Guillermo Furniture Store Financial Analysis and Strategy

Situation Overview

Guillermo's furniture manufacturing company is located in Sonora, Mexico, which was formerly a quiet vacation spot but has undergone significant development, including the construction of an international airport. The organization was the largest furniture manufacturer in the area and had been operating profitably for many years. Although the company remained profitable through the late 1990s, the industry began to change. New competitors implemented the latest automation technology available, which allowed them to reduce manufacturing expenses and offer lower prices to customers. Guillermo recognized that its current strategy was no longer competitive and that the company needed to consider a new direction.

The company faced a choice between upgrading operations to compete with new rivals or continuing largely as-is, with minor strategic modifications. Furthermore, with the combined pressures of new competition and a weak economy, Guillermo could also choose to become a distributor of furniture rather than a manufacturer. This move would allow the company to remain in the industry while adopting a fundamentally different business model. However, before Guillermo could determine the most financially beneficial route, the company needed to establish clear financial metrics for each alternative — data that would support a rigorous, evidence-based decision.

Guillermo's Strategic Alternatives

Guillermo had been successful for a number of years due to factors such as the company's favorable location and the relatively low cost of labor in Mexico. However, trends in the industry had shifted the competitive landscape, making those advantages less important than they once were. Although Guillermo could probably sustain the current model for a period of time, the prospects for returning to profitability under the existing approach appeared limited given the structural changes in the industry. The company therefore needed to identify a viable path forward.

Three potential strategies were identified. The first option was to retain the bulk of current operations and pursue as many incremental performance improvements as possible, relying primarily on loyal customers for future sales. The second option was to invest in high-tech equipment and manufacture new products that would allow the company to streamline its processes. Belgium is one of the world leaders in furniture manufacturing technology; in 2009, the Belgian textile, wood, and furniture industry realized a turnover of 10.5 billion euros, of which over seventy percent was earned from exports (Economie, 2012).

Labor rates in Europe are significantly higher than in other parts of the world, particularly compared to Mexico. However, through the automation of various manufacturing processes, some manufacturers have overcome this cost obstacle. One furniture manufacturer in Sweden, for example, produces thirteen million drawers per year as a subcontractor using a fully automated factory (Automation World, 2011). There are even enterprise resource planning (ERP) systems that can integrate with factory automation to streamline many additional business processes (ERP Consulting, 2012). Such systems, however, require substantial capital investment, and it is unlikely that Guillermo could compete at this level. Nevertheless, understanding what other firms are doing in the industry is an important part of strategic planning.

The third option was to become a distributor of another product line, which would offer a variety of revenue sources. Because this role would remain within the same industry, Guillermo would bring relevant experience immediately. Many furniture manufacturers have already made this transition (Alibaba, 2012). Global trade has become increasingly accessible, and there are numerous sources from which different types of products can be sourced. As a result, many manufacturers now complement their primary lines with additional products sourced from foreign partners.

Works Cited

Alibaba. (2012). Global trade starts here. Retrieved from Alibaba:

Automation World. (2011, March 10). Manufacturing intelligence brings Swedish furniture manufacturer uniform results, better visibility. Retrieved from Automation World:

Economie. (2012). Important industries. Retrieved from Invest in Belgium: http://ib.fgov.be/en/important_industries/#09

ERP Consulting. (2012). Furniture manufacturing. Retrieved from ERP Consulting: http://www.erpc.com.ua/en/industries/furniture.html