Arborite Case Study the Need to Increase

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.

Distribution Channels:

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 $0.84 per square foot for the Canadian product and $1.21 to $1.05 per square foot for imported HPL from the U.S. The percentage of U.S. imports is also expected to rise and that of the Canadian product is expected to fall.

Manufacturing process and suppliers of HPL raw materials

The process to manufacture HPL involves the following eight stages:

Resin mixing: Resin is the bonding agent used to glue paper stock together and create the laminate composite product. Three basic chemicals were required to be mixed to obtain the desired resin. None of the HPL manufacturers were backward integrated and did not control the suppliers of the raw chemical material. The company manufacturing the HPL can either mix the resin or it can be obtained premixed from the resin manufacturers. The HPL industry had negotiated with the suppliers of resin to get the best possible price for bulk purchases. The consumption of resin depended on the weight of the paper used and the thickness of the laminate product desired by the HPL manufacturer. The thicker the product, the more difficult it was to curve and shape. Inventory requirements of the resin are important for the HPL manufactures. Warehousing and tracking inventory levels are required to ensure that the company does not run out of this critical product, as this would shut down the entire manufacturing process.

Paper treating: There are basically two types of paper (Core stock and cover paper) used to manufacture laminates. Essentially, these two types of paper constitute approximately 33% of the total cost of the final product. The cost of the two papers therefore becomes critical to the manufacturing process. The core and cover paper are cut into the desired size and then infused with the heated resin. The cost of this process depends on the following factors:

Cost of the cover paper

The weight of the core paper

Paper treating technology (air floatation or bar treater)

The system control for the entire paper treatment process

Core stock: This is the second basic requirement of laminate manufacturing. The thickness of this product determines the thickness of the laminate that is finally created and constitutes the bulk of the weight of the product. This material constitutes 12% of the total cost of the product. There were two major suppliers of core stock paper with market shares of 60% and 40% and they did not offer any volume discounts to the HPL manufacturers. With respect to the variety of core paper used, thicker paper was cheaper but made the laminates less flexible. Thinner core paper could be made more durable by increasing the number of layers of paper used and using more resin per panel, but this was expensive.

Cover paper: This decorative paper is used over the core stock in the laminate. The cover paper determines the style and the variety of color and design that laminates possess. This is important in the market, as it is the first aspect of HPL that crosses a customer's line of sight. The cost of this raw material is approximately 21% of the total cost of the laminate. HPL manufacturers can get a volume discount of up to 50% if they buy in large volumes. The cost of this raw material has also increased over the years and there are three major suppliers of this raw material.

The paper treating technology also determines the quality and cost of the laminate. The bar treater is an older method that is less efficient than the air floatation treatment method. The bar treater does not allow operator control in the process which the air floatation process allows. The operator control that air floatation introduces can help control and reduce the waste of raw material (resin and paper) and process cost if faulty operations are observed. The more efficient HPL manufacturing plants are moving to the air floatation methods in an effort to improve the quality of the laminate and reduce the rate of rejections.

Lay-up: This is the third stage of the operation and involves sizing and cutting the two papers to the desired size as required by the end user. The cost of this process was dependent on:

Lot sizes that were produced

Level of automation in the plant

This process was very labor intensive and the cost of material was approximately 8% of the total cost of the HPL.

Pressing: Heating the sheets and using high pressure to fuse the layers together formed the sheets. Different surface finishes were obtained either by using textured paper between the pressing place and the cover sheet or by using a textured pressing plate. Texture plates were cost effect only if the plant was producing high volumes of the product and the plates could be used for extended periods of time. The cost of this process was depended on the following factors:

Method of heating used (steam or hot water)

The capacity utilization

The pressing technology used

Methods of texturing (textured paper or textured press plates)

Automation had the potential to reduce costs if the capacity utilization is high. Textured plates factories also had to take into account the downtime that was needed to change plates and the wear and tear on the plates that were incurred as a part of the operation. The number of runs was constrained by the life of the textured plates that were used on the automated presses.

Finishing process: The HPL that were pressed and formed were cut and trimmed in this stage. This process was very labor-intensive. Dedicated workers had the potential to lower these cost, but only if the throughput through the factory was high. Although some HPL manufacturers developed an automated process, the quality produced by these automated finishing machines was not of the desired quality.

Packaging: The costs of packing were lower if the HPL were packed in pallets as opposed to cartons and if the process was automated. In order to automate and ship in cartons however, the process through the plant had to be high. The orders had to be shipped in large lot sizes. Some HPL underwent a two-stage delivery process where large quantities were shipped to a central warehouse from where the laminates could be redistributed to the smaller distributors and dealers.

Plant maintenance and overheads: Maintenance of HPL plants depend on the age of the plant, the extent of automation and the quality of the equipment used. Based on the desired quality of the laminates the overheads incurred by the operators also vary. Outbound logistic needed to distribute and ship orders also varies. Manufacturers ship the products in larger volumes to avoid the laminates from getting chipped or cracked. Warehousing is also a major concern for HPL manufacturers and trucking and delivery are major components in ensuring the product gets to the end users in the time frame desired.

Marketing and sales: all manufacturers of HPL undertook low levels of advertisements and promotions for the products with the general public. Rather, they concentrated on marketing and selling of their product lines to the designers, architects and OEMs that are the major consumers of the product. Direct contact with these users is needed if the company hopes to attract the customer towards the products manufactured by the company. In addition, sample and new products introduced into the market have to be provided to these users at regular periods of time.

At present Arborite is faced with the following issues in its operations:

Low capacity utilization at both plants compared to its competitors

The use of bar treaters as compared to air floatation

Low use of automation making the processes very labor intensive

One old plant that needed high maintenance and one new plant

Low levels of innovation and product quality and variety are considered appropriate for the inventory driven market

Inability to deliver products within the industry time frame was sometimes observed due to the use of contract carriers from the company's warehouse to the customers location

Low incentive programs for the sales force in the region

This case study will evaluate some of the options that are available to the company to introduce changes to improve the operations and the make this division (Arborite) of Domtar profitable. In 1986, the company had reported a negative rate of return on assets of -19%. The manager Mr. Brian Nutter is interested in improving the company and making it more profitable in the market.

Chapter 2: Discussion of variables affecting the organization

An organization has to constantly grow and evolve if it has to be competitive in a constantly changing market. In the journal article "What is strategy?" The author, Porter, states that the current environment in which organizations operates is very dynamic. (Porter, 1996) And positioning, which was once the core of strategic management does not work any longer. Modern organizations are challenged constantly by a combination of technology changes, market changes, logistic challenges, customer demands and human resource challenges. Companies, by identifying their core competencies and cultivating these options to generate revenue for the organization, can maintain their market position and profits.

The key components that result in the success or failure of an organization are the organizational goals and objectives. (Chandler, 1962) Simply duplicating the wining strategies used by others may not help a competitor. With this in mind this chapter will investigate the HPL market based on Porter's five-force analysis. There are some factors that were discussed in the case study that are important variable that need to be considered in understanding the market for HPL.

Analysis of the HPL market using the Five-force Analysis:

Internal rivalry: There are three major competitors in the North American HPL market; they are Formica, Arborite and WilsonArt. Between these three companies they control 80% of the total market. Figure E. Of the case study indicate that Formica and WilsonArt rank number 1 and 2 respectively when it comes to product performance, appearance, availability and service support. Formica has manufacturing facilities in Canada, where as WilsonArt manufacturers all its products in the U.S. And ships it to Canada. The trend of increasing sales volume of U.S. manufacturer products can be attributed to the success that WilsonArt has in capturing the Canadian market. While the cost of the U.S. manufactured products is high at present this might change, NAFTA agreement would play a further role in reducing the cost of the U.S. manufactured products due to the elimination of the tariffs and import duties of the imported products. With this in mind, it is also important to consider that the lower price will also have an impact on the overall sales of the product in the Canadian market.

Formica is the worldwide leader in HPL manufacturing and sales. Major revenues for Formica came from its U.S. And worldwide sales. Capacity utilization for the presses was 75% at the St. Jean plant in Montreal for Formica and 85% for the presses of WilsonArt in the U.S. compared to the presses of Arborite, which ran at 25% for the Montreal facility and 30% for the Toronto plant. Therefore, it is sufficient to assume that Arborite ran both plants at very low capacity utilization, not completely getting the benefits from any one manufacturing plant. Although Formica had older manufacturing operations, regular upgrades and maintenance operations have kept these facilities producing efficiently.

Making money, according to Dr. Goldratt, is simple: increase throughput through sales while reducing the inventory and the operational cost of the organization. The task of determining how to run a lean and trim operation for any organization is complicated by issues such as manufacturing and operational lead times, replenishment cycles, unexpected surges in demand of a product, review frequency and the failure of establishing realistic target service levels by all involved in the operations. The idea of balancing flow (and not the capacity) throughout the plant is considered the starting point for implementation of the Optimized Production Technology (OPT) program proposed by the Dr. Goldratt. The OPT philosophy: "the sum of local optimums does not equal the global optimum." (Goldratt, 1990)Manufacturing process should be able to incorporate schedule changes easily, which is required to reduce the shock of market fluctuations. Elimination of waste is also important; and stock in hand, especially finished stock, with maximum value addition is considered the worst type of waste. A sale, not production, is the important factor in measuring throughput. If the product is manufactured but not sold, there is no throughput.

Barriers to entry of new players in the HPL industry: a few major players dominate the HPL industry worldwide for more than 25 years. It can therefore be inferred from this that this industry is not very attractive for new or inexperienced players in the HPL field and therefore according to Porter's analysis the barrier to entry are high. High capital requirement for manufacturing and production is needed. A concern of economies to scale in the production and manufacturing has also forced consolidation of tasks and processes. The laminate industry is also dependent on the choices and trends of the market and what might be fashionable in office and kitchen design for one year might change for the next. There are however, some tried and tested choices of color and textures that might be preferred by OEMs and for specific purposes that might not change with time. For example white and off-white shades with different undertones might be a favorite with some designers and inventory-based furniture production companies. Another factor very important to competition is the determination of whether the local production and manufacturing is able to sustain competition. This has become especially relevant in the current age of outsourcing and global manufacturing in destinations like China. The pre-fabricated furniture construction market might have moved from Canada and the sales of laminates for this industry might reduce additionally in the future.

Substitutes and complements: Substitute products are those that can perform the same function for the same customer groups, but are based on different technologies. HPL products have no substitutes for durability and variety. Veneer is however, better in appearance but does not compare to the other features of the products. The substitutes are however cheaper and might be used by manufacturers not very concerned with quality of the final product. As discussed in chapter 1, a shortage of wood and the need for durable furniture will only support the laminate industry in the future.

Buyer power: The end user of HPL is very varied. From the weekend homeowner to the bulk users of HPL, the needs and varieties of products differ tremendously. An individual working for one or two projects might have different wants and needs as compared to the commercial user of the product. Presently, post formers purchase 35% of the industry-produced volume and 48%, the specialized manufacturers. The remaining 17% will be sold through building supply dealers. Post formers and OEM's therefore have tremendous bargaining powers in this market. HPL manufacturers that are able to get contracts for long-term inventory orders and for job driven orders have the ability to generate steady volume of sales and therefore profits.

The building supplier generates lesser sales volume but might be able to obtain higher profit margins as they carry specialized and fashionable trendy products.

Suppliers of raw material for the HPL industry. The basic raw materials for the HPL industry are resin and paper. As discussed earlier, the cost of the resin not being very significant, the company can ensure that it maintains the desired inventory levels. The suppliers for resin have also been able to lower their prices and maintain production levels to satisfy the needs of the HPL industry. The major cost of the HPL was the paper and the HPL manufacturers could save considerably on the cover paper by buying greater volumes of the more stable designs and colors. As both the resin and the paper suppliers were not backward integrated, they had the ability to influence the cost of manufacturing of the final product. There are tremendous demands on all the companies involved to maintain the logistics and supply chain efficiently. The industry requires a specialized and trained workforce for the labor-intensive process if a high quality and cost control is needed to be maintained in these departments. HPL industry demands are fairly stable and regular. Suppliers are therefore also assured of business. And as per Deming's philosophy, a supplier who is not constantly fearful of the business he or she has to maintain is able to concentrate on other aspects of the product specifications such as the quality and the cost of the product.

Diversification of product lines and/or services over a wider base can help HPL organizations manage their business risks and reduce the quantifiable likelihood of loss or less-than-expected returns. (Ansoff, 1957) The Boston Consulting Group (BCG) model can help identify areas where products may be failing. Additional, root cause analysis may help business units within the organization identify problem areas and constraints that are hurting the business. Allocation of resources in problem areas may help many of them stabilize and then generate profits. The life cycles of most products have reduced drastically, with the consumer expecting constant improvements and innovations. These new factors dictate the type of strategy an organization has to follow to achieve the goals and ambitions of the company. The drastic reduction of lead times between any stages of production and actual ordering has also impacted the cash flow and warehousing requirements that the company needed to consider in order to be profitable.

In order to improve profits, it is necessary for companies to streamline their operations to maintain their position in a constantly evolving job market. To do this, companies are forced to improve their manufacturing performance and reduce the operations cost. Analysis of Exhibit 7 of the case study also indicates that Arborite has the highest operation cost when compared to Formica and WilsonArt. The maximum variance was observed in the paper treatment stage with the cover paper being the area for the maximum difference (2.7 for Formica and 2.8 for WilsonArt) that was observed. Based on the information provided in the case study, it is not clear if the company is using the 50% discount that is offered on the cover paper by the manufacturers. As cover paper constitutes 21% of the total cost of the component, availing this discount has the potential to reduce the manufacturing cost of the component.

Additional information in the case also indicates that Arborite does not introduce new and novel products into the market. But rather, it sticks to the tried and tested designs that have been profitable for the company. This strategy can be effectively used to identify cover papers that are the most used, and then purchasing these at the discounts offered. The company also uses lighter weight core sheets when compared to Formica and WilsonArt. The latter two use the 150 lb weight paper compared to the 115 lb paper used by Arborite. Lighter weight core paper is more expensive than the heavier weight core paper. The users of HPL ascertain that they are satisfied with the products of Formica and WilsonArt thereby indicating that if Arborite desires they can move to using the heavier core paper that is used by their competitors without any adverse effect as seen in Figure E. Of the case study.

Inventory can be a liability as well as an asset: excessive, finished (goods) inventory requires larger warehouses; often, this is the first visual indication of bad decisions in the production and process stages. Thomas A. Stewart equated inventory to ignorance in his article, "Diagnosing Inventory Woes" (Stewart, 2001). In making major improvements in the product and the product-availability while at the same time reducing overall working capital investments, a company has to use to maintain its dominance in the market place, without jeopardizing the company performance is a tightrope that most inventory managers have to walk at some point in their careers. The financial benefits may come from reduced overhead or the ability to spread a larger amount of production over lower (consolidated) fixed costs.

The press utilization of Arborite was also considerably less than that of either Formica or WilsonArt. WilsonArt has the maximum versatility of the press with the ability of accepting 200 jobs simultaneously as opposed to the 48 jobs by Arborite or the 42 jobs that could be done by Formica. This was possibly due to the fact that WilsonArt had equipment that was automated and significantly newer than either Formica or Arborite. When comparing the panels that are produced by Formica and Arborite however, it is observed that Formica could obtain 12 panels with seven pressings per shift as opposed to Arborite who could only obtain 11.5 panels with 6.33 pressings per shift. WilsonArt had the best numbers with 14 panels produced in eight pressings per shift. In addition, both Formica and WilsonArt were able to run each pressing shift with 3 workers as opposed to Arborite who needed 4 workers.

The variable cost analysis of the Arborite manufacturing plant in Toronto and Montreal indicates that the older Montreal plant is more expensive to operate. The maintenance of the Montreal plant is 4.8% of the variable cash cost spent on maintenance as opposed to 1.7% that is spent in the Toronto plant. The pressing operation is also observed to be less efficient in the Montreal plant and there is a possibility that the high value of the finishing cost is as a result of quality problems that exist in the older manufacturing facility. The labor cost is also consistently high for all operations at the Montreal plant.

Deming proposed that quality inspections should not be the end function; but rather a process improvement at every stage of the production process. He proposed that improving the process could be more effective than just inspecting the final product. It is therefore important that Arborite finds a solution and implements a continuous improvement plan in the Montreal plant. Quality in a product can also ensure brand loyalty in the customer and the company should be able to integrate quality along with continuous improvement within the organization. It is important therefore that Arborite constantly encourages its employees to better themselves and also provides extensive on-the-job training for the task at hand. Motivation is very important; individuals will work to their full potential only if they are also provided with the right tools to perform their tasks. The retail supplier relationship is also an important alliance that Arborite should develop.

Chapter 3: Mergers and consolidation of the Toronto and Montreal

Penrose observed that diversification has helped many organizations show constant growth and, as a result, profitability. (Penrose, 1959) Of Porter's four types of diversification: Portfolio, Restructuring, Sharing activities and Transferring Know-how, Arborite has chosen to use the restructuring process of diversification. In order to do this, Mr. Nutter is considering the following three options:

Restructuring the marketing and sales departments. This would cost approximately $20 million dollars. This would involve recruiting and training new personnel who would then be able to contact and interact knowledgeable with the architects, designers and OEM. The ability of any organization to channel the organizational talent and obtain the best from its resources is important in modern organization. Training the worker is very challenging and complex. New technology, techniques and organizational structures constantly influence organizations. When changes are made, training is necessary to make everybody in the organization aware of these changes. The human-asset cost is currently a major portion of the expenses faced by organizations. Training sessions can be used as a tool to increase worker involvement in the process. Often, changes resulting due to new technology or reengineering may result in downsizing and layoffs. The morale and dedication of the worker may be low at such periods. By providing training and orientation, the management may be able to explain the changing needs and provide workers with the new skill sets to ensure that they are always capable of performing their tasks. In order to ensure that there is adequate communication between the sales representatives and the home office, an efficient and effective information system has to be also set up. Communicating the goals and mission of the company effectively is important. This can help the company derive maximum returns from all the training and new management information systems that is proposed to be installed.

WilsonArt has 45 sales representatives in North America and Formica has 215 representatives worldwide. Arborite puts the average cost of a sale representative of the company at $70,000 (including salary and expense account) with 20 representatives on the sales force. The present cost is estimated to be $1,400,000 for the company. Assuming that the cost of this department is the least when compared to Formica and WilsonArt, Arborite can increase the sales force to 35 initially and can also increase the base salary and the commission off which the sales representative can avail. This action of increasing the sales force will only be effective if the information collected by the sales representatives aids the company in managing the production and inventory levels of the company to match the actual market demand. An information system similar to an ERP system can help coordinate the information from the sales department to the warehousing department and also simultaneously to the manufacturing and production department. Information of demand and product type has to be conveyed as quickly and accurately as possible. Managing change and the various hurdles that arise during a change process can be very confusing. Understanding the financials goals of the company and the need for planning and scheduling is important in this entire process.

Warehousing and Distribution logistics restructuring. Presently, the company has three warehouses located in Toronto, Montreal and Vancouver. Based on the case study information, approximately 70% of the inventory was located in Toronto, 20% in Montreal and the rest in Vancouver. The company sold only 28% directly to OEMs as compared to 40% by Formica and WilsonArt sold directly to distributors and OEMs. WilsonArt has the advantage in the distribution logistics because they own a fleet of trucks and dedicate themselves to transport the company's products to the point of demand. This luxury however cost the company a lot of money. All the warehouses were located in the U.S. (Boston, Detroit and Seattle) and the proximity of these warehouses to Canada offered the company maximum flexibility. Formica, on the other hand, operated warehouses in Montreal and Toronto and had an independent contract to warehouse inventory in Vancouver and Edmonton. Formica used contract carriers to transport their products from the warehouse to the customer. Based on Figure E, which shows the availability and service, Formica appears to be comfortably positioned with respect to delivering their products to the customer compared to Arborite.

The key to good inventory management is, "knowing exactly what is stocked in the warehouse, what is required for the manufacturing process and the quantity in which it is required and the fine line in knowing what is really needed and what is not." Very often, in modern manufacturing organizations, the information technology departments are involved in monitoring and maintaining the software levels with little or no input from the manufacturing and the design departments. It is important that Arborite realize that a better infrastructure is necessary to address decisions for replenishment of parts, while reducing the cash investment. (Compton, 1997) It has always been difficult to predict and forecast the demands of the customer. The uncertainty of the market and the risk associated with many companies' decisions had forced companies in the past to maintain some finished safety stock.

Scheduling also plays an important role in the operation of a plant. Good scheduling can control both the direct and to some extent the indirect activities that may be required for successful completion of the production. A good and detailed scheduling plan can help determine the exact quantity of raw materials required to start the process, Work in progress items that may have to be incorporated have to be also scheduled to arrive at the plant in the sequence that they are required. The Value Stream Mapping of the organization has to be accurately documented and the current levels of utilization of time and raw materials at every stage of the value stream has to be known -- only then can kaizens and future states of the raw material and time be properly estimated.

Tarr advocates that accurate data information is required and screening out erratic and unreliable vendors is also important for implementing a good inventory program. (Tarr, 2001) An important reality check should also be made with regards to realistic sales rather that on the inflated projections made by the sales department. Establishments do not like a stock out option; but they also do not want to hold inventory that may eventually be obsolete or have no resale value. While business would prefer to have a safety factor for their inventory level, the key is to maintain a realistic safety factor within the system. Safety stock levels can be reduced by have shorter lead times or ensuring that the supplier can provide additional requirements in the shortest possible time. While expertise in inventory control will be required, greater interaction at every departments and level of the organization will help arrive at viewing the whole picture rather than just one department at a time. The inventory manager has also to be in constant contact with the production and the sales department, in order to ensure that stock outs at the sales end do not occur as a result of material shortage at the production end. The leased warehouse in Vancouver can also help the company distribute and market its products on the West cost of Canada. Currently, while the company has a limited distribution on the west coast, by introducing a larger sales force and a warehousing base in Vancouver the company might be able to tap into this new market and establish a clientele base.