5N1390: The Workshop Of Swift Furniture Co. Though Small, Was Doing A Thriving Business: Personal Effectiveness Assignment, OU, Ireland

Case Study

The workshop of Swift Furniture Co., though small, was doing a thriving business, and had a solid backlog of orders that ensured continuous production for some time. Profits, however, had not kept pace with production, and rising costs, (e.g. machines, timber, wages, and overheads) had contributed to this decline.

Mr. Swift was naturally concerned about this situation and had thought about raising the prices of many of his products, but this was not really feasible because the prices of most items had already been increased over the last 6 months. He thought of various alternatives, among which was opening an outlet to retail his own products.

The Swift Furniture Company was established by John’s father who had started a small woodworking business in his garage 10 years ago. John joined the business 5 years later, by which time the workshop had been moved to a warehouse on the outskirts of Dublin.

At that time, much of the space was used for the storage of materials and finished goods, but over the next 5 years, more and more of the storage area had been taken over for equipment and workspace and in time an additional store had been constructed. The payroll had grown to 9 craftsmen, supervised by a craftsman foreman. John and his wife did the purchasing, accounting and sales work.

The workshop had begun on a special order custom basis selling principally to local residents and tourists. Over the years, a standard line of Irish Dressers had been developed, which now accounted for 78% of sales but on which only slim profits were made.

Most of these dressers were sold through 4 wholesalers to retail furniture stores in Dublin and in the Midlands. Also, a specialist furniture retailer in Cork had become accustomed to buying directly from the factory. Although most orders for custom-made items were generated locally, a few were also received from householders in various parts of Ireland and the UK.

In examining his sales and profit records for the past 2 years, John found that whilst sales had increased steadily, profits showed only a very slight increase over the preceding year. Further study showed that whilst the sale of custom-made merchandise resulted in a consistently good profit, standard items sold on slimmer margins actually lost money.

More rigid specification and demand from large trade purchasers had both contributed to the problem. Unfortunately, the number of orders for custom work had to be limited, because top craftsmen were difficult to find, and much of it demanded highly skilled cabinet makers.

John discussed his business problems with his wife and asked what she thought about his opening a retail showroom. He said that it seemed to him that their standard items were popular and almost sold themselves. There was also plenty of physical space to expand the business and it would not be too difficult or expensive to incorporate an attractive showroom in their existing premises.

He felt that they might be able to cut out the trade margin and split this between customers and themselves. This would enable them to reduce prices, or at least hold them steady for a little time and still make a reasonable profit. After asking his wife’s opinion, he discussed these problems with his foreman and asked for his view also.

In discussing the various ways in which he could expand his furniture business, John finally decided that he would need to make a number of changes if his company was to survive. While sales figures since 2004 appeared to show an upward trend, he was aware that these masked the effects of inflation. It seemed to him that he was running hard but just staying in the same place.

While the prospect of opening a retail showroom in part of his factory premises near Dublin appealed to John, he was uncertain about the reactions of the wholesalers with whom the company had traded substantially for several years. If he were to open up a small showroom, would they close their accounts? Would he be wiser to sell direct some different version of an Irish Dresser?

However, he thought that this might merely complicate his production, increase costs and result in no effective increase in overall profitability. In addition, he realized that he would have the problem of delivering fairly bulky items of furniture, perhaps too widely scattered addresses.

It might even be better, he reflected, to concentrate more on custom-built furniture sold direct from his new showroom and gradually to reduce the sales of the Dressers so that, eventually, they accounted for no more than say 40% of overall sales.