Case Study Somerset Furniture Company

Case Study Somerset Furniture Company Order Description For the Somerset Furniture Company described determin" rel="nofollow">ine the product lead time by developin" rel="nofollow">ing a time lin" rel="nofollow">ine from the in" rel="nofollow">initiation of a purchase order to product delivery. Discuss the company's possible transportation modes and channels in" rel="nofollow">in Chin" rel="nofollow">ina and to and within" rel="nofollow">in the United States, and the likelihood of potential problems. Identify and discuss how in" rel="nofollow">international trade specialist(s), trade logistics companies, and/or Internet exchanges might help Somerset reduce its product lead time and variability. CASE PROBLEM 10.1 Somerset Furniture Company's Global Supply Chain" rel="nofollow">in The Somerset Furniture Company was founded in" rel="nofollow">in 1957 in" rel="nofollow">in Randolph County, Virgin" rel="nofollow">inia. It traditionally has manufactured large, medium-priced, ornate residential wood furniture such as bedroom cabin" rel="nofollow">inets and chests of draws, and din" rel="nofollow">inin" rel="nofollow">ing and livin" rel="nofollow">ing room cabin" rel="nofollow">inets, tables, and chairs, at its primary manufacturin" rel="nofollow">ing facility in" rel="nofollow">in Randolph County. It employed a marketin" rel="nofollow">ing strategy of rapidly in" rel="nofollow">introducin" rel="nofollow">ing new product lin" rel="nofollow">ines every few years. Over time it developed a reputation for high-quality, affordable furniture for a growin" rel="nofollow">ing U.S. market of homeowners durin" rel="nofollow">ing the last half of the twentieth century. The company was generally considered to be an in" rel="nofollow">innovator in" rel="nofollow">in furniture manufacturin" rel="nofollow">ing processes and in" rel="nofollow">in applyin" rel="nofollow">ing QM prin" rel="nofollow">inciples to furniture manufacturin" rel="nofollow">ing. However, in" rel="nofollow">in the mid-1990s, faced with in" rel="nofollow">increasin" rel="nofollow">ing foreign competition, high labor rates, and dimin" rel="nofollow">inishin" rel="nofollow">ing profits, the Somerset Company contracted to outsource several of its furniture product lin" rel="nofollow">ines to manufacturers in" rel="nofollow">in Chin" rel="nofollow">ina, simultaneously reducin" rel="nofollow">ing the size of its own domestic manufacturin" rel="nofollow">ing facility and labor force. This in" rel="nofollow">initially proved to be very successful in" rel="nofollow">in reducin" rel="nofollow">ing costs and in" rel="nofollow">increasin" rel="nofollow">ing profits, and by 2000 Somerset had decided to close its entire manufacturin" rel="nofollow">ing facility in" rel="nofollow">in the United States and outsource all of its manufacturin" rel="nofollow">ing to suppliers in" rel="nofollow">in Chin" rel="nofollow">ina. The company set up a global supply chain" rel="nofollow">in in" rel="nofollow">in which it arranges for shipments of wood from the United States and South America to manufacturin" rel="nofollow">ing plants in" rel="nofollow">in Chin" rel="nofollow">ina where the furniture products are produced by hand by Chin" rel="nofollow">inese laborers. The Chin" rel="nofollow">inese manufacturers are very good at copyin" rel="nofollow">ing the Somerset ornate furniture designs by hand without expensive machin" rel="nofollow">inery. The average labor rate for furniture manufacturin" rel="nofollow">ing in" rel="nofollow">in the United States is between $9 and $20 per hour, whereas the average labor rate for furniture manufacturers in" rel="nofollow">in Chin" rel="nofollow">ina is $2 per day. Fin" rel="nofollow">inished furniture products are shipped by contain" rel="nofollow">iner ship from Hong Kong or Shanghai to Norfolk, Virgin" rel="nofollow">inia, where the contain" rel="nofollow">iners are then transported by truck to Somerset warehouses in" rel="nofollow">in Randolph County. Somerset supplies retail furniture stores from this location. All hardware is in" rel="nofollow">installed on the furniture at the retail stores in" rel="nofollow">in order to reduce the possibility of damage durin" rel="nofollow">ing transport. The order processin" rel="nofollow">ing and fulfillment system for Somerset in" rel="nofollow">includes a great deal of variability, as do all aspects of the company's global supply chain" rel="nofollow">in. The company processes orders weekly and biweekly. In the United States it takes between 12 and 25 days for the company to develop a purchase order and release it to its Chin" rel="nofollow">inese suppliers. This process in" rel="nofollow">includes developin" rel="nofollow">ing a demand forecast, which may take from one to two weeks; convertin" rel="nofollow">ing the forecast to an order fulfillment schedule; and then developin" rel="nofollow">ing a purchase order. Once the purchase order is processed overseas by the Chin" rel="nofollow">inese manufacturer, which may take 10 to 20 days dependin" rel="nofollow">ing on the number of changes made, the manufacturin" rel="nofollow">ing process requires approximately 60 days. The foreign logistics process requires fin" rel="nofollow">inished furniture items to be transported from the manufacturin" rel="nofollow">ing plants to the Chin" rel="nofollow">inese ports, which can take up to several weeks dependin" rel="nofollow">ing on truckin" rel="nofollow">ing availability and schedules. An additional 5 to 10 days are required to arrange for shippin" rel="nofollow">ing contain" rel="nofollow">iners and prepare the paperwork for shippin" rel="nofollow">ing. However, shipments can then wait from one day to a week for enough available contain" rel="nofollow">iners. There are often too few contain" rel="nofollow">iners at the ports because large U.S. importers, like “Big W” discount stores in" rel="nofollow">in the United States, reserve all the available contain" rel="nofollow">iners for their contin" rel="nofollow">inual stream of overseas shipments. Once enough contain" rel="nofollow">iners are secured, it requires three to six days to optimally load the contain" rel="nofollow">iners. The furniture pieces often have odd dimensions that result in" rel="nofollow">in partially filled contain" rel="nofollow">iners. Sin" rel="nofollow">ince 9/11, random security checks of contain" rel="nofollow">iners can delay shipment another one to three weeks, and smaller companies like Somerset are more likely to be extensively checked than larger shippers like Big W, whom the port authorities don't want upset with delays. The trip overseas to Norfolk requires 28 days. Once in" rel="nofollow">in port, one to two weeks are required for a shipment to clear customs and to be loaded onto trucks for transport to Somerset's warehouse in" rel="nofollow">in Randolph County, which takes from one to three days. When a shipment arrives, it can take from one day up to a month to unload a trailer, dependin" rel="nofollow">ing on the urgency to fill store orders from the shipment. Because of supply chain" rel="nofollow">in variability, shipments can be off schedule (i.e., delayed) by as much as 40%. The company prides itself on customer service and fears that late deliveries to its customers would harm its credibility and result in" rel="nofollow">in cancelled orders and lost customers. At the same time, keepin" rel="nofollow">ing excess in" rel="nofollow">inventories on hand in" rel="nofollow">in its warehouses is very costly, and sin" rel="nofollow">ince Somerset redesigns its product lin" rel="nofollow">ines so frequently a real problem of product obsolescence arises if products remain" rel="nofollow">in in" rel="nofollow">in in" rel="nofollow">inventory very long. Somerset has also been experiencin" rel="nofollow">ing quality problems. The Chin" rel="nofollow">inese suppliers employ quality auditors who rotate among plants every few weeks to perform quality control tests and monitor the manufacturin" rel="nofollow">ing process for several days before visitin" rel="nofollow">ing another plant. However, store and in" rel="nofollow">individual customer complain" rel="nofollow">ints have forced Somerset to in" rel="nofollow">inspect virtually every piece of furniture it receives from overseas before forwardin" rel="nofollow">ing it to stores. In some in" rel="nofollow">instances, customers have complain" rel="nofollow">ined that tables and chairs creak noisily durin" rel="nofollow">ing use. Somerset subsequently discovered that the creakin" rel="nofollow">ing was caused by humidity differences between the locations of the Chin" rel="nofollow">inese plants and the geographic areas in" rel="nofollow">in the United States where their furniture is sold. Replacement parts (like cabin" rel="nofollow">inet doors or table legs) are difficult to secure because the Chin" rel="nofollow">inese suppliers will only agree to provide replacement parts for the product lin" rel="nofollow">ines currently in" rel="nofollow">in production. However, Somerset provides a one-year warranty on its furniture, which means that they often need parts for a product no longer bein" rel="nofollow">ing produced. Even when replacement parts were available, it took too long to get them from the supplier in" rel="nofollow">in order to provide timely customer service. Although Somerset was in" rel="nofollow">initially successful at outsourcin" rel="nofollow">ing its manufacturin" rel="nofollow">ing process on a limited basis, it has sin" rel="nofollow">ince discovered, as many companies do, that outsourcin" rel="nofollow">ing can result in" rel="nofollow">in a host of supply chain" rel="nofollow">in problems, as in" rel="nofollow">indicated. Discuss Somerset's global supply chain" rel="nofollow">in and possible remedies for its supply chain" rel="nofollow">in problems, in" rel="nofollow">includin" rel="nofollow">ing strategic and tactical changes that might improve the company's supply chain" rel="nofollow">in performance, reduce system variability, and improve quality and customer service. Answer below For the Somerset Furniture Company described determin" rel="nofollow">ine the product lead time by developin" rel="nofollow">ing a time lin" rel="nofollow">ine from the in" rel="nofollow">initiation of a purchase order to product delivery. Discuss the company's possible transportation modes and channels in" rel="nofollow">in Chin" rel="nofollow">ina and to and within" rel="nofollow">in the United States, and the likelihood of potential problems. Identify and discuss how in" rel="nofollow">international trade specialist(s), trade logistics companies, and/or Internet exchanges might help Somerset reduce its product lead time and variability.