This article begins with a brief overview of a wholesale furniture retail outlet, located in Alton, Illinois. The analysis is then divided into three segments; 1) a broad analysis of the furniture industry, 2) an overview of furniture retail, and 3) an in-depth analysis of Illinois Wholesale Furniture. The first segment will identify and discuss several significant operational issues and trends affecting the industry. Segment two will provide a general overview of the cost and revenue structure as applicable to furniture retail. Finally, the third segment of this paper will analyze; 1) Illinois Wholesale Furniture’s competitive strategy, 2) financial data and measurements, 3) several key aspects of this organization’s service operations, and 4) discuss a few mathematical model’s that will assist with organizational purchasing and inventory decisions.
Illinois Wholesale Furniture (IWF) is an independently owned and operated furniture retail establishment. The business is located in Alton, Illinois and consists of an 80,000 square foot retail facility and a separate warehouse. There are three sales employees, including the owner, on staff during hours of operation, and at least one back-office employee. IWF sells residential furnishings, covering all rooms of a household (i.e. living room, dining room, bedroom, etc.). It should be noted that household furniture is classified into two categories;
1) case goods
Case goods are furniture products made of wood, such as an armoire, while upholstered furniture are those items with fabric, such as a sofa.
This section will discuss the furniture industry from its broader perspective. For the purposes of this paper the industry is divided into two areas of analysis, providing an overview of 1) operational issues and 2) factors and trends. For operational issues, the focus is on the significant factors that influence the “where to manufacture” decision. Factors and trends looks at the industry behavior, or decisions, as a whole.
There are numerous operational issues that influence this industry. It is an extremely competitive and fragmented industry, and one that requires each competing organization to analyze and exploit every competitive advantage. For instance, a key operational issue is the fabrication decision, which can create distinct advantages. The fabrication decision can be a question of trend and style or where to manufacture the product. For this paper, deciding where to manufacture is the primary issue because trend and style decisions occur after a manufacturing location has been selected. While this one decision is significant in determining a products success, there are several factors that influence the where to manufacture decision, such as; economic climate, political and governmental policy, and national resources.
At this time the most significant environmental factor, from the macro and micro perspective, is the economy. All companies within the furniture industry have been devastated by the current economic downturn, with negative growth across the board for almost all companies (1). From the macro-environmental perspective, the economic impact is in itself a cause. However, setting aside this global economic perspective, national and regional economics are important as well. As the industry is looked at with further scrutiny, there are numerous additional factors contributing to the problems presently faced. For one thing, companies are having difficulty financing operations, and consumers don’t have the money to purchase such big ticket items. Additionally, success greatly relies on knowing ones customers, but this factor has proven extremely difficult to “pin down” for the furniture industry.
In short, as a result of economic factors, the industry is inevitably affected by political and governmental aspects. While the United States is virtually absent of regulations on furniture imports, it hasn’t always been. In fact, many countries establish quotas, impose high tariffs or implement other simple restrictions in an effort to maintain national economic stability surrounding this particular industry. In addition to these restrictions, it should be noted countries can also require, or implement, safety standards to be upheld, which introduces market entry barriers. Often these regulatory policies are protectionist measures, stemming from the fact that some countries may have distinct advantages, making them more adequately equipped to compete in the industry. A few of these competitive advantages are; wood resources, material capabilities, labor cost in addition to the low skill that is required, and national tax structures aimed at manufacturing these products. These advantages adversely affect some nation’s ability to compete, which is of particular concern when a nation relies on the employment of the industry.
While the aforementioned topics are considerable factors in deciding where to produce, logistics and supply chain issues are equally important. From the logistical perspective, transportation costs are a vital consideration when answering the where to produce question. A region may have a significant manufacturing advantage, but transportation costs, as a result of infrastructural inadequacies, may make the decision infeasible. This is illustrated by a manufacturer’s inability to capture transportation economies of scale (i.e. container quantity shipments) or the inability to move the product through a transportation network. This inability can be a result of poorly established infrastructure or the result of a developing transportation network. To offset the issue of not being able to capture economies of scale, an approach may be to delay the products completion until the product arrives at its’ regional destination, but the costs to complete the product in this manner may make this alternative prohibitively expensive. Additionally, some items such as a sofa don’t have delayed manufacturing as an option and the item undoubtedly exceeds space capacity well before weight capacity, making transportation efficiencies virtually impossible to capture. To overcome infrastructural issues, one must confront time associated with development.
Continue reading page 2 of this Industry Analysis.