The forecast for significant growth in the office furniture industry could bring some rewarding and potentially challenging times for the West Michigan base of suppliers.

After modest growth of around 2.8 percent this year, the furniture industry is forecasted to accelerate 10.4 percent in 2015, when production is estimated to reach $10.6 billion, according to the most recent projections from Business and Institutional Furniture Manufacturers Association (BIFMA).

Those projections have area suppliers bracing for a period of higher demand – and the challenges that come with growth in an era of a tight labor supply and capacity constraints.

“The economy is doing much better and offices are investing and expanding,” said Richard Perreault, CEO of Grand Rapids-based Gill Industries Inc., a supplier of stampings and welded assemblies to the office furniture, automotive and multi-use vehicle industries. “The challenge is that as the other industries are booming, everyone is complaining about being out of capacity. Capacity is an issue.”

As Gill weighed options to increase its capacity to serve its clients, executives eventually made the decision to acquire GR Spring & Stamping Inc. earlier this year. Historically, Gill’s book of business has been about 15 percent to 20 percent related to the office furniture industry, but the sector will account for less than 10 percent of the company’s business after the acquisition, Perreault said.

Gill needed to make significant gains in capacity, which is why the acquisition worked for the company, Perreault said.

Aside from acquisitions, other office furniture suppliers will look to ramp up capacity by investing in capital equipment and new machinery, said Steve Waltman, vice president of marketing and communications at Grand Rapids-based Stiles Machinery Inc., a manufacturer of capital equipment.

Stiles is feeling “bullish” about the upcoming couple of years because many office furniture suppliers have had machinery sitting idle after a period of sluggish performance, particularly when compared to their counterparts in the automotive supply chain, Waltman said.

“The growth challenge is interesting,” Waltman told MiBiz. “What happens to machinery is that it falls into obsolescence about 5 percent every year. … Some machinery has been maintained to a moderate level, but not the level it should be.”

Waltman compares restarting idled manufacturing equipment to a person getting back into running after a long period of time off. Machines often operate better with sustained use, and the current situation should translate into equipment orders for Stiles as more production comes back online at suppliers and OEMs, he said.

Stiles generates about $160 million in annual revenues with approximately 10 percent of that coming from equipment made for the office furniture industry, Waltman said.

The growth expected in the furniture sector over the next year could begin to mirror the recovery the automotive industry has experienced since 2009. The rapid acceleration in the automotive industry has led to increasing concern over capacity constraints in the supply chain – even with a modest production increase of 3 percent this year, as MiBiz recently reported.

“I suspect there are some similar issues (between automotive and furniture suppliers),” Mike Wall, an analyst at IHS Automotive Group, said in an email to MiBiz.

Automation fills the void
Even with capital investments and additional capacity, the office furniture supply chain will struggle to meet their orders from this projected growth spurt without the right people, sources said. As such, talent and the availability of trained workers topped the list of concerns for manufacturing executives contacted for this report.

“I think what you will find is it will be a delicate balance of bringing on additional labor – possibly temps to start – and leveraging fixed assets to their fullest while also heavily utilizing overtime and expedited freight in order to keep up with the orders in the near term,” said Wall, drawing a comparison to the automotive industry.

With manufacturers across the board struggling to find skilled workers, that’s forced many companies to turn to additional automation to increase production, said Mark Lindquist, CEO of Rapid-Line Inc. in Wyoming. To compensate for the lack of skilled labor, machinery manufacturers have even started designing equipment for increased automation, Lindquist said.

About 75 percent of the metal fabricator’s business is contract work for the office furniture industry, he said.

To get prepared for higher demand, the manufacturer is promoting more internal cross-training so employees are capable of working in multiple areas of Rapid-Line’s business, Lindquist said.

The company is also investing in worker training. For the past couple of years, Rapid-Line has been sending many of its workers to programs at area community colleges where they can earn associate degrees for work in advanced manufacturing while continuing to work full time for the company, Lindquist said.

“I can get a technician in two years, but I can’t get enough of them,” he said. “If we can find anyone with the appropriate skills, we’ll take them.”

In a previous MiBiz report, Lindquist described his company’s approach to training as the G.I. Bill for manufacturing workers.

“It’s mostly out of self-preservation because you need fresh resources and fresh ideas,” he said at the time. “We have been continuously recruiting. It’s ongoing.”

Talent shortage
Rapid-Line’s Lindquist is hardly the only executive focusing on workforce development and training as suppliers look to ramp up production to meet demand. Stiles Manufacturing has a program in place to hire veterans, particularly those who worked on submarines or aircraft carriers because the technical training many received parlays well into working on equipment, Waltman said.

Another possible source of talent is the Jasper, Ind. campus of Vincennes University, which is one of the first colleges to offer technical training specifically for office furniture manufacturing, he said.

“GRCC and GVSU don’t have a program for the office furniture supply chain,” Waltman said. “I think we’ve missed an opportunity to keep our kids here.”

Beyond the issues of workforce development, Rapid-Line’s Lindquist aired concerns on a number of other issues he believes could weigh on suppliers if orders hit the levels expected in the BIFMA forecast. Lead times for new work, for instance, have dropped down to a period of days instead of weeks, he said. Additionally, a key tax deduction for investments in capital equipment is no longer available.

To compensate, Rapid-Line is investing in automation as well as establishing partnerships with raw material vendors and is working to increase its lead times as much as possible, Lindquist said.

Driving forces
Much of the industry’s growth can be attributed to the aging workforce starting to retire and the new generation of workers who are looking for different office environments, according to industry sources.

The changes occurring in today’s office culture is “the bigger deal” for the industry than improving overall economic conditions, Steelcase Inc. CFO David Sylvester said at a recent investor conference.

“So very few companies have invested in modernizing their spaces when these … forces that are affecting work are reaching exponential consequences,” Sylvester said. “Work is changing at a dramatic pace and companies have not invested in their space dramatically in the last 15 years. … There’s pent-up demand to modernize space.”

Rapid-Line’s Lindquist echoed that sentiment, noting that Fortune 500 companies, in particular, have a strong demand for new office furniture.

“They’re flush with cash and the old office layouts are being changed,” he said.

Rapid-Line’s own projections for 2014 are generally inline with what is projected by BIFMA. Lindquist said his company anticipates around 3-percent growth for this year. But he remains skeptical about 2015 when growth is forecasted to be in the double digits. Lindquist says he’s just not sure his company will have the resources to grow at that pace.

However, if any manufacturing cluster in the country could meet the expected demand in the office furniture industry, West Michigan would be the place to do it, Lindquist said.

“People in West Michigan generally rise to the occasion and we’ve seen them do it in the past,” he said. “It’s a whole year out, so we’ll see.”