Case study: Hudson’s Alpine Furniture
Hudson’s Alpine Furniture (Hudson’s) is a small company that designs and manufactures custom made timber furniture. The firm was founded in 1998 by Ralph and Della Hudson in Queanbeyan NSW. Their goal was to combine two of their passions, woodworking and skiing, to create a viable, lucrative business. The operation was set up to produce high quality custom-made timber furniture for a quite specific market. This market consisted of the owners of private ski lodges and holiday cabins located around the snowfields and high country of the New South Wales Alps. Being skiers and lovers of the high country, Ralph and Della wanted to create furniture that reflected the natural beauty of the area. To this end, they sourced much of their materials locally, and attempted to maintain an harmonious relationship between their business and the environment that nurtured it.
Hudson’s developed a solid reputation for its creative designs and high-quality workmanship. Sales eventually encompassed the entire Australian Alps region. Along with this growth came additional opportunities.
Traditionally, the company had focused entirely on custom-made pieces of furniture, with the customer specifying the types of wood from which the piece was to be made. As the company’s reputation grew and sales increased however, the small sales department began receiving orders from commercial ski lodge operators in the region. The orders usually consisted of a number of similar furniture items for use in the ski lodge concerned. These orders of furniture represented quite a departure from the normal course of business, and to achieve some economies of scale, the company has tried to process them in batches.
The commercial buyers of the new product line were much more price sensitive and imposed more stringent delivery requirements than the private buyers of custom-made furniture. Whilst the new line of business shows potential for growth and profit, the custom-designed and made furniture continues to dominate the company’s sales, accounting for approximately 60 percent of volume and 75 percent of revenue.
During the past few months, sales of commercial furniture pieces, whilst still small, have steadily increased, leading to more regular scheduling of this work. However, when scheduling trade-offs have to be made, the custom furniture is always given priority because of the higher sales volume and profit margin. Thus scheduled lots of components for the commercial furniture are often left sitting around the plant in various stages of completion.
Currently, the company operates a single manufacturing facility in Queanbeyan (close to Canberra), where both the custom and more standardised commercial furniture pieces are manufactured. The equipment used for production is mainly general purpose in nature in order to provide the flexibility needed for producing custom-made pieces of furniture. The layout of the factory groups equipment together by function. The cutting department houses saws and other cutting equipment, lathes are grouped in another area and jointing machines have their own section. There are also a number of assembly stations strategically positioned around the facility. The quality of the finished products reflects the quality of the wood chosen and the craftsmanship of the individual workers. Both the custom and the commercial furniture pieces compete for processing time on the same equipment by the same craftspeople.
Following an informal review of performance of the firm, the Hudsons are pleased to note that the company has grown. Sales of custom furniture remain strong, and demand for the commercial line is steadily increasing. However, the company accountant has indicated that profits are not what they
should be. Costs associated with the commercial furniture line are rising. Money is being tied up in inventory, not just raw materials and work in process, but also increased levels of finished goods waiting for delivery. Expensive public warehouse space has to be rented to accommodate some of the inventory volume. The Hudsons are also concerned with increased lead times for both custom and commercial orders, which are causing longer promised delivery times. Capacity is being pushed, as the once spacious facility becomes clogged with work in process, and there does not seem to be any space left in the plant for expansion. The Hudsons decide that the time has come to take a careful look at the overall impact this new commercial furniture line is having on their operations.
Task
After you have carefully read and analysed the case study, write an essay discussing the operational issues facing Hudson’s Alpine Furniture. The essay should identify and discuss the operational aspects that are affecting the organisation, paying attention to both strategic and day-to-day implications. Your argument should address the following four issues with responses integrated within the essay.
1. The current production systems and processes used by Hudson’s (a technical analysis).
2. The effect of the new commercial furniture orders on Hudson’s operations, including capacity constraints, operational efficiency and overall effectiveness of the plant (problem definition).
3. The daily operational decisions that the operations manager needs to make under the current operating conditions to maintain effective production (day-to-day operational issues).
4. The effect the move to producing commercial furniture might have on the company’s financial structure1. (broader organisational issues caused by operational problems).