Stairway to Success
BC company Spindaleer Manufacturing proves there's a solid market in producing wood stair components.
By Paul MacDonald
While the Canadian forest industry has been abuzz with news about takeovers and mergers among the large forest companies in the last several years, a medium sized value-added company in British Columbia is proving that partnerships on a smaller scale can also work. Spindaleer Manufacturing-a major producer of wood stair components-is located in the largely agricultural community of Chilliwack, about an hour east of Vancouver.
From its modest plant site, surrounded on all sides by farms, the company is producing everything from interior stair spindles and railings to exterior porch posts and stringers and shipping them to fast developing European markets. Its main market, however, is the United States, where it has set up a strategic partnership with its parent company, Wisconsin based Design House. "They've been our largest customer for 25 years," explains Gerry Eggert, vice-president and general manager of Spindaleer. "They had said before that if the company was available for purchase, they would be interested in talking with us ."
The change in ownership took place in 1995 and, not coincidentally, the company has since seen its sales increase fourfold and is now looking at annual sales of $20 million. "We've had exceptional growth due to the partnership with Design House," says Eggert. The purchase of a supplier was a natural move for Design House. Originally, Design House was strictly a distribution company. But they saw that there were challenges being posed to the traditional distribution process, with retailers like Home Depot and Lowe's often dealing directly with the manufacturers, rather than through distributors. The subsequent strategy, and a successful one at that for Design House and Spindaleer, was to purchase some of the companies actually doing the manufacturing.
"The bottom line," explains Eggert, "is that they were our biggest customer and we were their biggest supplier and both of us were a bit nervous about that. The deal to purchase Spindaleer in effect solid ified things with their largest supplier for them and with our largest customer base for us at Spindaleer." Over the last few years, Spindaleer has seen its sales grow significantly, but not growing at a steady, even pace.
If you were to chart out the company's sales growth, it would look similar-oddly enough- to a profile of a stairway, with the steps up representing a surge of new business, followed by plateaus when the company works to meet the needs of these new customers. "Business used to grow gradually, but these days it grows in big steps," says Eggert. "It goes along and then suddenly there's a bump with big growth and you have to adjust to that. "When you look at things in the retail industry, there are fewer and fewer little guys, with a lot of people being bought out or merged. So when you get a new customer now, it might be a Home Depot region with 200 stores, which means a huge opening order for us. It's not like it used to be, where you add a building yard at a time and they might have an order for a few thousand dollars."
To meet the increase in demand for their stair components, Spindaleer has increased its capacity. It purchased a wood turning company in Washington State in 1997 and has since integrated that machinery into the Chilliwack plant. The additional machinery has basically doubled their production. It has also given the company some balance in terms of what they are producing. Previously, the operation was heavily weighted to turning out stair components for exterior use, a good deal of which was pressure treated after manufacturing. The new equipment has allowed them to broaden their market in interior components to the point where sales are now split 50/50 between interior and exterior product.
The plant has gone from nine lathes to 18 lathes, making it one of the largest, if not the largest, wood turning operations in Canada, says Eggert. They have two major brands of equipment, Mattison and Diehl, and while some of the equipment may be vintage and have a few million turns on it, these lathes are still turning out the goods. "The equipment we incorporated from Washington was the same type, so it was very compatible," says Eggert. "In fact, some of the equipment we brought up was more high tech than what we already had because they had been focused on producing interior materials where quality is a bigger factor.
They had some unique and new things. So, not only did we gain some equipment, we also gained some technology advances ." They also added a 35,000 square foot warehouse which, due to site constraints, is located just down the TransCanada Highway.
In terms of wood supply, the company participates in the BC government's Small Business Enterprise Program, which essentially gives Spindaleer a limited amount of Crown timber rights, which it can use to trade timber with other companies. Eggert adds that the company had previously had difficulties sourcing timber because most of the BC timber resource was held by the primary producers, the large integrated forest companies. "Although we are not a logging company or a sawmill, we can now use that timber to ensure consistency of supply by trading with larger companies, like a Weyerhaeuser," he explains. "We can then get the grades, the species and sizes that suit us. It has probably been the biggest factor in enabling us to grow.
It's a good program for companies like us because the bigger companies make sure that we are looked after because they want our logs." But Eggert explains the inverse relationship between the wood used and value added with operations such as Spindaleer. "We're at the high end of the value-added chain and we do add a lot of value to the wood. But the more value you add, and this sounds odd, but the less volume you use." The focus goes to being labour intensive, from wood intensive. "We use about 10 million board feet of wood a year, and that's spread over western red cedar, lodgepole pine, hemlock and oak. That's not a lot of wood.
But we turn that wood into $20 million dollars of sales and provide up to 60 jobs." Spindaleer, for example, will buy hemlock from a local reman mill and pay in the range of $700 to $1,000 per thousand board feet. But the finished spindles they turn out have a value of up to $3,000 per thousand board feet. "That's a lot of added value," notes Eggert.
In the past few years, the company has become more focused on the wood turning end of the business and is doing far less of its own reman work. At one point, they were purchasing raw lumber and making their own blanks, but they now rely to a large degree on local remanufacturers for supply. These reman outfits put together a cutting program designed especially for Spindaleer. "We want to focus on what we do best. We are a market driven company so our focus is on the turning of material rather than the processing of material.
We consider ourselves a turning company." An area the company is paying close attention to these days, especially with customers like Home Depot which has seen a number of protests at their stores, is the impact of environmental groups. Spindaleer has been keeping the pressure on their suppliers to achieve certification so the company can go to its customers- the Home Depots and Lowe's of the retail world-and say with confidence that the wood they are using comes from sustain ably managed forests. They also deal with the environmental issue on another front, says Eggert. "The fact that we are a turning operation, rather than a manufacturing operation, means we have the flexibility to go with other species, including offshore. We've been doing some experimenting with some alternative plantation wood that is less environmentally sensitive.
If we were tied to only one species like BC hemlock, and our focus was in remanufacturing, then I'd be a bit more nervous about our future." The future does look to be bright for Spindaleer. Their biggest market, the US through Design House, now accounts for 75 per cent of sales. There appear to be signs that the US economy is cooling off a bit. But it still remains vibrant, with reasonably high housing starts and a healthy housing renovation market, which is good news for sales of stair components. The company is trying to focus on developing some markets in which it already has a toehold-Britain, Germany and Japan-and is seeing good response, especially for the outdoor stair components. "Our exterior products are particularly attractive in the marketplace right now because, worldwide, people are living outside with their homes. "In Britain, the backyard deck phenomenon that we've seen in North America is just hitting there. People are now putting a lot of their money in their backyards, no different than what we are doing here."
Export markets currently account for five per cent of total sales. With these foreign markets-and even in the US because Spindaleer's products are value-added-they thankfully do not have to deal with any restraints under the Canada/US Softwood Lumber Agreement. "About 98 per cent of our products fall under the North American Free Trade Agreement and are not subject to quota. NAFTA has definitely helped us because our product used to have substantially more duty going into the US market. That's all but gone now." In terms of suppliers and customers, Eggert says one of the keys to the company's success has been it's close relationships. "We work best with what we like to call 'marriages'.
We work with a small number of suppliers that have been with us for a long time and they know our needs and what we want. And the same goes with our customers. We know what they want and, historically, we've worked with our existing customer base to grow the business."
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last modified on Tuesday, February 17, 2004