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Supply Chain Management of Homasote Company
Supply Chain Management of Homasote Company - January 10th, 2011
Homasote Company, based in West Trenton, New Jersey, manufactures insulated wood fiberboard. It is the oldest manufacturer of building products from recycled materials in the United States. Its signature product is homasote, a structural fiberboard made from recycled post-consumer paper and hot water, which are mixed together to create a slurry, then poured into molds, baked to remove the water, and cut to various sizes. Waste materials from this process are returned to the system and also recycled. Homasote is used in construction for structural purposes, paneling, insulation, concrete forming and expansion joint, sound control in floors and walls, and roof decking. Through its Pak-Line Division the company also uses homasote for the packaging and shipping of such industrial items as glass products, stone and metal parts, rolls of paper and film, and metal coils. Homasote estimates that it uses as much as 250 tons of waste paper each day, which translates into the elimination of 65 million pounds of solid waste each year and the saving of 1.4 million trees. The company's products are primarily sold to contractors and building material wholesalers. Publicly traded by way of the Pink Sheets, Homasote is majority owned by the Flicker family.
Homasote's Founder Born in the 1800s
Homasote was founded by Eugenius Harvey Outerbridge, but he is best remembered as the first chairman of the New York-New Jersey Port Authority, which was responsible for a number of projects, including the construction of a bridge linking Staten Island to New Jersey bearing his name. It became familiar to generations of New York City drivers as the Outerbridge Crossing. Outerbridge was born in Philadelphia, Pennsylvania, in 1860. At the age of 16, he gained a practical business education at the venerable Newfoundland mercantile firm of Harvey & Company, one of the last branches of the Bermuda Trading Company, a far-flung enterprise that dissolved in 1767. His mother was a member of the Harvey family, and after her marriage to Alexander Ewing Outerbridge, the Harvey and Outerbridge families established deep-rooted business connections. In 1878, Eugenius Outerbridge moved to New York City to serve as the agent for the family business. He remained in New York for the rest of his life and from there managed his various business enterprises. When he was just 21, Outerbridge established Harvey & Outerbridge, an importing and exporting firm that was heavily reliant on shipping. Thus, Outerbridge took a keen interest in New York's transportation problems, championing the cause while holding top positions in New York State's Chamber of Commerce. For years, the Port of New York, the responsibility of both New York and New Jersey, was intolerably congested. A tangle of railroad lines converged in New Jersey towns that lay across from Manhattan. Here, freight had to be loaded onto ferries to be transported across the Hudson. Rail congestion became so bad at times that trains were backed up as far away as Pittsburgh. Oversea shipments were delayed, a situation that became intolerable when World War I turned New York into the busiest seaport in the world. Outerbridge was one of the men appointed to a bi-state commission to study the problem and led to the creation of the Port Authority of New York and New Jersey in 1921. He was named the Authority's first chairman, a post he held until 1924. Outerbridge died in 1932.
During his business career, Outerbridge also took control and headed the Pantasote Leather Company and served on the board of directors of a number of banks and corporations. In 1891, Panasote began marketing a leather substitute, created by gluing together two fabrics with Pantasote gum. The surface was further treated with Pantasote and embossed to provide a hide leather finish. The Pantasote name was coined using Greek roots, meaning "to serve all purposes." The product lasted longer than leather, was cheaper to make, and more easily cleaned. It was used to make upholstery and curtains and was waterproofed for the manufacture of tents and awnings.
What Pantasote was to leather, homasote would be to wood. In 1909, Outerbridge brought from England what was then the secret manufacturing process to create fiberboard out of newspapers. He built a factory in Trenton Junction, New Jersey, located on the main line of the Reading Railroad. Initially called the Agasote Millboard Company, the business produced sanded "agasote" sheets, a high density material with excellent waterproofing characteristics, primarily used in the roofs of passenger railroad cars.
Due to increasing sales of automobiles and a declining number of rail passengers, coupled with increased competition for agasote, Outerbridge looked to new markets. Automobiles also needed waterproof roofs, and starting in 1915 agasote was used in the making of automobile tops for such manufacturers as Buick, Dodge, Ford, Nash, and Studebaker. The company also entered the truck market, introducing "Vehisote," which was used to make delivery truck panels. It was in 1916 that Agasote Millboard Company turned its attention to building products. In that year, it introduced "Versatile Homasote Board." The unsanded panel was not only strong and lightweight, it was weather resistant, equally suitable for use in blistering hot conditions and sub-zero temperatures, dry conditions and wet. At the time, World War I was raging in Europe and the United States was soon to be drawn into the conflict. The U.S. military became aware of the product, and when the army was deployed in France in 1917 homasote was used in the exterior of military housing units and field hospitals.
The company became more dependent on the construction market after the war due to the fact that in 1925 car manufacturers stopped using agasote for car tops, preferring instead to produce convertibles using canvas roofs. Agasote Millboard Company now began to focus on its Homasote brand, promoting its uses for construction and insulation. One customer put the product to the ultimate test. Arctic explorer Admiral Robert E. Byrd took Homasote boards with him to Antarctica to build his winter headquarters, so-called Little America, for his 1928 to 1930 expedition. He used Homasote for the external walls, while relying on another company product, Thermasote, to insulate the internal walls. When the expedition came to a close, the buildings were disassembled and the sections warehoused in New Zealand under damp conditions. Some of the materials were then brought back to Antarctica to be reassembled to construct a second Little America in 1934. Years later, an Army radio engineer, Amory H. Waite, a member of the expedition, wrote to the company to express his amazement over how well Homasote withstood the extreme conditions. It was one of the greatest product testimonials a company could ever hope to receive. Not only were the stored sections still strong and easily assembled, he wrote, but the men found buried sections of the original camp in "perfect condition after one year of soaking in melted snow (1929-30) and five years under the terrific pressure of 20 feet of ice." Moreover, Waite returned with the U.S. Navy to the site of the second camp 18 years later, dug down 12 feet to find "the 18-year-old Homasote in the walls and ceilings of the 'Mess Hall' and 'Science Lab' (the only buildings we could reach) absolutely unharmed by time, water, cold. Hundreds of tons of ice had forced up the wood floors and pushed down the ceilings until they met in the center of the room and puddles of ice everywhere evidence the repeated freezing and thawing of the many seasons, but the walls were straight, unbuckled and scarcely stained."
During the Depression years of the 1930s, the company devoted an increasing amount of its energy on the building trade. To counteract a problem of generating repeat sales, which the company suspected was the unintended consequence of manufacturing a product that was too good, a prefabricated housing system was launched in 1935. The first modular housing development to employ the "Precision Built System of Construction" was located in Valejo, California. In just 73 working days, the contractor put up 977 houses.
Company Changes Name in the 1930s
The company became so tied to its signature product that in October 1936 it changed its name to Homasote Company. In the second half of the 1930s, the military remained a valuable customer. The U.S. Navy turned to Homasote because of its proven insulation properties and ability to weather harsh conditions for the construction of barracks and other buildings needed in a major base located near Kodiak, Alaska. Military demand for Homasote increased as World War II erupted in Europe, and it became increasingly apparent that it was only a matter of time before the United States joined the struggle. During the war years, all of Homasote's production was commandeered by the military to construct housing and other base facilities.
Even with the close of the war in 1945, the military need for Homasote did not end. The United States and its allies quickly came into conflict with their wartime partner, the Soviet Union, resulting in what would become known as the Cold War. In order to keep tabs on Soviet aircraft and missiles and thwart any attempted sneak attacks, the military built a line of radar sites, the Distant Early Warning line, spread across the Arctic Circle. Once again, Homasote was the material of choice used in constructing these radar facilities. After World War II ended, the company also returned to serving peacetime needs. Homasote, like all building materials, was in great demand during the postwar housing boom, as returning servicemen married and began moving into the new suburban housing projects that cropped up all over the country. Homasote also looked to expand beyond the construction market, in 1945 establishing the Pak-Line division to create industrial packaging products, custom-made and cut to fit the shape of a product intended for transit.
Relying on recycled newspapers as its primary raw material, Homasote was well ahead of its time as a green company. Then, in the 1950s, it developed a close-loop system to recycle the hundreds of thousands of gallons of water it used each day in the making of fiberboard. Not only did the system save the company money by making use of all its water, it prevented pollution of the local water supply. In 1956, the U.S. Army Corps of Engineers recognized the recycling effort with a special award.
The Flicker family's involvement with Homasote dates to the late 1930s when Irving Flicker supplied the company with its raw material, wastepaper. In 1960, while a partner in an Asbury Park, New Jersey, wastepaper company he was approached by Homasote's head, Basil Outerbridge, who hired him as an executive vice-president. In 1965, Flicker's brother, Shanley Flicker, followed him to Homasote and played a key role in automating the company's production facilities. In the early 1960s, Irving Flicker became Homasote's president and in 1971 was appointed chairman. In 1965, his son, Warren L. Flicker, went to work for the company.
Despite a housing slump in the early 1980s, Homasote, as it had in the past, was able to weather the difficult period with relative ease. However, Oriented Strand Board (OSB) had been introduced in the late 1970s. While this material lacked the properties of Homasote, it was less expensive and along with plywood superseded Homasote as an external sheathing material. The addition of foam products in the early 1980s helped to mitigate somewhat the loss of business. Nevertheless, the conservatively run company held course. It was essentially debt free and consistently paid a dividend, so that during the 1980s Homasote began attracting the attention of investors. Its shares were traded on the Philadelphia Stock Exchange "practically by appointment," in the words of a 1987 Barron's profile.
Setbacks in the 1990s and Recovery in the 2000s
In the early 1990s, Homasote had to again contend with the effects of a recession. Sales dropped from $28.1 million in 1990 to $23.5 million in 1991, resulting in a meager profit of just over $7,000. As was typical during the company's history, management shared in the burden of the cost-cutting measures it imposed. Irving Flicker reduced his salary by 25 percent in 1992, while his brother, son, and other officers accepted 15 percent pay cuts. For their part, the ranks of middle management reduced their salaries 10 percent. Further savings were achieved by eliminating a fleet of trucks and a trucking warehouse and turning to common carriers. The company also switched its health coverage to a health maintenance organization.
Homasote returned to profitability in 1994 when it posted sales of nearly $25.7 million, resulting in net earnings of more than $1.2 million. In 1995, as part of a long-term effort to improve productivity and lower costs, the company invested in a new dryer that relied on a different and less expensive energy source. It was a time-consuming undertaking to make the transition and proved more difficult than expected, adversely impacting the company's balance sheet for the next couple of years. The new dryer was finally put into modified use in September 1997, but even before the company could determine the optimum way to use the new equipment, a fire occurred inside the drier which put it out of service until late December. Another, smaller fire, took place in January 1998, but it was quickly repaired. While the company dealt with its insurance company about either replacing the dryer or bringing it back to its original state, it operated at just a fraction of its anticipated production capability, which was nevertheless equal to double the two units it replaced. The year 1998 was also marked by the retirement of Irving Flicker, who was replaced as CEO and chairman by Warren Flicker. Irving Flicker retained the title of chairman emeritus until his May 2002 death at the age of 87, having served over 55 years as an employee and advisor. Two years earlier, Irving Flicker's brother, Shanley, had passed away shortly after his own retirement at the age of 82.
As a result of its production problems, Homasote experienced a drop in revenues in both 1997 and 1998, resulting in a net loss of nearly $1.2 million for that period. Although a settlement had still not been reached with the insurance company, Homasote saw some improvement in 1999, as well as hope for new business. Over the years, Homasote gained a reputation as a sound controlling material for walls and floors, but it was not until now that the company decided to tap into the growing market for inexpensive sound control in homes, high-rise construction, and commercial buildings. In order for architects to specify the material, however, the company had to commission laboratory tests to provide statistical rather than just anecdotal evidence that Homasote dampened sound and also served as a fire retardant. Tests revealed that Homasote was indeed an excellent sound-attenuating material, opening up a new market for the company, which launched a new line of panels called 440 SoundBarrier. The success of the 440 SoundBarrier helped Homasote to grow sales by 10.9 percent to $27.7 million in 2000 and record a profit of nearly $314,000. The company was also able to finally reach a settlement with the insurance company over the 1997 dryer fire.
However, just as Homasote was beginning to build momentum, the economy began to slide, a situation made worse by the terrorist attacks on the United States on September 11, 2001. Sales fell by 7.3 percent to $25.7 million in 2001 and difficult conditions continued in 2002, when sales slipped to $25 million, and the company recorded a loss in excess of $500,000. In 2003, the prices of plywood and OSB began to soar, making Homasote once again a viable alternative in exterior sheathing. Builders took a second look at an old material, which was now not only competitively priced but possessed better combined physical qualities than plywood and OSB. The sales of 440 Sound Barrier continued to increase, and the growth of the home theater market held promise for the product line. Moreover, Homasote's long history as a green company was something that could be more fully exploited. Even as it was approaching its 100th anniversary, it would not be surprising that the company's best years were yet to come.
Principal Competitors: Knight-Celotex LLC; Louisiana Pacific Corporation; Georgia-Pacific Corporation; Dennison Inc.; Hacker Industries Inc.; USG Corporation.
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