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The price of wood, steel and other raw materials skyrocketed in the midst of the pandemic. And while some prices are returning to a normal range, many predict we will never see pre-pandemic pricing.
Yet, what about shortages of raw materials? Will foam and other mattress assembly pieces ever return and be consistently in stock? We chat with Michael Faus, Senior Vice President at the Carpenter Company—also known as the world’s largest producer flexible polyurethane foam, processed polyester fiber and comfort cushioning products—and discuss 2022 predictions and how companies can stay supplied.
Full Transcription
Mark Quinn
We’ve got all kinds of great stuff happening today. But most importantly, we got Michael fosse on the show Senior Vice President of carpenter. This guy has been in the industry for 39 years, which is actually one year less than Mark Kinsley. Stay tuned, we’ll be back in 60 seconds.
Mark Kinsley
The people get what the people want. And the people want Michael fosse on the show, because we are talking about carpenter. We’re going to be talking about foam supply, and the changing nature of the industry that we are in, which seems to change almost every day. Michael, thank you so much for being on the show with us today.
Michael Faus
It’s a pleasure. Thanks for having me. It’s it’s an honor to to to be next to both you gentlemen.
Mark Kinsley
Well, my goal, you can’t see it. If you’re watching on screen, you can’t see it. But just off camera behind you. There’s a surfboard. So you’re in Virginia, is there a lot of surfing that happens there.
Michael Faus
Needless to say, there’s not a lot it’s poketo. Not a lot of surfing. And when people brag about surfing in Virginia, it you know, I I grant and I smile. But at the end of the day, there’s not a lot of surfing in Virginia.
Mark Kinsley
What’s the story about the surfboard them?
Michael Faus
Well, it’s a reminder that I’m from California, one of my divisions are EPS, which is an acronym for expanded polystyrene division, they actually made that for me for one of my birthdays, I don’t want to say which birthday. And they put that in my office. And again, it’s just a great reminder with all the color and the design that I still like going back home and imagining surfing again.
Mark Quinn
I love it. And now you’re in Virginia, and now you’re on the DIS Marco show. And we’re so glad you are. Michael, there’s there’s so much going on inside of our industry that, you know when when you and I we’ve known each other for decades, actually. And whenever we see each other at industry events, it’s always great to catch up. And one of the most recent I think we were in Vegas, we were just kind of talking about everything that’s happening. And we just really wanted to get you on the show because there’s a lot of people who, you know, there’s these constant price increases. There’s been raw material shortages. And I think our audience would love to hear from a source like what’s happening with the category. And let’s start first if you don’t mind with just the shortage issue, and we’ll get the crummy stuff out of the way because I think we have other things to get to but like what’s happening with that, Michael, is there a shortage still? Do we anticipate more of a shortage coming in? 2022? Have we kind of come through this storm? Can you give us your assessment of where the industry is you’re
Michael Faus
more happy to do so again, thanks for having me delighted, and I’m big fans of your show. Let me go back just a little bit if I may. It really all began when when COVID hit us. In q1 q2 of last year, that’s when the business trending started to go the other way. supply issue started to begin, business took a huge dive, the big suppliers of raw materials, they started to cut back on their outputs. And as a result, when business started go up the other way started in q3 of last year in q4. The suppliers just didn’t have the capacity or the manpower. And then coupled with that, we experienced some unusual storms, we had that deep freeze that you both remember in Texas Historical Deep Freeze, that caused a significant problem. There was also operational issues mechanical issues at the raw material facilities, including ours, we’d have a large polyol plant in Bayport Texas, and several the reactors and pipes froze and it caused lots of issues from the supply standpoint. So we get through that business. It’s a huge uptick. It’s all three of us know, as we end last year, and then going into the beginning stages of this year, you still had issues not only on the domestic side, but you also had some challenges from a macro perspective, too. And then coupled with raw materials, we’re all experiencing these labor issues, which has become very significant, especially in the last 912 months or something like that. But today, when I look at the raw material side of things, things are better to today than they have been in well over a year. And it’s because that it’s a number of things, a lot of companies are not taking their full allocations, because they don’t have the labor to do it. Whether it’s in the furniture, especially on the furniture side, not so much on the bedding side. But especially on the furniture side, a lot of companies are so dependent on lots of labor, highly intensive labor, they just can’t get the manpower therefore, they’re not taking all their allocation. So raw materials have improved a lot of the repairs, regaining some velocity with some of these manufacturers, including us, as we’ve come out of the mechanical stages and mechanical problems that we all experienced. The outputs and the flow of raw materials is much better. And you know, we’re coming out of hurricane season and knock on on wood here. So far, we’re in pretty good shape. And our inventory levels have improved a little bit to
Mark Quinn
Michael, you see the outputs are good, how are the inputs, MDI TDI? Those are the chemicals in the little brief education there would be great and how was that supply going?
Michael Faus
Didn’t work. As you may know, there’s only two major suppliers domestically of TDI toiling di society rate and both those companies that Could you Could you
Mark Quinn
spell that for us, Michael, you know,
Michael Faus
I think your spelling was about same as mine, Mark. So I’m, I’m going to probably avoid spelling it for you. But toiling di societal rate, it’s a long word. And if you’re any kind of a chemistry guy, you’ll know it immediately. Um, but that that was that was that was definitely one of the the initial problems and when when you only have two suppliers, and when they both declare force majeure, and then the allocation start to drop. That’s when the whole thing started to kind of blow up a little bit honest, coupled with all the things that I talked about, but TDI today the US is much better. There was some TDI that was outsourced internationally. And I think some of that is not as big a deal as it was a few months ago. I think that’s a supply chain on the domestic side, as more than enough capacity to keep up with the outputs today, so TDI good NDI mark you mentioned MDI, MDI, MDI remains a lot tighter than TDI. And here’s the reason why. NDI is used for a lot more than just polyurethane foam. A TDI is is is really driven more towards the PU or the polyurethane foam side of things. NDI is a different scenario. You’ve got a lot of building products that are made with MDI. A lot of installation products that are made with NDI. A lot more of your automotive is made with MDI type additives. So there’s a huge shortage of MDI and we use MDI we use a lot of our MDI for higher density phones, as well as carpet cushion, so NDI is still a problem. The other piece mark is Pollio. Remember poly L T and MDI those three ingredients make up 98% have the recipe or the formula to make polyurethane foam, poly all is in pretty good shape. There’s a chemical that’s used to make polyol. It’s called propylene oxide, P O and P O although it remains a little on the tight side, it’s flowing relatively well. So our biggest problem right now is MDI and labor. Those are the two major challenges that we are faced with currently in the industry, at least in my world.
Mark Kinsley
Michael, one of the things that we’ve talked about, as this has continued to unfold, and this story is being written is what’s happening behind the scenes with companies trying to innovate around some of these shortages. Have you seen sparks of innovation, either within carpenter or beyond your walls that you’ve noticed, as a result of shortages with chemicals or other supplies?
Michael Faus
It’s good question mark. Yeah, we have and I think one of your episodes recently that I enjoyed, he talked about innovation, innovation, a way to mitigate price increases a little bit. And there’s a lot of truth to that. And on the supply chain, we’ve had a lot of our clients, working in collaboration with us to come up with innovative ideas, whether it’s been a little bit more on the creative side mark, whether it’s using other types of components, whether it’s you mark invention, MDI, maybe flip flopping MDI for TDI compounds where you can do that. So yeah, there’s been a lots of different types of product innovation, supply innovation in various things to try to help help help with solutions there.
Mark Kinsley
I know one of the things kind of, in the future here, not too far off, we’re all going to be probably meeting up at ESP Expo 2020. So that is, of course, for anybody that doesn’t know the international sleep products, association, Expo suppliers from all around the United States, and sometimes all across the planet show up to look at the innovations. Do you have plans for new products that people are going to be able to see there? Is that something we can we can get a preview on? Or is that close to the vest and further down the road?
Michael Faus
No, it’s I’m glad you, you open that door. Yeah, you’re right. March will be here before you know it. In Orlando, I believe that’s where it is. And yeah, we’ll be showcasing new products that we are in the current clinical study phases, or testing phases, if you will. And we plan to really have a good advertising marketing campaign as we as we launch some of these new products with more open airflow and more cooling type impacts, cool to the touch and things that we’ve worked with in collaboration with some of our large clients that both of you would be familiar with. It’s always good to get good input from our customers. They’re the ones that can bring it and work with us. We work with them. And we kind of do it side by side. So we’ve got some really exciting products that that we will definitely showcase in Orlando. And then prior to that, Chris, you got Vegas in January, we do have a showroom in in Las Vegas, in the C building on the 15th floor, and not so much in January. I think our biggest launch is going to be at that show in March. But as we go into the latter part of next year, we plan to do a lot more Las Vegas as well.
Mark Kinsley
Michael talk about being in Las Vegas, Englanders also in the C building on the 50th floor. Yeah, talk about that. That’s kind of a shift in the industry that that we’ve noticed is people who have historically been bucketed as supply side now getting closer to retailer closer to consumer, wanting to provide more visibility into your company and the products you sell and how they benefit people talk about that move to have more of a presence in Vegas and what that’s gonna look like and why that’s meaningful.
Michael Faus
Yeah, no, it’s a great question mark, and appreciate you bringing that up. We really thought long and hard about that decision. We talked about it roughly 1011 12 years ago, and we decided the timing wasn’t good to do it back in 2010. Mark, when you may remember that a little bit. And we decided to kind of pump the brakes on it, and then reevaluated again and then we decided back I believe it was in 20 Let’s say 2017, maybe 2018 When we decided to get a space there in building see around the corner not far from the Englander space, a smaller space. And before we did that, I actually did a little homework. I did a little due diligence. I wanted to speak to some of our key clients, I wanted to get their input before we did it, I did not want that to be a surprise to them. Because our link our relationships are with our large manufacturer customers, whether it’s a temper Sealy or smaller, tier two, supplier, whatever. And I wanted to kind of share with them what we were doing what our strategy was. And I thought I felt like that was super important. And that went very well. And after I got good positive feedback on that, and why we were doing it, that’s when we decided to go ahead and launch and open up Vegas. And the main reason we did that is because it gave us an opportunity to really showcase our phones directly to our manufacturers and have that constant concentrated audience there. And we can take them through with finished product and, and they could see what it’s like not just with a hand sample touchy feely, but they could actually lay on the mattress with this new product, we brought in different types of testing equipment, so they could see with their eyes, what we’re saying they could validate it with the test data. And they could be right there, we also have a couple of little, I want to say meeting areas in our space. So it gave us a good opportunity as well, to have private meetings there. Vegas, we’ve learned that it’s not easy, because it’s so far away from a lot of the hotel properties that are getting a space. And if you want to have a confidential or private meeting, it’s not always easy to do that. And so it also allowed us to have this really focused time with our clients and be focused on sharing new products get their input, their insight on, are we going the right direction, do we need to tweak it? What what changes do we need to make. So that was really the key reason for doing it mark. And then fast forwarding, we decided to expand the the showroom and we will be moving into the old symbol SPACE. You remember the symbol SPACE there on the 15th floor, it’s larger space, I think it’s an it more visible area, it’s a little bit closer to the the escalators and the elevators. And this will allow us to even show more of our products, which was super excited about but we will not take possession of that until the summer of next year. But the good news is it gives us a lot of time to really prepare and get that showroom looking really sparkly in the way we want it to look.
Mark Kinsley
Michael, what’s great, one of the things that you’re talking to two guys that were at leg it. And so we know what it’s like to be deep on the supply side, and trying to tell the story of your product and get that to cascade down to retailers. And then to fall out of the mouth of our essays and be meaningful for the consumer. We were way upstream. So we understand those challenges and those opportunities and some of what it takes to get your message across the goal line. What are some of the products that Carpenter has launched? And you can go back a little ways here, because we’ve been in unprecedented times, what are some of the products that you’ve launched, that you feel like have maintained that downstream story and been meaningful to consumers? And conversely, Michael, what are some of the products? You want the story told better that you could highlight here? Yeah,
Michael Faus
again, another good question. I think one, I think one of the more recent products and you know carpenter company has always been labeled a manufacturing company, we’ve never really emphasized a lot of marketing, we’ve never really been emphasized a lot of advertising or really, you know, wrapping the product in a really nice package and putting that really nice colorful bow on it, we’ve not done a That’s That’s not who we are. That’s not who we have been over the last several years, we’ve always invested a lot of our resources into a equipment and reinvesting back into the company and being the low cost producer and being the efficient supplier. And that’s all been great. I wouldn’t change anything about it. It’s made us who we are. And it’s given us this great infrastructure to supply the industry, not just from a domestic standpoint, but from a global standpoint. So that’s a good thing. But we but what we felt like we were really missing was that marketing piece, and then advertising and really beginning to build the the name and get that name out there a lot more. And I felt like we’re beginning to do more and more of that. And I think one of the more recent products that we’ve launched that we’ve had a lot of success with both on the OEM, through our manufacturing, through our VIP programs with our clients in relationship with our clients, has been our serene product. Serene has been a product that we launched roughly about two and a half three years ago. It was the first family of serene, and since then we’ve kind of launched it. And we’ve we’ve kind of, we’ve added these new families, we’ve, we’ve continued to improve it and expand on the family of that product. And it has really opened the door for us at a variety of clients across whether it’s the luxury brand, which a lot of it’s going in luxury brand. But it also that middle, that middle case category, don’t see it so much on the promotional side, but we definitely see a lot of it in the mid to upper and we see quite a bit of it on the luxury side. So I really want to hang my hat to serene and serene again, will be the new generation serene will be launched in Orlando in March. And you’ll hear more about that as we get closer to that timeframe.
Mark Kinsley
What are some of the properties of serine that make it different? And make it beneficial to the consumer? How to how to retailers talk about
Michael Faus
it? Yeah, you know, casa, tell you, you too both know this, as well as anybody trying to get to retailers talk about it I’ve been on. Recently, a lot of large retailer calls, joint calls, were on calls with a retailer coupled with our manufacturing partners that have asked me to be on these calls with the retail clients to educate them on the phone allocations to supply issues. And that way they know where it is firsthand and all the price increases. But also they ask the questions about certain products. serine is one of those products they’ll ask me about and try to educate a retailer is not easy. And I will say what makes it unique is that not only do you have a vast delta of densities, but it’s primarily a higher density foam. It’s got a very silky, rubbery type feel to it. But it’s wide open, it meets all the various betting criterias. It does not. We’ve all the tests that we’ve done very little if any compression set, so your loss of ifd or loss of density is minimal. And yet it retains its shape. But it gives you that cool factor, you can put it a quilt you put it layer, various cores, I mean, it’s the most diverse, it’s probably the best polyurethane foam product that we’ve launched in the last two decades. And that’s saying a lot because we’ve been known in the industry is not only a big provider in the bedding side, but a big provider in the furniture industry on the luxury brand furniture industry side and seat cushions. This serene is also now being used not only in bedding, but it’s used in high end seat cushions, whether it’s an American Leather, Mitchell gold, a basket, it’s just expanding exponentially. We’re super excited about it.
Mark Quinn
So let’s talk about Michael, you’re talking about higher end and maybe start thinking about prices. How do you what is your outlook for 2022? In terms of pricing stability? So it seems like we’ve gone out as a bedding manufacturer, I don’t know, multiple times this year, I think retailers are so frustrated and getting so tired of it. But you know, it’s coming at us from wood, steel foam. I mean all sorts of places latex. So what is your what is your opinion of how 2022 is going to ship? Are we going to see more stability? What can what can manufacturers and retailers and consumers expect in this inflationary period? Right?
Michael Faus
Right. And it is it is an inflationary period in anything like we’ve ever seen, at least in our generation. And I you know, the way I see it today, and I get a lot of different types of publications on the raw material side, financial side, I think that inflation in our industry is going to stay in place at least through q1 or q2 of next year. I think it’ll level off a little bit maybe in q3 of next year. But I don’t see a lot of change, at least between now the next nine months, maybe in the next 12 months. From a raw material cost standpoint, I think it’s going to remain volatile. I don’t think you will see anything what we’ve experienced the last 12 months, the last four months. Polyurethane Foam as a result of lots of raw material increases on the TDI side, the propylene oxide, which that P O side and the polyol side that we all talked about. Prices of foam have gone up north of 70% 75% in the last 12 months, I would suspect that prices are going to level off a little bit. As far as raw materials on the foam side. I don’t see it as nearly as volatile that we’ve seen in the past six months or 12 months, but I think that that edgy supply chain is still going to be in play for at least a bit.
Mark Quinn
So we talked about MDI and TDI being inputs, we talked about labor having an impact on price structure. So as you look forward, Michael, what would what would be a cause of increased volatility or more consistent volatility? If that’s even the right way to say that no consistent volatility? Is that right? Yes. Do you feel like it’s going to be a problem for us? And if so, what would the culprit into that price? Right,
Michael Faus
it could be a number of things. I think that if you’re going to see any kind of change in in structure cost structure, it’s going to be a result of an unpredictable storm that causes some of these facilities in the US to go down like they did once before. It could be another huge COVID outbreak, like we experienced last year, which causes more issues with manpower, it could be a contamination issue, it could be an outage where these suppliers, these chemical companies, they do a turnaround, they shut their facilities down. And it’s not like turning on a switch or light bulb where you just turn it on. And these reactors start right back up. Again, it could be a problematic issue, it could be electrical issue could be a platform leak, it could be just about anything, there’s all these variables that could create a slowdown, which could be a touch point, that could impact the cost structure. And remember, because we we live in such a macro planet these days, a macro supply chain, it could also be a result of something that happens in Europe, you’ve got these large suppliers of that produce TDI, and one of the biggest suppliers in the world is in Germany. And two years ago, they had a major outage, and then they had a contamination issue that that affected us here in the US, because a lot of times companies may export, export chemical to other countries, and that can drive up supply issues here in the US. So it’s such a balancing act, the demand, the dynamics are really, really tricky. And they can really be complex at times.
Mark Kinsley
If people can
Mark Quinn
you talk to us about the impact of containers overseas. So you talk about China, is that playing a role for you? Is it becoming a problem? And what impact is it gonna have on the
Michael Faus
Yeah, it has been, it has been a problem. Fortunately, we have, as I mentioned earlier, we make our own polio and we we buy po propylene oxide, we have a really strong strategic relationship with with a partner. And we’re in good shape as far as domestic flow Pollio, that’s 60 65% of the formula. that other piece TDI that other piece, MDI, if you can’t get it here in the US, because of what we talked about earlier, you may be forced to outsource it and buy it outside the country, we try to avoid doing that for a number of reasons. But if you do that you’re at risk of a it taken forever to get, which we’ve experienced or be the cost of doing. So because of these increases huge increases in containers. It’s just priced so high that it’s tough to be competitive. So we’ve tried to avoid doing that. But it’s had somewhat of an impact. The big impact has really been on polyester fiber. You know, we buy our polyester fiber, which is used in bedding, as a quilt layer, and in various other types of layers in a mattress. All that raw material staple is is out sourced from outside the US. And so you’ve seen rising cost and in polyester fiber, it’s primarily a result of that.
Mark Kinsley
You know, Michael, it reminds me of an article I read, when you say how things are so incredibly interconnected. The articles about during the 2008 housing crisis, and how housing effectively came to a screeching halt. And so the the effect of that, of which there were many one of the effects of that was less milk. And when you have less milk, you have high higher price milk. Well, why would there be less milk whenever fewer houses are being built? Well, cows that are comfortable, produce more milk, and farmers use sawdust to keep cows comfortable. Whenever houses are being built. You have more sawdust. So there was a sawdust shortage. You had uncomfortable cows that were then producing less milk and milk prices went up.
Michael Faus
You know that I think I’ve read that before in the Wall Street Journal. And it’s, it’s, it’s amazing we’ve had in the past where we’ve had clients want to buy carpet pad for their cows so they can sleep on this carpet pap. And I think it’s for this obvious reasons that you’re that you’re alluding to.
Mark Kinsley
I can’t imagine the number of markets that carpenter is in that we can have a blast of finding more out about, and we’ve had a blast hanging out with you today. Michael, Michael Fosse, Senior Vice President with Carpenter, thank you so much for taking time to really take us into some detail here. This was very rich and very helpful for us. And if there’s ever, you know, a message that Carpenter has to get out, that you would like us to share, please do give us a call and we can help you out with that. It’s really nice to have you taken us in it behind the scenes behind the curtain and helping us understand this a little bit better.
Michael Faus
It’s been it’s been my pleasure. I’ve really enjoyed being with both of you. And again, I’m a big fan and appreciate all that you do in our industry. So thank you for having me.
Mark Quinn
Thank you, Michael. And if anyone’s gonna be in Orlando for ESPA go see my call and share this episode. If you can go where you listen to the podcast, Spotify, iTunes podcast, wherever you get it and rate us if you don’t mind. leave a review. That would be awesome. And leave five stars for Michael Foss with carpenter. Thanks, Michael.
Michael Faus
My pleasure. Thank you.
