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GUILLERMO FURNITURE STORE ANALYSIS 2
Abstract
Guillermo Furniture Store is faced with the challenges associated with remaining competitive in a changing business environment. The problems facing Guillermo are a combination of two predominant factors: 1. A new overseas competitor who utilizes high tech technology to offer furniture at much lower prices; and 2. A sleeper community nearby has exploded in terms of development offering a wide variety of work and employment with higher wages for their employees. This combination, if continuing to advance without change on the part of Guillermo, will likely drive Guillermos furniture business into insolvency. This paper will attempt to discuss and compare the possible alternatives for Guillermo and present financial information relative to the outcomes that may work in the best interest of Guillermo Furniture Store.
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Guillermo Furniture Store Analysis
Guillermo Navallez is a very proud individual. He has manufactured furniture near his home in beautiful Sonora, Mexico for years. His products, namely tables and chairs, are handcrafted, and could once be priced at a premium to match the quality associated with the Guillermo Furniture Store brand. Because of fierce competition generated from two factors Guillermo must now face alternatives to his traditional business strategy. The awakening of a long sleeping neighboring community with robust opportunity and better paying jobs and the entry of a new foreign competitor with a technological edge that allows them to offer furniture products at lower prices are provoking Guillermo to seek possible alternatives. However, with Guillermo as in tuned with what his business has done for years, one option that is not available to Guillermo is consolidating into a larger company as several of the competitors he has researched have done. This is not a possible alternative for Guillermo.
Possible Options Available to Guillermo
With the possibility of Guillermo consolidating his furniture store into a larger not to be considered, there are several other alternatives Guillermo must choose from in order to react to his furniture stores new competitive threats. Those options are: 1. Maintain his current business strategy; 2. Utilize new methods of technology for furniture production; 3. Make a paradigm shift away from the furniture stores traditional function of manufacturing furniture and towards being a furniture distributor. While none of these options may be immediately palatable to Guillermo, the cost of doing nothing can cost him his furniture business. A brief examination of the three alternatives is therefore necessary.
Maintaining the Current Business Strategy
Guillermos basic business strategy is traditional at best. His products are “handcrafted.” Tables and chairs are produced by the human hand, no doubt using the finest tools. While this form of
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workmanship served the Guillermo Furniture Store brand quite well for so many years, it is a source of manual labor that is counterproductive in view of the new competitive threats. Guillermo currently pays $15.00 an hour for labor. It takes 20 man hours to produce a mid-grade unit of furniture, and 30 hours to produce a high-end unit. Maintaining this strategy is problematic. First of all the neighboring community which is now bustling with economic development likely means better wages for fewer hours of work. It could also mean that customers who would be loyal to Guillermo at one time could now flee towards competitors who are distributors and offer lower graded products at far less prices. A lower wage associated with a longer than competitive production time will not help Guillermo remain competitive.
Utilizing New Technology
Handcrafted products have quickly become a thing of the past for Guillermo. Compared to the new technology being utilized by one of his competitors, it takes Guillermo 20 man hours to produce one unit of mid-grade furniture as compared to four hours, the time it costs a competitor to manufacture one mid-grade unit of furniture. The use of more technology, such as robotics, to manufacture products also means fewer man hours and fewer employees. If Guillermo can find a way to capitalize on the same or better technology he can increase production while reducing production costs. At the present time, for example, a worker paid $15.00 an hour takes 20 hours to produce a single mid-grade unit. This costs Guillermo $300.00 in labor per mid-grade unit. Using high-end technology, a skilled worker who is paid $40.00 can manufacture one mid-grade unit in four hours only costing $160.00 in labor. Taking advantage of technology can make Guillermo competitive and hopefully more profitable.
The Paradigm Shift, Goodbye Manufacturing and Hello Distribution
Guillermos other option is to make a complete shift away from the traditional setup of the furniture store. For years Guillermo Furniture Store was a manufacturer. Now, Guillermo can transition
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away from being a manufacturer into being a distributor. A Norwegian competitor is seeking an opportunity to have its furniture products distributed in North America. There are two strong potential benefits that can be gleaned from this option. Guillermo does not have to totally escape the manufacturing business if he can successfully integrate the necessary technology into his business portfolio. He can also be a distributor for the