Against the Grain
To judge by the start-up of Unity Forest Products, there's nothing wrong with the lumber industry that flexible manufacturing, tight fiscal management, and great customer service -- or, as founder Enita Nordeck says, a dose of common sense -- can't cure
Enita Nordeck had no dreams of building a business. Unity Forest Products sprang into being through a blend of happenstance, fate, and pluck, all ignited by the sheer determination of three men who appeared on her doorstep one December day in 1987.
That fall Nordeck had left a job at Siskiyou Forest Products, a remanufacturing mill near Sacramento. Such mills buy lumber that the big tree-harvesting sawmills of the Pacific Northwest consider finished, to a point, and remanufacture the "blanks" into scores of different products. Unity's lines, for example, include exterior siding, paneling, barge rafters, fencing, and patterned specialty items. Unity sells to lumber retailers catering to builders, remodelers, and handy homeowners.
Siskiyou was a similar operation. In her three years as chief financial officer and general manager, the tireless, effervescent Nordeck had turned it from a loser into a highly profitable business. But frustrated by conflicts with the owner, she resigned. Her plans were vague. Her husband, Charley, was disabled and needed a knee replacement. They had just built a house and were still settling in. She was actually contemplating a salesclerk job at JC Penney.
But the three men, all colleagues of hers at Siskiyou, had other ideas. They too had just quit from there, unhappy with the management after Nordeck's departure. "They said they were going to sit on my porch until we decided to do something together," Nordeck recalls. "They weren't sure what it would be, but they knew that the four of us could make something happen."
Nordeck was intrigued. These three had been mainstays at Siskiyou. One was Til Johnson, a high-powered guy who could sell money to the mint. Another was Steve Hagen, a veteran salesman. He had grown up in redwood country, where his father ran a sawmill. The third was Mike Smith, a quietly intense mill-crew supervisor, certified lumber grader, and equipment expert. All were superb in their jobs and knew the lumber industry cold.
As did Nordeck. Then 42, she'd been in the field since age 17. A high school valedictorian, she'd had to turn down a scholarship to Stanford to support her ailing parents. She started as a sawmill clerk in Covelo, a tiny northern California community. From there she rose to controller at an Oregon sawmill, then to chief financial officer and general manager at Siskiyou, a $20-million operation. For much of that time, she was a single mother of four on top of everything else.
Lumber is a male-dominated field, however, and she felt her prospects were limited. But in Johnson, Hagen, and Smith, each of whom she liked and respected, there was the nucleus of a company. What they needed, they told her, was a team captain, someone with financial acumen to pull the pieces together. In short, they needed Nordeck, and she could not resist the challenge.
The idea of starting a business was "scary," she admits. It would be all-consuming. But in she plunged, with her eyes wide open. "I knew exactly what was involved," she says, "and it would be very tough."
But not impossible.
Today Unity Forest Products is thriving in an industry threatened by a severe shortage of raw material -- timber -- and depressed by a downturn in housing starts. Yet despite the volatility of the construction market, and the plight of the forestry field in general, the company has never had an unprofitable month.
Unity's steady success hinges on the hardscrabble values that created it. Its 38 employees work as if they're on fire. The company makes sure that profit centers are indeed profitable. It combines speed, fair pricing, a keen knowledge of its customers' needs, and an intense symbiosis between sales and manufacturing with a near-fanatical attention to financial detail. In short, Nordeck runs the company with tactics that are nothing less than revolutionary in the hidebound, unhurried lumber business.
Even her bankers are amazed. "What she has is a theory of inventory management and sales and marketing that hasn't really found its way into this industry yet," observes Dave Zuercher, a senior vice-president at Wells Fargo Bank's Sacramento branch. "It appears to me that Enita's approach is more profitable."
Every morning, five or six big trucks taking product to lumberyards all over California and beyond depart Unity's 10-acre plant, beside the Feather River in Yuba City, Calif., a community of 30,000 an hour north of Sacramento. Five or six more roll into Unity's yard bearing the raw lumber. In the mill itself, with its huge, thunderous machinery, the crew of 24 moves nimbly from one product to another with little downtime. It pushes out some 6 million board feet a month, placing Unity among the largest of the 50 or so lumber remanufacturers in the state.
The sales team, five strong, works the phones in a near-frenzy.
Nordeck herself tracks the cash flow in a way that would do the most tight-fisted bean counter proud. No detail, it seems, escapes her attention. But that's just one of her roles. She is the mastermind behind the operation, the chief executive, the mother superior, the financial planner, the counselor to her crew. According to her coffee mug, she's the "zookeeper," too. And five years ago, when Unity was an infant, she was the sawdust sweeper as well.
Even in the beginning, Nordeck and her three would-be partners were confident they could compete. Around her kitchen table, they roughed out a plan. And by the first week in January 1988, Unity Forest Products was an entity.
Nordeck liquidated everything to fund the early going. She sold her stocks and her new house, raising some $265,000. Smith sold his house, too, and contributed $30,000. Hagen weighed in with $22,000. Johnson had no assets, but Nordeck fronted him $15,000 so he could buy into the equity. "If I had to lend money so he could do it, that was fine," she says. "We were gambling everything, and I wanted a long-term commitment from all of us." She took 75% of the stock, and her three partners shared the rest.
To build and equip a remanufacturing plant, Nordeck figured she needed another $650,000. But banks didn't lend to start-ups with zero history. Unity needed a track record. A brokering operation offered an affordable way to establish one.
A small rented one-room office in Roseville, near Sacramento, served as headquarters. Unity bought lumber from sawmills, subcontracted out the resawing work, then wholesaled the goods to lumberyards. It made money right from the start.
Meanwhile, Nordeck was scouring the countryside for cash. No bank would fund the construction of Unity's new remanufacturing mill -- it was too risky. But there was a glimmer of hope with Wells Fargo. Nordeck had a contact at the bank's Sacramento office, a young loan officer named Shelley Laurel. They had worked together when Nordeck was at Siskiyou and Laurel was with Union Bank back in 1986.
"I recognized that Siskiyou did well because of her," Laurel says. "I knew Enita and her ability to manage assets. She's very conservative, and that's what bankers like." In Unity's first month Laurel extended the company a $150,000 operating line of credit, secured by receivables. Two months later she doubled it.
The credit line provided a safety net, but Nordeck never touched it. Instead, at each step of the company-building process, she relied on resourcefulness and caution, always hunting for bargains and favorable terms, and never parting with cash until she absolutely had to. Undercapitalized as she was, there was no other way.
In February of 1988, for instance, she and Smith traveled to Idaho to look at some hardware. A mill there had just installed a computerized system, shutting down a perfectly serviceable line of equipment. Brand new, the line would have cost $800,000. Nordeck bought it for $180,000.
She drove a hard bargain. Under the terms of the sale, she didn't have to pay for the equipment until it was needed. "I had it locked in, with no interest, and didn't have to use the cash flow until each particular section of that line was torn out and loaded onto a truck," she says. It came out piecemeal, all carefully identified, in 11 trucks. "It looked like a lot of junk, all these wires and electrical systems," she says. "But we rebuilt it all and it was like new."
Not all the equipment was perfect for her needs, but it was a start. The planer, a massive machine for high-volume work, wasn't something she could use, but she knew where she could trade it for a couple of resaws and a forklift. "There was a lot of horse trading," she says. "That's how we got everything."
Mind you, at this point Nordeck didn't even have land to build on. She looked all over California before zeroing in on a 10-acre parcel, a big field with a walnut tree in a Yuba City industrial park. It was ideal, with power and water right up to the equipment line, and near California's central artery, Interstate 5. Better yet, Bank of America had foreclosed on the property and was looking to dump it for $150,000 -- a terrific bargain.
By this time, still February 1988, Nordeck had met two people who would prove crucial to Unity's story: Jon Whiteman, Yuba City's economic-development director, and John Ochipinti, a local contractor. Whiteman's goal was to bring new industry to an area with 14% unemployment. Ochipinti was interested in building Nordeck's plant, to the point where he agreed to negotiate for the land with Bank of America. The commitment letter from the bank arrived on April 13, 1988. Ochipinti himself bought the land and held the title until Nordeck could arrange financing. Once again, Nordeck was able to preserve her cash.
One big piece of the puzzle remained: the money to build the facility.
Yuba City jumped in first. Because of its jobless rate, it is a state-designated "enterprise zone" with a revolving fund of federal community-development block grants. Whiteman recognized that a remanufacturing plant could generate dozens of jobs. And soon after meeting Nordeck, he was convinced by the evidence that her strategy was sound.
The brokering operation in Roseville, for one thing, was doing well. In the first month, sales hit $200,000. Obviously, Unity could get customers, deliver product, and make money. Nordeck's reputation in the industry was superb, as was her grasp of the nuts and bolts of management math. She had refined her concept into a five-year business plan, featuring weekly cash-flow projections. "I costed everything out in detail, right down to how many staples we'd need to staple our paper wrap," she says.
With Whiteman steering Nordeck through the local bureaucracy, the city agreed to a $100,000 eight-year loan at 3.25% interest. Whiteman then brought in the California Department of Commerce, which committed another $105,000 -- a 20-year note at 8%. But Nordeck still needed nearly $500,000 of bank money to make the project viable.
Her best bet was Wells Fargo in Sacramento, where Shelley Laurel was pressing Nordeck's case. Laurel's superiors, however, were skeptical. Mike Smith, the burly cofounder and mill foreman, told Nordeck he could turn the inventory over every 10 days. That sounded absurd to the bank; according to its statistics, the industry average for inventory turnover was 58 days.
Nordeck also said she could collect accounts receivable in 10 days. Again, eyebrows went up at Wells Fargo; its analysis of the lumber-remanufacturing business, in which it was heavily involved, showed that, on average, companies collected receivables in 27 days.
The bankers had other concerns, too. What if the contractor failed to complete the plant? Or if construction went over budget? And suppose the housing market went into the dumper?
Each time the bankers raised a roadblock, Nordeck reworked the numbers and zipped right back. "I probably redid the plan 30 times," she says, "responding to all their what-ifs." She was relentless, calling the bank every day for more than two months.
Finally, exasperated, Nordeck did something completely out of character. She walked into a senior vice-president's office and pounded on the table. "I told him that somewhere along the line he would have to invest in people," she recalls. "I said this was a very good loan because the people involved were going to make sure the business worked. We were capable. Even the sawmills were giving us credit, which was rare for a start-up.
"I think they finally made the loan just to get me off their back," she adds. Wells made two loans, actually, one for $265,000, and another for $200,000, with rates of 12.25% and 12.08% respectively. Term loans at Wells are usually five years. With Unity situated in an enterprise zone, however, and because Nordeck is a woman, the funds came from a special program with attractive terms. Nordeck got one loan for 10 years, with a 15-year amortization. The second was for 10 years, but with a 30-year payback.
That eased her cash-flow concerns. By stretching out the payments, she'd have more cash available to run the business and a better chance of avoiding borrowing against her credit line. But she pressed for more. She wanted the right to renegotiate the loans after five years, when she was certain she'd qualify for lower rates. The bank consented.
All told, with the funds from the bank, the state, and the city, Nordeck had a blended rate of 10% and total monthly payments of $6,200. That was workable. By May 1988 she had all the letters of commitment in hand. None of the money would be released, though, until the plant was completed. Nobody was willing to finance the construction. John Ochipinti was set to start. He knew he wouldn't be paid until the plant was finished, but he liked Nordeck and trusted her to honor her word. He broke ground in early June and completed the job, on time, in mid-September. Part of the credit for meeting the schedule goes to Nordeck, who applied the same tireless diligence to the construction that she now brings to the daily operations.
"I'd drive an hour each morning to be here at 5:30, to make sure the subcontractors were here," she recalls. "If they weren't, I'd drag them out of bed. I made sure it was all laid out what had to be accomplished that day. Then I'd work all day in Roseville and drive back here at night to make sure everything got done.
"I remember one day when a foundation was supposed to be poured because we were to start setting up equipment that night. It hadn't been done, and I went and had a real heart-to-heart with John. He had floodlights out here that night, it got poured, and we were right behind him installing the equipment, boom, boom, boom."
The project came in $1,010 under budget.
It's a spring day at Unity, and Shelley Laurel, the banker, is sitting in Nordeck's small office. She's glad she fought for the company back in 1988. Her only regret is that Nordeck never borrows any money, although her credit line is now $500,000. "Enita manages the assets so closely," Laurel says, "that she doesn't have to."
Indeed, the place is run as tight as a nuclear submarine. Nordeck has grown the business profitably from $6 million in sales the first year to $15 million now. What makes that all the more remarkable is that she has done so in a field where start-ups are rare and female owners are virtually nonexistent. Moreover, Nordeck runs the company on a management concept she assembled piecemeal over the years, one that defies the industry's traditions.
"Throughout my career, I saw things I knew could be done better," she says. From the start, for example, Nordeck has insisted her customers pay within 10 days, for which she offers a 1% discount. The sawmills demand payment in 10 days, too, but they give a 2% break. Since Unity operates on an 8.5% pretax margin, the differential is important, and Nordeck says she's never missed a discount. By collecting receivables in 10 days versus the industry average of 27, she effectively gains a 200% cash-flow advantage over the competition. And she doesn't have to borrow to maintain operations. The avoided interest makes for a healthier bottom line.
To ensure those speedy returns, Nordeck departed from the industry norm in setting compensation structure. At most lumber remanufacturers, salespeople are paid a base rate for meeting a quota. That made no sense to her. "Is that salesman motivated to sell to a customer who's going to pay in 10 days?" she asks. "Or is he going to sell to any customer just so he meets his quota?"
Other competitors pay salespeople a commission on adjusted gross sales, plus a base rate. In that scenario, she says, "each salesperson is like his own little business. Salespeople don't differentiate between 10-day accounts and 30- or 45-day accounts. They just want to make as much money as they can. What that does is pit each salesman against the one at the next desk. I have always felt, and observed, that that makes enemies of everyone in there. Nobody works as a unit. You can't have star players. You've got to have all stars who work as a team."
At Unity, everyone's compensation, including that of mill foreman Smith and Nordeck herself, is figured exactly the same way. "We go off a net bottom line for all our key people," Nordeck explains. "We all get a flat guaranteed rate each month, plus bonuses if we can swing it. There are no commissions. Monthly bonuses can range from 5% to 15% or more, depending on various factors: What are we planning to do in the next six months? Are we going to buy new equipment or increase inventory? What is the economy doing? How's our cash position?"
With sales pay based on overall profitability, nobody is inclined to make a marginal sale. If a customer fails to pay on time or to pay at all, everyone gets hurt.
To make sure the money comes in promptly, Nordeck reviews the books every Saturday. She writes out longhand all the receivables due that week. Writing them out helps her remember them, she says.
The expected payments had better arrive. "We know what the mail time is from our customers, and if those checks aren't here, we're on the phone," she says. "We hold customers to that rule, and they don't want that call. It's the squeaky-wheel thing. They'll pay me before they'll pay someone else."
Riding herd on receivables also alerts her to potential trouble. Two years ago, for example, word came through the industry grapevine that a customer in Sacramento was going under. Unity had just shipped $40,000 worth of lumber down there, and Nordeck had yet to be paid. She grabbed Til Johnson, threw a strapping machine into her pickup, and hit the road. On the way south, she called Mike Smith and had him divert three 18-wheelers to meet her there.
"When we arrived, the place was shut down," she says. "The owner was there and I started negotiating with him, but he said nothing could be done. The sheriff was due that afternoon to padlock the gate. I insisted I wanted the lumber back, and he said, well, maybe if I could get a truck in there, he'd let me take it." The trucks were hidden a block away so he wouldn't see them. When the first one rolled in, the owner couldn't believe his eyes. Johnson started strapping lumber and loading it with a forklift. As Nordeck spotted more of her wood, she called in the other two trucks. "It was like a movie," she says. "But we got everything out of there just before the sheriff arrived."
The most exceptional feature setting Unity apart from the rest of its field is Nordeck's approach to marketing and manufacturing. As a rule, lumber remanufacturers produce product and then try to sell it. At Unity, sales are made first, and the mill then churns out whatever is required to fill the orders.
By standing the usual practice on its head, Nordeck gets a number of benefits. For starters, she can keep inventory extremely tight, essentially buying only what she needs to meet established demand. That lets her hold down capital requirements in a capital-intensive industry, a result her bankers applaud.
"You would expect a company that size to be sitting with a $2.5-million inventory," says Dave Zuercher, the Wells Fargo senior vice-president in Sacramento. "I think Enita is sitting with about a third of that, or less. She has figured out that the real expense in this industry is carrying a lot of inventory awaiting sales.
"Basically, she's introduced a more modern, just-in-time approach to an industry that has grown up on some older values," he says. "Her competitors want the comfort of having the inventory under their control at their locations, already remanufactured and in a finished condition. They think they need that to make sales. But when people get in trouble in this industry, it's usually because they have too much inventory."
The danger in Nordeck's method, of course, is that if supplies get tight, she might not get the wood she needs. (Wood supply has become a pressing industry concern as environmental activists work to shut down logging in many North American forests.) So far she has managed that risk adroitly. She has developed strong relationships with dozens of vendors. And when she buys lumber, she does so judiciously and then pushes her salespeople to make sure they move it swiftly.
She walks the yard every Monday morning with the sales crew, inspecting every stack of blanks yet to be milled. "If it's been there more than four days, that's bad inventory," she says. "They have to get rid of it. The saying in the industry is, 'Your first loss is your best loss.' So if you have to take a loss on it, take the loss. Once you start that policy, you put those dollars into something good that's turning rapidly and making margin. And pretty soon you don't have any bad stock."
As it is, the inventory turns over every week -- a stunning rate. The industry average, remember, is 58 days. From the outset, the mill was designed for versatility and speed. "That really comes from experience," Nordeck says. "When you've been around sawmills all your life, you know how to make that flow more efficient, and do multiple tasks on any one piece of equipment. Most remanufacturing people lack sawmill backgrounds -- they're not used to diverting lumber from one direction to another and combining uses. Mike Smith has that sawmill experience, as I do, so we designed our equipment to be able to shift quickly from one product to another. It wasn't that difficult."
It requires unusual teamwork and cooperation between sales and manufacturing to make this high-speed system work. Nordeck and her key people hold at least three meetings a day, she says, because the need for judgment calls often arises so rapidly. The mill sometimes has to "jump through hoops," she says, to get wood out on time. But the fast pace yields distinct benefits.
For one, it keeps the sales folks sharp. Foreman Smith gives them a trucking list on Monday mornings. "If we have promised a guy 2,000 board feet on Tuesday -- and trucks carry 30,000 feet -- then they will sell 28,000 feet on Monday to fill that load. They'll make 150 or 200 calls by noontime."
Second, the rapid inventory turnover is popular with customers. They always get fresh products. "We don't have problems with customers saying this stuff is gray or warped," Nordeck says, "and that's a big issue with a lot of other vendors."
What's more, by shipping its products so frequently (it leases three trucks and uses common carriers as well), Unity helps customers hold down their own inventories. Larry Silva manages Copeland Lumberyards, in Woodlake, Calif., a south Central Valley community. "Unity runs trucks in this area every day, so I can buy smaller quantities and get better turns that way," he says. "I can call them today, and if I really need it, they'll get it here tomorrow if it's available. If they don't have it in stock, I generally get it in two days. Our other suppliers aren't that reliable."
Adds salesman Til Johnson: "We're not the cheapest guys around, but price really becomes secondary. Reliable service is what customers are after more than ever. They want somebody who can keep their own inventory turns up without their having to buy a whole truckload. That has helped us tremendously."
Third, because it turns inventory over so quickly, Unity's prices are on the market. Lumber costs can fluctuate between the time the company buys the raw wood and the time it ships the finished product. If Unity has to take a hit, it's usually for only a day or two of volume. "We never weasel out of a commitment," Nordeck says. "Customers trust us to deliver at prices we quoted, and that's given us a certain integrity in the industry."
Finally, Unity's speed and versatility help shield it against a soft economy. "If you have just a few major products, you are tied into particular vendors," Nordeck says. "If you need to change, if housing slumps, you have to establish rapport with other sawmills. That's why we have so many species of wood in here and more than 150 product lines. No matter what happens to the economy, we're not locked into any one sector. When one product area slows down, we pick up on others."
All this requires teamwork, dedication, and long hours from people working in a stressful environment. "Everyone here understands the energy level required to make this go," Nordeck says. She compensates for the strain on her troops by treating them generously. "I may be cheap," she notes, "but I'm not greedy."
Mill hands earn about $2 an hour more than the prevailing wage rates and get bonuses of $300 to $500 a month whenever Nordeck can afford it. Salaried folks regularly receive $1,000 bonuses. Salespeople can easily make six figures.
Together, these moves have helped Unity weather the current downturn in home building -- no small feat for a young company. One wonders why Nordeck's competitors don't emulate her obviously successful methods. She wonders, too. "I don't understand why the whole industry doesn't turn inventory and receivables faster," she says. "It seems so simple to me."