Move to Mexico a win for Martin
Thomas Russell -- Furniture Today, September 10, 2012
SAN DIEGO - For years, Southern California was home to Martin Home Furnishings' manufacturing facilities. In El Cajon and later Otay Mesa, Calif., it developed what grew to be one of the industry's most respected home office and home entertainment lines.
But in 2000, 20 years after its founding in 1980, the company determined that California was no longer the most cost-effective place to make furniture. Workers' compensation insurance costs were high, and the company also faced increasingly difficult regulatory pressures on factory emissions.
Faced with those issues, company CEO and founder Gil Martin began exploring alternatives. Given its proximity to the border, Mexico became an obvious choice for its next plant.
Today the 136,000-squarefoot GM Mfg. plant employs some 650 workers, including about 600 in production and 50 engineers and administrative staff. It remains a low-cost alternative, not just compared with California. It is also competitive with China, where Martin also sources some of its line.
Located in Tijuana, the plant produces about 65% of the company's product line, including 75% of its home office and home entertainment furniture, Martin said. The Mexico plant also makes commercial home office, another important part of Martin's business. The company also sources in Vietnam for its growing bedroom line.
The Mexican-made products are in maple, cherry, oak and mahogany veneers on primarily poplar solids.
GM Mfg. was established as a maquiladora, a manufacturing operation usually located in a free trade zone. Such operations typically import raw materials and equipment on a duty free basis and use those materials and equipment to produce finished goods. In Martin's case, the finished goods are shipped back to its warehouse operations in the Otay Mesa section of San Diego.
GM Mfg. is owned by Martin Home Furnishings and Gil Martin. Martin said the company started work on establishing a maquiladora in 2001 and 2002 and by 2003 began to move its manufacturing operations there.
On a recent tour of the facility, officials showed Furniture/Today the dynamics that make this plant work effectively in today's competitive marketplace.
In addition to administrative staff, the plant employs a team of engineers to handle computer-assisted product design and can deal with challenges that arise on the production floor below.
One group of workers at the two-shift operation is at the factory from about 6 a.m. until 4:30 p.m., and the second shift takes over from 4:30 p.m. to about 1:30 a.m. the next day. Workers are provided transportation to and from the plant as well as two meals. A doctor is also on hand to deal with medical issues that require immediate attention.
Workers also earn bonuses for productivity and attendance, and receive paid vacation, said Mark Mitchell, vice president and chief financial officer.
"They put a premium on showing up on time and every day," he said, adding that the company also pays into Mexico's social security system, which helps pay for health care.
Teams build and finish furniture pieces that ultimately are sent to highly automated machines that handle final packaging. The plant turns out 450 to 800 cabinets per day.
Each day, finished goods are then shipped across the border to San Diego, to Martin's estimated 230,000 square feet of warehouse facilities. These facilities also stock hundreds of thousands of replacement parts.
For Gil Martin, the plant has become an important part of the company's success for several reasons. For one, while Mexican workers earn more than workers in Asia, they earn far less than their U.S. counterparts.
A typical entry level work er in Mexico will earn about 1,400 pesos per week, or just over $100, said Mitchell, with experienced workers earning double that amount. That's far less than in California, where a production worker can earn just over $500 a week.
But Martin's Mexico plant is likely competing more against China, where a number of the company's competitors source home office and home entertainment. In China, a typical furniture worker can earn $250 to $400 per month (roughly $60 to $100 per week), depending on their experience and geographic location.
Perhaps most importantly, the Mexico plant's proximity to the U.S. market shaves off a significant amount of transportation costs from China. It also has much lower lead times - four weeks compared to Asian plants' 10-12 weeks, plus about three weeks on the water.
From Mexico, it takes less than a day to ship goods to the San Diego warehouse, and a matter of days to get product to the retailer, depending on its location.
"In all the channels we sell - where lead times and quality and consistency are important - those customers have said, ‘It is a definite value ... and is a great resource for us because it is reliable and consistent,'" Martin said.
Irv Blumkin, CEO of Top 100 Retailer Nebraska Furniture Mart, said he has been pleased with the quality of goods produced in the Mexico plant. He also said the shipping has been reliable.
"The customer likes instant gratification, and having a domestic, quick-ship facility improves the customer experience," Blumkin said. "We are able to get the goods quicker, and speed is what the customer wants."
Price, too, often remains a determining factor on which product - Asian vs. Mexican made - wins out. Martin said the Mexican product is competitive. When comparing the landed cost of the same product, home entertainment ends up being 5% to 10% more expensive out of Mexico, while home office ends up about the same, he said.
"That is probably our best category," he said. "We are dead even on office."
A double pedestal executive desk out of the Mexico plant retails from $549 to about $1,749, while TV consoles produced there retail from $349 to just under $1,000.
Martin said both office and entertainment can still be huge values from Mexico, when the ease of logistics is considered.
"In cases where timelines and shipping dates are important, (Martin customers) have all gravitated to our Mexico facility," Martin said.
However, he said the company will still look to Asia - China as well as Indonesia and Vietnam - for some product. That's primarily due to those countries' ability to produce goods using a variety of materials and finishes, Martin said.
The company will feature goods from all its source countries at the October High Point Market, including new lines from Mexico that are in stock and ready to ship.