Closing a manufacturing facility is never an easy process, but officials at Hearth & Home Technologies (HHT) recently made the difficult decision with a keen eye toward the long-term health of the company. As a hearth manufacturer and maker of several iconic brands, the Lakeville, Minnesota-based HHT decided to close its manufacturing facility in Paris, Kentucky.
Reasons are numerous, but V.P. Berger (pictured), president of HHT, cites the recent economic slow down, in addition to warmer weather and low oil prices—all of which challenged HHT’s revenue assumptions. Patio & Hearth Products Report (P&HPR) sat down with Berger to get additional insight on the closing, how it will affect employees, and how it will ultimately improve operations.
P&HPR: What factors brought about plans to close the manufacturing facility in Paris, Kentucky.
V.P. Berger, president, Hearth & Home Technologies, Lakeville, Minn: The recent slow down in the economy, warmer weather, and recent low oil prices are all challenging our revenue assumptions. We are expecting slower new construction recovery, modest retail gas, and a continued contraction in the pellet business. With all these changes, we feel we owe it to both our shareholders and our customers to protect our best cost position. When we have redundant manufacturing, it makes sense to take structural cost out to protect our position.
P&HPR: What is the time frame for closing?
Berger: Phasing out all the manufacturing will take about 12 months. The plan is to move the production to Lake City, Minnesota, and the Mount Pleasant, Iowa plant beginning in late May 2016.
P&HPR: What elements will be left at the Paris facility?
Berger: It’s important to note that we are just talking about the manufacturing in Paris. The new product engineering teams, the research and development teams, customer service, technical service, and warranty will all remain in Paris—both during and post transition. These teams are not impacted by the decision to consolidate manufacturing operations. There still will be a large call center and engineering department in Paris, Kentucky.
P&HPR: How many HHT team members will be affected by the closing?
Berger: First of all, the decision to close a manufacturing facility is a difficult one. In no way does it reflect the quality, hard work, and dedication of the Paris members. That said, there are approximately 210 members who will be affected. Certainly we appreciate them, and thank them for all their efforts. We are working with them to transition them to their new assignments.
P&HPR: Will HHT be helping out those who are affected?
Berger: Absolutely, we will help all of our members transition to a new assignment. I think it’s important to understand how we will do that. We have a very strong culture and philosophy and we want to assist every member with their new opportunities. That’s why we call it transition pay, because we are transitioning them to a new opportunity versus traditional severance. We will spend millions of dollars on our members to help them do this.
P&HPR: How will you do this?
Berger: First, our philosophy is transparency. More than one month prior to this announcement, we were in front of the member base in Paris telling them that we were going to look at this as a possible situation. So, by no means was this going to be a surprise to them. We spent the next five weeks analyzing different opportunities, and when we actually came to a decision in early March, we were able to not only tell the members, we were able to give them dates of when it would impact them.
When you look at transparency, and then we get to the point to where we do make a decision—a difficult one—every member was given a timeline from either 60 days notice to up to 9 months. This too is key to help them from a transition standpoint. Then, while they are here and working toward their end date, they are provided weekly incentive production bonuses. Upon completion of their assignment, they are provided additional transition pay based on their years of service. It’s transparency, it’s clear timelines, and it’s more than dollars. We will reward every member above their hourly pay with transition incentives as well as production bonuses.
P&HPR: How are you able to go this route when so many other companies get it so wrong?
Berger: We have a parental advantage being owned by HNI Corporation, a large and well known publicly traded company. With their parental advantage, they give us great guidance. You hug your members on the way out the same way you do on the way in. I know that sounds simple, but it is that simple. If you look at it that way, it really provides a perspective of the culture. It is about transition. It is not about severance.
P&HPR: What economies will be achieved with consolidation?
Berger: This is another example of our ongoing effort to continue to simplify and streamline our business model. By doing this, it allows us to take full advantage of our linked and lean value chain.
P&HPR: What benefits/advantages will you be able to pass on to the dealer network?
Berger: The change really advances our ability to deliver high quality products with the best cost performance. It’s back to our original point. If the markets are going to be soft, we have to be aggressive and proactive to remove structural costs and redundancies to protect that best cost position. That’s the best thing we can do, not only for our shareholders, but for our customers.