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Foldrite Furniture

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Submitted By sxu33
Words 793
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History
FoldRite Furniture Company was established in 1987 with the initial vision of selling folding banquet tables for school and church functions. The company grew progressively in 1990s as they expanded services to meet the needs of businesses, government offices, hotels, convention centers, schools and colleges. As a result they saw an average annual growth rate of 3.5% for the period 1999-2006 that was above average for the industry. However, year 2006 brought a financial decline that resulted in an increased lead time from 4 weeks to 6-8 weeks and on time delivery of 90% to 30%-40% caused by loss of productivity and yield due to high labor turnover and an increasing proportion of inexperience workers.
In 2007, FoldRite was taken over by private investors and new management was recruited. The new CEO, Marshal Epstein hired a manufacturing VP, Jose Ramos and tasked him the job of restructuring the manufacturing department while standing by the four organization goals: continued innovation in both products and process, customer responsiveness, lean manufacturing, retention of skilled employees. All of these helped turn the company around and they saw a $60M revenue jump in 2009, lead time was reduced to 2 weeks and a two day shipping policy ensured lean inventory for distributors and possibility of last minute purchasing decision by customer. Revenue of FoldRite was segmented into 3 markets: Hospitality, Government/Corporate offices and Individual Customers. The demand of their products was seasonal with peak demands in summers.
Present Problem
Given the recent surge in growth and success, FoldRite was forecasting a growth in the business market and rise in sales demand in 2010. The projection also highlighted the importance of “Green Products” for companies placing orders at FoldRites and Epstein expected this segment to grow by 20% or more for next five years. Forecast of production planning also triggered the purchase of raw material while production activity was confined to 10 hour shift 4 days a week. To compensate for the increase in production, Foldrite allowed the use of overtime or additional labor on Fridays. FoldRite’s labor force consists of both skilled and unskilled workers who performed a variety of tasks. As expected, the wage differential between a skilled and non-skilled employee varied however the company had good relationships with their employees. They offered incentive plans and training programs for converting unskilled workers into skilled workers. Similar materials used in products resulted in improved quality and reduction in procurement overhead and multiple assembly lines were used for the final assembly of tables and chairs. With an average yield of 95%, focus was on improved quality control process for each product.
FoldRite was foreseeing an unexpectedly high market demand for the company’s product in summer due to launch of new stylish, innovative and environmentally friendly products and had to address the following challenges:
Production Issues: They needed to optimize production planning to meet the spur in demand & also meet the quality standards and delivery schedules. To achieve this, company can either ask its workers to do overtime i.e. 10 hour shifts on Fridays or temporarily increase its workforce to fully utilize the production capacity and or can subcontract the workforce to meet the unexpected rise in demand.
Financial Issues: Tight credit facilities ensured the company needed to meet the demands from internal cash flows. R&D and Product development budgets can take a hit.
Human Resource Issues: Hiring new staff results in additional cash outflows i.e. $1500 along with two supervisors interviewing unskilled worker earned$25 an hour with 33% for benefits. Newly hired workers productivity was 80% for first four weeks. Also training unskilled to skilled worker required 4 weeks fully paid training.
Design Change: Change of Cloud Chair design would require one minute less in assembly but would require a one-time cost of $15,000 and one month for implantation.
Solutions explored
FoldRite explored various options to meet the unexpected high demand in most efficient way. The options were working overtime, hiring more staff, changing design, subcontract workers, changing design and working overtime, and changing design and increasing staff. The option that costs the least is changing design. It costs them $49,756 if they only change design while other options can cost them up to or over one million dollars.
Recommendations
1. From Exhibit B ‘Profit analysis for different products’, we can see that it is most profitable for FoldRite to produce CloudChair. That provides them highest profit margin of 53% as compared with that of AlStrong and GreenComfort at 34% and 31% respectively.
2. FoldRite will also be able to save cost if they only change design. That is the best alternative. Refer to Tables and Exhibits for detailed cost analysis of various options.

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