Tag: furniture industry

OM in the News: Ikea Tries to Shrink

IKEA is today the world’s biggest seller of furniture, with 460 mostly franchise-operated stores spread across 62 countries that carry some 9,500 products. Its price-conscious shoppers wonder: How does a nice chair cost only $35?

IKEA grew into a furniture behemoth with a relentless focus on keeping costs low, but that goal has become more challenging, writes The Wall Street Journal (April 26, 2023). The price of metal, glass, wood and plastic have spiraled up, as have shipping costs. Inflation has squeezed consumers’ wallets. IKEA knew that something had to change to keep prices down and profits up, so in the past couple of years they have taken some of their products back to the drawing board.

Designers experimented with ways to reduce IKEA’s reliance on wood to cut material and shipping costs. Lighter, less expensive plastics, they discovered, could be used instead in cabinet doors and drawers. IKEA’s wooden furniture has traditionally used veneer that is glued onto a main structure of particleboard. Particleboard is formed from compacted wood chips and sawdust, and is significantly less expensive than solid wood.

They learned that they could substitute less expensive recycled aluminum for zinc, which had doubled in price over two years to $4,371 per ton. Recycled aluminum is now going into bathroom hooks and other products. When they turned to packaging, they cut freight costs by purging flat packs of “fresh air and wasted space.”

For one of IKEA’s most popular office swivel chairs, the Flintan, smaller armrests and less steel and plastic in the back cut manufacturing costs. The new Flintan is the same size as its predecessor, but it’s much more efficient to ship after designers tweaked its components to make them fit more snugly into a flat pack. IKEA can now squeeze 6,900 Flintans into one shipping container, up from 2,750.

Designers likewise reworked the Säbövik bed, by changing the construction of its wooden frame. It was previously made of two thin layers of wood glued together. IKEA settled on a less expensive and lighter combination of solid wood, plywood and a compressed structure of wood strands and glue. The Säbövik used to come flat-packed in 3 cardboard boxes, but now fits into just 2 more compact boxes, enabling the company to cram twice as many flat-packed beds into a shipping container.

Classroom discussion questions:

  1. What is IKEA’s competitive advantage? (See  Chapters 2 and 5 in your Heizer/Render/Munson text).
  2. Is there a downside in the product redesigns such as the ones noted above?

OM in the News: The Furniture Supply Chain Crisis

Big, bulky and heavy. Furniture has been one of the biggest casualties of the global shipping and supply chain crisis as costs to transport a sofa or table are much higher than an iPhone or a pair of sneakers. In some instances, container costs for sofas, tables and chairs have risen as much as 1,200% since the start of the pandemic, forcing furniture retailers to raise prices.

If you think about the size of an cell phone and how many of those you could fit in a container and you think of the size of furniture, the cost per product really does shoot up. It means companies largely face an unenviable choice — absorb the extra costs and take a hit to profit margins or increase prices, which could weaken demand for their products.

The main problem for European and US retailers, reports Financial Times (Feb. 14, 2022), has been their reliance on China, which manufactures everything from cheap sofas and garden tables to flat-pack items made from chipboard. The rocketing transport costs have prompted some European and US retailers to move some of their manufacturing operations closer to home and their customers, known in Chapter 2 as “nearshoring” or “reshoring.”

British-based furniture retailer DFS, which makes 40% of its sofas in England, is also increasing the amount of automation in its domestic factories, citing benefits of higher quality, greater control over the supply chain and lower lead times. Other European retailers, hit by long delivery times from Asia, have relocated production to countries nearer home such as Poland, Lithuania and Latvia, which have advantages because of the low cost of labor and access to raw materials such as wood.

“If you’re looking at nearshoring of wood products, then you’re looking at countries with a lot of forests,” said one industry expert. Sweden’s Ikea, the world’s biggest furniture retailer, sources many of its goods from Poland, where a fifth of its products are made, and other countries nearby. However, even Ikea has been forced to plug gaps in the availability of some of products by using trains and chartering ships from China.

Classroom discussion questions:

  1. If nearshoring is so important, why did furniture imports from China increase 30% last year?
  2. Click to enlarge the furniture value chain graphic above. How does it relate to the concept of nearshoring?

OM in the News: A Radical Idea–Own Your Supply Chain

Ashley's plant in Arcadia, Wisconsin
Ashley’s plant in Arcadia, Wisconsin

Most manufacturing companies long ago outsourced their truck deliveries in the belief that outside experts could do the job more efficiently, reports The Wall Street Journal (April 30, 2015). But Ashley Furniture, the largest U.S. maker and retailer of furniture, has resisted that trend. It owns and operates about 800 trucks and delivers the vast bulk of its own products from factories to stores. “We think it is a core competency,” says the CEO.

Ashley employs about 3,000 people in transport and warehouse functions in the U.S., 1/4 of its U.S. head count. Its distribution centers feature racks specially designed to speed loading, and its managers arrange for trucks returning after they deliver their furniture to carry loads for other companies for a fee. About 80% of Ashley’s trucks are filled with other firms’ goods on the way back but Ashley aims to increase that above 90%

It has become very unusual for manufacturers to own transport fleets. Typically, switching to a third-party transport service leads to greater reliability and savings of at least 10%.

Trucks in Ashley’s fleet, from Volvo and Kenworth, average about 2.5 years old. The industry average is about 6 years. Providing drivers with comfortable seats, beds inside the cab and other amenities helps keep them loyal. Ashley also tries to keep drivers happy with predictable schedules allowing them to sleep at home frequently. Its drivers, dubbed Ashley Ambassadors, are also charged with building customer relations. In terms of delivery times and reliability, “they’re unbeatable,” says one furniture store owner.

Classroom discussion questions:
1. Why does Ashley control its own delivery supply chain?

2. What are the advantages of outsourcing instead?

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OM in the News: U.S. Furniture Survivor Goes Global

furniture graphWhen Ron Wanek started a furniture company in Arcadia, Wisconsin in 1970, his chances of becoming an industry giant looked remote, writes The Wall Street Journal (Mar. 6, 2015). Since then, most of the Carolina and Virginia manufacturers have been crushed by Asian competition. Wanek ’s Ashley Furniture Industries is now by far the biggest U.S.-based maker and retailer of furniture, with $4 billion in sales last year  (twice as much as La-Z-Boy and Ethan Allen combined).

Ashley has thrived by churning out low-price furniture, including sofas for as little as $399, at factories in the U.S. and Asia. While American rivals dithered as imports surged starting in the 1980s, Ashley figured out what could most efficiently be made in Asia and what should be kept at home. The company operates what is widely viewed as the industry’s most streamlined delivery system to rush products into its 460 stores. The company now has plants and distribution centers in four states. About 60% of the furniture the company sells in the U.S. is American-made. The rest comes mainly from Vietnam and China. Ashley has 13,000 employees in the U.S., up from 8,000 a decade ago. In the same period, total U.S. furniture-industry employment shrank by 1/3 to 384,000.

Ashley has long focused on the logistics of furniture delivery. The company has its own fleet of 800 trucks, and deliveries to stores arrive in 2-3 days.That saves stores money because they can hold less inventory.

Ashley imports 70,000 shipping containers of Asian furniture a year. Rather than pay to send containers back to Asia empty, it arranges shipments of grain and animal hides. Ashley’s obsession with costs is relentless. Some furniture makers offer customers hundreds of fabric choices for upholstery. Ashley offers 1 to 6, depending on the chair. That slashes inventory and speeds production.

Classroom discussion questions:

1. Why has Ashley survived and prospered?

2. What lessons can be learned from Ashley’s OM function?