Financial mismanagement and renovation delays at Woody Custom Woodworking

Woody

Custom Woodworking Company: Case study

The financial impacts of the problems on revenues and costs

The Custom Woodworking Company is a small, privately-held furniture company. It focuses on manufacturing and custom millwork as well as importing hardwood for some of its product lines. When the company first embarked upon a renovation project, it boasted a relatively moderate but steady revenue stream of 'take home' earnings in the neighborhood of $6,540,000. As the British Columbia construction industry began to boom in the year of 1989, the Woodworking Company began to contemplate expanding its manufacturing business beyond its location in southwestern Canada to the United States. Free trade opportunities and a major airport expansion seem to support this decision. But ultimately the Company decided to remain in its familiar home territory and cling to a more conservative strategy.

Instead, management decided that the Company's existing location would be substantially renovated with expanded production capacity; air-conditioning; a dust-free paint and finishing shop; additional production materials and given a better technological infrastructure. The President's and Vice-President's offices would also be renovated.

Expert Industrial Developers (EID)'s fixed-price bid was $20 million for the renovation, for a projected eighteen month project schedule. After this offer was rejected EID countered with an offer to do its own work by using fixed price quotations for all sub-contracted work. However, inadequate review and approval procedures for various renovation specifications caused delivery and construction conflicts over the course of the project. After two years, poor planning resulted in delays fulfilling orders. Inspection, acceptance, testing, and dry-runs took much longer than anticipated.

Because of the delays and the two-year time frame, the mini-boom that had occurred in the BC construction industry had abated, resulting in serious under-utilization of the new equipment. Employee morale, once a Woodworking Company strength, was at an all-time low. Essentially, the Company had expended tremendous capital but had not contemplated how to use its new facilities effectively. No research was conducted on market conditions to determine if the construction boom would continue in Canada. Now, difficult economic circumstances in the construction industry worldwide indicated that even if the Woodworking Company had remained the same size, it might have suffered a decrease in orders, rather than the expected increase.

Because of poor planning on the part of management, loyal customers were alienated, due to production delays. Timeliness is essential in the construction industry: it is one industry in which 'time is money' given that the efficient completion of projects is essential so the next project can move forward. The failure to complete orders on time is likely to result in a loss of revenue and the existing customer base in the short-term and even the long-term future.

The Woodworking Company must make due with less: less incoming revenue and higher fixed costs, given it must pay for the new equipment. Additionally, it may have lost several critical opportunities. It was unable to take advantage of the brief expansion in the British Columbia construction industry. By not expanding into the United States it was unable to capitalize upon the loosening of trade restrictions and the forging of international ties to the south of its borders.

The reasons changes are necessary

However, all is not lost: much can be gained through the use of the new equipment due to its greater efficiency and presumably lower maintenance costs. Unfortunately, some innovations, like the expansion of the President's and Vice-President's offices will not directly result in new revenue. But some changes were clearly necessary, to ensure that the company could keep pace with its major competitors.

Other needed changes have not yet been implemented, but were revealed through the renovation fiasco. Changes in the standard operating procedures of the Company are demanded to ensure delays and miscommunications do not occur again. Setting specific time tables for events, and having a clear understanding of how long each part of a project entails -- and who is responsible for overseeing that phase of the project -- is essential. Many delays could have been easily overcome, simply by ensuring that responsible staff members did not go on vacation at critical times.

How the organization will benefit from making changes

When the project began, the organization had benefitted by moving into subcontracting, in addition to focusing on its custom-built, wholesale and retail furniture lines. Expanding its production facilities was supposed to facilitate meeting increased demand. However, particularly given the 'custom' nature of many of its pieces, the benefits of time efficiency might not be as easily conveyed to the Woodworking Company as would be the case for a company with a more standardized manufactured product. Craftsmanship, even with superior production facilities, always takes time. Other aspects of the planned plant renovation, such as air conditioning for a production facility in a relatively cool section of the country, do not seem to have been worth the outlay, and were more window-dressing than evidence of actual, beneficial changes.

How success of the project will be judged and measured

Ultimately, the success of any project will be measured in terms of its ability to convey additional revenue to a company: although it is worth noting that no specific method of testing the Woodworking Company's ROI (return on investment) was established before the project was instituted. Success in the short-term is usually measured by completion of deadlines and maximization of efficiency, two aspects on which this project clearly fails. In terms of the project's long-term implementation, securing benefits to consumers and maximizing future opportunities can still hopefully be realized (Analysis, 2009, Knol).