Foldrite Furniture Co.
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Introduction
Founded in 1987, FoldRite Furniture Co. is an organization which produces and sells folding furniture. It did not take long for Foldrite to develop a name for itself within the outdoor/folding furniture industry. The chairs and tables they produced were not only light, but also durable. In the 90s the company expanded production to three separate lines of folding furniture. These lines were marketed to business, government offices, hotels, convention centers, and educational facilities. From 1999 to 2006 the company saw revenue increase from $47.5M to $60.3M (a growth of ~3.5% annually) which put them well above the industry average for growth over this same period.
The financial troubles which impacted FoldRite in 2006 can be attributed to several key factors. One factor which had a measureable waterfall effect on production times was high-turnover of the experienced factory staff. Resources had to be utilized to train new employees, instead of being focused on production. The reduced effectiveness of the factory employees pushed production time out from 4 weeks to 6-8 weeks; which in-turn caused deliveries to hit their deadlines only 30-40% of the time (down from over 90%). These missed deliveries lead to a sharp drop in orders for FoldRite Products.
Additionally, while the companys operations were in disarray, the executive team decided to move forward with the acquisitions of several small companies. Often, these companies did not always have products which were related to FoldRites core business. The decision to take on multiple acquisitions lead to a significant portion of FoldRites funds being tied up. It also lead to many members of management being stretched too thin to effectively manage.
It wasnt until Early 2007 that things began to look optimisitc for FoldRite. A new group of investors and their funding was brought into the company. Along with these new investors came a more experienced management team. This team was quick to identify and address many of the issues which plagued FoldRite up to that point. A major focus of the new team was to reduce the number of product lines and consolidate manufacturing to meet new standards.
By reducing the number of product lines there was increased product quality, production efficiency, and lower price points. Consolidation of manufacturing from four small factories to one factory allowed for space to be freed up and non-essential machinery to be replaced with a set of automated equipment. The decisions made by the new management team allowed them to streamline their production practices, increase margins, and reduce lead time down to only two weeks.
2-day shipping was a big part of FoldRites success during the recession. Many retailers would wait until the last minute to restock and wanted goods ASAP. By offering this, the number of order cancellations was also reduced. The decisions made by the executive team allowed them to be profitable ($60M in revenue) despite the recession.
FoldRite’s revenues are generated as follows:
Industry
FoldRites Revenue
Hospitality
Government/Educational/Medical
Individuals
Research/Discussion of Problems within FoldRite
FoldRite’s main intention is meet increasing demands while maintaining productivity, quality, and reliability without missing delivery deadlines. Viable plans include:
Use of overtime – Additional 10-hour shift on Fridays and increased staff would allow for increased capacity, design changes, and increased inventory.
OT rates = 1.5X standard rates including benefits
Greatest flexibility to change need for OT hours to meet demand.
Employee fatigue leads to declines in product yield.
If the company goes with OT only, the it will incur a total cost of over $575k
In May the overtime requirements will not be met by current staff, new staff will have to be hired.
Temporary Hires and Training
Hiring and training workers is expensive.
Skilled worker = $1,500 cost
Unskilled workers = $66.5 cost
Training a skilled