during that year. 16 As a result, these managers believe that profit-sharing rewards are often untimely and not closely related to immediate past performance. Other benefits available to furniture industry employees include a variety of programs that have been implemented by a few employers. An examination of new developments and changing patterns in the field of employee benefits will be presented in Chapter IV. TURNOVER

AND

ABSENTEEISM

The furniture industry has experienced turnover and absenteeism rates that are among the highest in all U.S. manufacturing. Table III-8 shows the historical trends in quit rates. As might be expected, this rate has increased in times of prosperity and rapid industry growth while it has tended to decrease during periods of declining growth and rising unemployment. The furniture industry was badly affected by the recent recession, which resulted in large layoffs and a decrease in the turnover rate. Most observers, however, believe that this is a shortterm condition and that high turnover will return when the industry recovers from the recession. Industry personnel managers note that most of the turnover in furniture manufacturing occurs in only a few of the job categories. In addition, most of the turnover is among new employees who have less than one year of service with the company.17 Although it appears that the personnel managers have identified the job categories and types of employees that cause the turnover problems, there is no indication that efforts have been made to solve these problems. An analysis of the causes of and possible solutions to the turnover situation helps explain the lack of positive action on the part of industry personnel managers. These managers, especially those in the high industry 16

On this point, see Gordon F. Bloom and Herbert R. Northrup, Economics of Labor Relations, 7th ed. (Homewood, 111.: Richard D. Irwin, Inc., 1973), pp. 144-146. 17

Field notes from personal interviews conducted by the author, July 1974.

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