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Arborite Case Study
The need to increase profits and revenues has forced many establishments to evaluate and redefine the way they carry out strategies within the organization and the manner in which they deal with external factors affecting the company. The rationale being that an organization needs to constantly grow and evolve if it has to be competitive in a constantly changing market. Leaders and managers who head organizations should have the vision to realize the changes required and implement these changes in an appropriate and timely fashion.
Nutter of Arborite is faced with difficult choices. He has to decide among these choices in order to generate a positive return on assets from two manufacturing factories in Canada. There is a demand for the product -- high pressure laminates (HPL) in the market. There are three major companies that control the market. Arborite has 34% of the total Canadian market. Based on the information provided in the case study, there are many alternatives that can be implemented to improve company profits in the market. Increasing the sales force and developing a robust and efficient information system in the organization is important. There is increasing need for every department and worker within the organization to be knowledgeable and aware of the decisions made within and without that organization. It would also be beneficial for the company to market the product aggressively to architects, designers and original equipment manufacturers (OEM) in order to increase the sales of product.
Upgrading the facility and introducing the air-floatation resin adding method to the paper bonding process can help the company save money. Statistical fluctuations do exist in any operation. The ability to smoothen out the variance can be achieved only within a certain range of the fluctuations. Labor and employee requirement is an important intrinsic factor that affects the internal environment in an organization and all effort should be made to improve it.
Chapter 1: Introduction
High-pressure laminates and its competitors:
Arborite manufactures high-pressure laminates (HPL) that are used in the furniture industry for countertops, cabinetry and furniture. The company was one of the leaders in the in market for HPL for a long time. But the market share has reduced in recent times. The market for HPL has many competitors. In addition, Low-pressure laminates (LPL), vinyl, veneers, paper and foil are some of the major competitors of this product. When compared to alternatives however, HPL has some major advantages in terms of its characteristics, properties and utilities. The high durability of the product on horizontal and vertical surfaces, good appearance and variety of product line and the ability to repair damages makes this product superior to its competitors. Thus, it sees wide use in the post-forming (where HPL sheets are cut first and then glued onto custom shaped plywood or particleboard) industry, furniture manufacturing for both homes and offices with higher use of this product in the manufacture of kitchen equipment.
HPL manufacturers sells their products through two channels: original equipment manufacturer (OEM) and through independent distributors who then might resell it to specialized manufacturers or post-formers or directly to building supply dealers and specialized dealers. The distribution channels of HPL constituted product-sales as finished products in the form of completed cabinets and furniture units, semi-finished products in the form of formed components, countertops and cabinets. Alternatively, HPL can be sold as sheets of HPL panel directly to the general contractor who might use the product for specific needs. Other than post-formers, all users of HPL products show a healthy and positive growth in their respective industries ensuring that the demand of HPL will exists in the future. Hence, it will be beneficial if Arborite is able to improve its manufacturing and operation capability.
HPL products are purchased via two different ordering methods. HPLs are ordered to satisfy a job-driven need or to replenish the inventory needs at different points of sales of the product. Orders from job driven needs depended on the specific needs or preferences of architects and designers and the ability of the HPL manufacturers to satisfy these needs with reference to shipping time, variety and range of products and cost. Of all the factors that affect an architects or designers decisions, appearance is the most important factor when it comes to specifications. Availability of the product is a major concern when contractors finally decide to choose the desired product. This implies that if HPL manufacturers are able to provide products that have a good appearance they also have to be able to provide the products within the timeframe specified by the architect or designer. Developing a good working relationship between the HPL manufacturer and the architects and designers is also important. It ensures that the company's new and existing products are introduced to these buyers. OEM's are also major consumers of the HPL products. HPL manufacturers are always looking for ways to help the OEM find the most suitable products for their use. While architects, designers and OEMs realize that there are many benefits to using HPL, the lost cost options are often considered when cost and availability is of a major concern.
The second type of orders received by the HPL manufacturers is inventory-driven orders. Inventory is maintained by almost all distributors (the building supplies dealers and the specialized dealers), post-formers, OEM's and the independent distributors who buy directly from the company. The wide variety and grades of HPL that are available in the market make inventory management an important issue for every stocker of the products. Based on Arborite's interviews with the inventory-driven order customers, it is identified that 20% of the product line generate 80% of the sales experienced by any of the sellers. Stockers and distributors therefore identify the products that are most likely to be sold and desired by customers and tend to maintain these products in their inventory levels. Dealers of HPL also tend to avoid carrying more than one brand name of HPL products in their stores in order to avoid competition and high levels of stock. In addition, distributors will carry variations of products for the do-it-yourselfer who might be more interested in a specific shade or variety and is willing to wait for the desired product if needed.
OEM's also maintain their own levels of inventory depending on their product lines and the design trends for the season or year. For example, a particular shade or variety of finishes might become popular in a given year and OEM's might stock up on the product in anticipation of the final demand. Products by OEM that are inventory driven (manufactured by OEM's to maintain their levels of stock of a particular brand or design) are generally not considered to be of the same product quality as a custom made to order product lines. OEMs therefore tend to order their most basic requirements in bulk. Thus, they are immune to short-term price fluctuations that job-driven orders might experience when purchasing HPL. In the industry, for inventory driven products it was observed that availability of products was a major consideration for distributors (at all levels) of the product. For dealers both specialty and building supplier the price and cost of the product was a major consideration. OEMs placed their emphasis on both price of HPL and the availability of the product in the desired time.
Analysis of cost and sales volume of HPL:
An analysis of the consumption of HPL (based on Exhibit 2 in the case study) indicates that the sales of HPL in the Canadian market have grown from 68 mm2 in 1971 to 96 mm2 in 1986. This growth can be attributed to a number of factors -- the most important being the use of plywood and particleboard to build home and office furniture compared to the use of solid wood that was the most used raw material used to build furniture in the past. The depletion of trees both hard wood and soft wood has resulted in furniture makers looking for other options to construct furniture while still giving the buyers quality and durability. In addition, HPL are more hardwearing and can resist more shocks and damages due to normal use compared to wood even if the wood has been subject to the best treatment for wear.
The Canadian market is also increasing getting its HPL supply from the U.S. market prior to 1976 all the demand for HPL was satisfied by the local Canadian manufacturers. The entry of WilsonArt, which had their manufacturing plants in the U.S. In the mid 1970s changed the dynamics of the HPL market in Canada. Although the price of the U.S. import was higher than that of the locally manufactured Canadian product, the demand grew. The prices of HPL have also been constantly reducing over the years. The graph shown indicates this constant decline over the years. Trend analysis of the price indicates that in the later years (1987 t0 1992) there is a potential for the price to decrease from $1.003 to…[continue]
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"Arborite Case Study The Need To Increase", 31 March 2004, Accessed.9 December. 2016, http://www.paperdue.com/essay/arborite-case-study-the-need-to-increase-166165