Recommendations-Action/ Implementation Plan
- Continue selling the "Caledonia" chair
- Stop production of "Parkdale"
•Regulate the Parkdale model is only produce half of it total production.
- Split the workforce to focus on Atherley & Caledonia
- Reduce overstock
- Skilled workers wages would decrease,creating fairness
•Caledonia’s modern wood forming machines are capable of being modified to use in the production of the Atherley model.
- Non-skilled workers move to Caledonia model
- Move equipment to Atherley model
If the management team decided to invest in more equipment they should direct it towards the Caledonia or the Atherley model, although the sales growth is rising it’s doing so slowly.
- Direct towards Caledonia or Atherley model
- Skeptical to invest long-term
- Equipment over expansion of the plant
- Strategic planning for plant
Problem Statement, Objections & Key Decision
Key Events & Issues
- Sales in the chairs division have not been up since 2008.
- Certain chair models like Atherley and Parkdale sales profits are declining.
- John Atherley is the founder and owner of The Atherley Furniture Company located near Orillia, Ontario.
- The Canadian furniture industry has been experiencing declines because of economic performance.
- The Orillia plant produces three types of chairs: the “Atherley," the “Caledonia," and the “Parkdale."
- Bring up the sales in the chairs division and improve on efficiency for future competition.
- Discard Parkdale chair models and embrace the Caledonia model
- $340,000 in 2005 to $260,000 in 2008, about 24%.
- Sales of the “Atherley” and “Parkdale” model have been declining. Whereas, the “Caledonia” model has been increasing.
- Competition is causing profit decline
- Atherley Furniture is loosing money on the “Atherley” and “Parkdale” models, leading to profit loss.
- Improve efficiency for the increased competition in the future
- Get rid of Parkdale chair models
Financial Analysis
Agenda
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- Key Events
- Problem Statement
- Situation Analysis-SWOT
- Identifying/Evaluating Alternatives
- Financial Analysis
- Recommendations
- Action/Implementation
- Key Decision Criteria
- Conclusion
Situation Analysis
- With profitability decreasing overall, it becomes critical to detect and fix the offending department.
- With respect to the Caledonia chair net profit has increased by nearly 3.5 points over four years.
- Caledonia is the top-performing chair in the division.
- COGS of Atherley has risen to 74.22%, up from an initial 70%.
- Gross profit has steadily fallen, while expenses have remained virtually unchanged.
- Sales have grown by 6.67% since 2004, a strong indication that if labor costs were managed more effectively, profits could also see growth.
- The Parkdale chair is an abysmal performer. 2008 sales were only 73.57% of what they were in 2005.
- The dollar value of the COGS has decreased, however its value as a percent of sales has jumped nearly 10 points.
- Gross profit has slid 9.47% over the four years, which, in 2008 resulted in a net loss of $50,000.
Overall, net profit has decreased by $80,000 since 2005, however that translates only a 2.24% loss as a percent of sales. This suggests that some restructuring could turn the company around.
Atherley Furniture Company
Strengths
•Steady employment all year round
•Good reputation
•Loyal to its workers and retailers
Opportunities
•Outsource production
- Many competitors that can negotiate contract agreements
- Collaborate with wholesale retailers
- Market research for new chair model
Created by:
Brilyn Colaco
Jayson del Rosario
Laura Mucci
Mike Obuch
Jason Slanina
Weaknesses
•There most significant product Parkdale is no longer in style.
•Labor disputes, skilled & non-skilled workers on Parkdale. Could lead to work strikes
•Rising inventories as well as declining profits on Parkdale
•From rising heavy debt load and declining earnings on Caledonia
•Management is reluctant to invest in more equipment or expansion of the plant
Threats
•Economic recession
•Steady growth of import competition
•Domestic and foreign producer are rising in competition
•Back orders from the Caledonia may cause a shortage on customer loyalty and future purchases
Alternative #2: Discontinue the Parkdale chair
Alternative #1: Modify equipment to increase production efficiency on Atherley Chair.
Pros:
• Money can be reinvested into production of the other two chairs.
• Inventory turnaround time will be reduced.
• Salary expenses can be cut.
Cons:
- Selling remaining inventory will be difficult and come at loss.
- Community may be angry due to lost jobs.
- Does not guarantee increased sales of other two model
Cons:
- Loss of worker due to mechanizing their jobs.
- Initial outlay of cash is risky.
- Potential malfunctions of machinery.
Pros:
•More emphasis can be placed on the top seller.
•Production costs will decrease.
•Increased profits can be reinvested into the company.