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(Operation Management Case study Answer)-Chad Thomas-How has the move to producing standard furniture affected the company’s financial structure?



How has the move to producing standard furniture affected the company’s financial structure?

The move to producing standard furniture will create another stable income for the company’s financial structure in the long run but however, it will also increase the burden of financial of the company at the first starting. Transformation of the business is always not an easy thing for the company especially the company with a fixed structure that lacks flexibility because sometimes it will need to acquire a new facility, new location, and so on. Usually, the company does not do this but just while the current market is worst, and the new market was profitable.

 

If the company move to producing the standard furniture will make the financial situation become tougher before the brand loyalty, the trust of the customer become mature. The company should continuedly to maintain the custom furniture while trying to move to the production of the standard furniture. This shall be more helpful for the company to use the income of the custom furniture to cover back the cost of the standard furniture line before the new line becomes mature.

 

For more detail, before the standard furniture line become mature, the cost usually will be higher. However, the standard furniture usually is the type of goods that price-sensitive at first and brand loyalty will be second. If the higher cost brings to the higher price, it may cause lower sales, and this possible to make the unsellable product accumulate in the inventory and increase holding cost and bring to a vicious circle.

 

In the middle of the move to producing standard furniture, the company income will decrease as well because the investment usually cannot be return immediately. For example, if the company produces 100 tables with the cost of 1000, because of the inefficient of the marketing and sales department, in the first month only sell out 20 tables, but yet second-month factory came with another 100 tables. This will cause the company needs to increase the storage, such as rent more warehouses to keep the stock which will only bring negative effects. After a longer time, this will cause overload in the warehouse and possibly bring loss to the company financials, even worst it was possible to drag the custom line into the bad situation too.

 

To decrease the impact of the new line on the financial structure, it was not only the problem of the production line, but it was also about the effort of the operation team behind such as marketing. If the company wants the standard line to be successful, it must pay attention to the marketing of the standard furniture while also take care of the customs line. This is because the profit of the standard line is actually lower than the custom line. In conclusion, holding both standard and custom lines is the best choice and both lines could be mutual assistance to improve the company's financial structure too.



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