Business Policy Case Study: ‘atherley Furniture Company’

Business Policy Case Study: ‘Atherley Furniture Company’

Prepared By: Connor Phillips, Nicholas Caterina, Aristote Bogne, Patrick Atencio, Scott Baillargeon

Prepared For: Ross Geddes

Wednesday, March 9th, 2016

BUSM29845

Case Synopsis

        Atherley Furniture Company is a well-established furniture company located in Orillia, Ontario and is owned by John Atherley. The past few years John has been worried about the performance of his company. Regardless of its stable reputation of being a good store, the sales have remained relatively the same, but profits of the company have decreased by nearly 24% over the past three years due to high labor costs of certain product lines. They produce three types of chairs; the Atherley, the Caledonia and the Parkdale. Each of these models has its own production plan and production costs. The Caledonia has the highest sales, while the Parkdale is causing issues for Atherley Furniture. As competition and production costs increase, John is starting to get concerned for his business. The furniture industry in Canada in the 1990s experienced some high foreign competition and a recession. Once that was over Canadian companies gained access to a larger market as the dollar increased. John has a constant concern for his business that he doesn’t want to deal with.

Problem Statement

        John’s chair division in Orillia is struggling and is starting to concern him in the sense of business growth. How can John manage his chair division in order to increase profit?

Situational Analysis

Strength

Reputation – The company has both a good relationship and reputation with it’s buyers, meaning a high chance of return business.

Skilled work force – The company’s Orillia plant is composed of several skilled workers loyal to the company and its activities, which helps the company as employees will do more to see the company succeed and care for their job.

Product variety – The company manufactures three different types of chairs, in different colors, fabric and decorations, giving the consumers options when they are looking to buy.

Atherley model sales growth – this model is somewhat popular on the market; not only does it sell relatively well, but the market for this particular product is still growing regardless of the issues the company is facing externally and the machinery is modifiable to better production.

Machinery – With the use of machinery for wood forming, the company’s Caledonia model requires less labor as well as a much more efficient production, lowering production costs.

Weakness

Debt Load - the company has a heavy debt load, decreasing over profit as these debts need to be paid

Competition – The industry is having a lot of competition, both from the town (IKEA’s Sundin) and other foreign companies.

Lack of modification to equipment – the Atherley model does not currently have the modifications for the equipment in order to increase production and efficiency, causing an issue with this model.

Atherley’s design – This is the company’s second most famous model, but the design made the production to take more than average amount of labor, increasing costs.

Parkdale Costs – the Parkdale requires a lot of extra work as there two production steps, therefore has high costs associated with the model.

Opportunity

Canadian dollar – The low Canadian dollar gave Atherley as well as other Canadian furniture manufacturer the opportunity to reach a larger market.

Atherley Model is growing steadily – this growth is causing helping the company with sales as well as holding market share.

Caledonia – this product is constantly growing and obtains a great amount of market share in relativity to its competition.

Several Closures – several companies within their industry have closed down, opening up a chance for John’s company to succeed and grow.

Threat

Sales decline – Atherley’s sales as well as its profits decreased by about 24% from 1995 to 1998 (In only 3 years), if this trend continues the company will most likely go bankrupt.

Callbacks – On several occasions, the company’s Caledonia experienced backorders and in other cases their retail buyer had to wait several weeks to be delivered, if this keeps up, soon buyers will lose faith in the Atherley’s ability to supply.

Debt – The company’s heavy debt, combined with its declining profits made them reluctant to spend any more money, if this keeps up it will lead to a slower company growth if any.

Parkdale – the market for this model has decreased greatly, affecting sales, and therefore profit.

Competition – although there was a recovery in the economy, there is still intense competition from foreign and domestic producers.

Porters Five Forces: Furniture Manufacturing Industry

Buyers: Furniture Retail stores, privately owned or chain stores, consumers. Ex. Lowes, Sears, Leon’s, people, etc.

In the Furniture manufacturing industry, the bargaining power is mixed between the industry and the buyers. It would be hard for either side to exist without the other. As there is not a surplus of furniture manufacturers in Canada, switching manufacturers could prove challenging and likely costly. Although it would be costly, it is possible to switch and get a similar product.

Supplier: Lumber supply companies (i.e. Tamarack Lumber), Material/cushion sellers, basic raw materials (i.e. screws, nails etc.)

The power between the suppliers and the industry leans heavily toward the industry side. For the majority of the supplies needed to manufacture furniture, there are multiple different options on where to purchase from. Lumber, the most important of supplies, can be bought from multiple different sources, especially in Canada with the large amount of forested land. Other supplies such as cushions/material for couches and chairs, and the basic building supplies can also be provided by many different sources. A company in the industry may have to endure some switching costs, but they will have little to no trouble finding a suitable replacement for their needs. Relationships between sellers and buyers in this case are a heavy result of constant return sales.

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