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Chad Thomas has a relatively successful wood furniture business.

Originally, his company began


making furniture based on custom customer orders. As his company matured the company branched
out and began making standard furniture. As such, this decision to branch out into the ready to buy
sector has put additional pressure on the company. Specifically, the pressure on the production line to
trade-off between low-profit, high demand products versus the high-profit, low demand products.
Inevitably, Mr. Thomas is now reviewing the decisions he has made. Through this paper we will explore
in detail the decisions Mr. Thomas has to makes daily and over the long run to ensure his companys
operations are running effectively. Next, how sales and marketing are affecting the operations of the
company. Thirdly, how the decision to produce standard furniture affect the companys financial
structure. Lastly, what alternatives or decisions Mr. Thomas could have made to avoid some of the
problems the company now faces.
Running a company is daily task that requires a great amount of judgment to make an informed
decision (Froeb, McCann, & Shor, 2014). This assumption is based on my own years of experience
leading Marines in combat. There is a direct correlation between leading Marines and running a
business: the decisions you make today have lasting impacts tomorrow. For Mr. Thomas this is no less a
reality when deciding to branch out into the standard furniture market. Whether Mr. Thomas realized it
or not he made a set of decisions within the framework of the nine competitive priorities (Krajewski,
Ritzman, & Malhotra, 2013). Originally, the company was arguably based firmly in customization and top
quality when Mr. Thomas was starting out. As the business progressed the company then took on the
consistent quality and variety aspects of the competitive priorities once Mr. Thomas decided to produce
standard furniture. Therefore, instead of focusing on one or two competitive priorities, his company is
now focusing on four or maybe five. Mr. Thomas is now faced with the daily dilemma in production
scheduling and productivity when compared to what to produce; custom furniture over that of standard
furniture. What is actually happening is the sales of the standard furniture are being cannibalized by the

custom orders or vice versa (Investopia). The sales of custom furniture is eating up the sales of the
standard furniture however, the custom furniture is been given priority in the production line. At risk is
Mr. Thomas good name. If one customers order suffers over the production of another customers
order his companys reputation will be damaged (Lomax, Hammond, East, & Clemente, 1997). Over the
long run Mr. Thomas has to make decisions that will increase customer value and to ensure his company
is running efficiently. Decidedly, there must be a decision on how to balance the custom orders with
standard production fulfillment. In order to balance the companys operations, Mr. Thomas must make
operations management decisions based on the ability to measure productivity (Krajewski, Ritzman, &
Malhotra, 2013). It is unclear how Mr. Thomas is or even aware of the productivity measurements he
should be utilizing to maximize his companys capabilities. Based on the productivity measurements,
Mr. Thomas must decide how much time is given to standard and to custom furniture orders. In this way
the production line can allocate the workers time and measure the average time to make each standard
piece of furniture and have an approximate measurement for custom orders. Without the basic
measurements of productivity Mr. Thomas cannot truly analyze the operation and make an effective
decision on scheduling. Additionally, Mr. Thomas has inventory in various degrees of completion or work
in process. While waiting inventory could be attributed directly to scheduling/capacity it is also an
indication of supply chain management. Raw materials are sitting waiting to be transformed thus; we
can conclude Mr. Thomas has not implemented a standardized output matrix on his standard furniture
line. As raw materials sit waiting for transformation, the situation ties up dollars in housing and
inventory maintenance to the point Mr. Thomas is paying additional rental fees for added storage space.
Mr. Thomas needs to close the time where raw materials sit waiting for transformation as well as work
in process for the standard furniture line. He can do this if he knows the production time it takes to
produce standard furniture as well as the production capacity of the production floor. Once this is
accomplished Mr. Thomas can allocate production time appropriately to both custom and standard

furniture. This, of course, is all based on a single production facility utilizing the same workers. However,
the best long term solution would to separate the two production lines in order to increase capacity as
the standard furniture lines demand is steadily increasing.
Mr. Thomas challenges are not solely rooted capacity and inventory however. There is a major
disconnect between the sales/marketing team and the operations/production team. Evidently, the
sales/marketing team is working well creating value to the customer which is in indicative of the steadily
growing sales of the standard furniture line (Froeb, McCann, & Shor, 2014). However, the operations
and production team is not addressing the additional demand of labor, capacity, and inventory. There is
definitely a split in business strategy between sales and production. Sales is pushing and growing the
demand for standard furniture however, the production team is giving priority to the custom furniture
on the assembly/production line. Mr. Thomas has to address the business strategy for both the sales
and production teams. Given the problems as presented, Mr. Thomas has a SWOT dilemma where
capacity is a weakness (LoR, 2010). This can be transformed into strength if the standard furniture is
marketed as limited edition and the amount that is sold is balanced with the production line. Thereby,
Mr. Thomas can throttle the growth of the standard line into a manageable variable and still create a
demand for the product to more high-end buyers on a wider source scale. As the company grows and
can afford more labor and capacity the amount of units the sales team can sell will also be increased in
the manageable increments paced with the production line.
With sales rising in the standard furniture line it would be a logical assumption that the
companys finances should also rise. As indicated in the study text, this is not the case. In fact the
company profits are not what or where they ought to be for the volume of sales realized. Mr. Thomas
decision to produce standard furniture itself may not adversely affect the companys financial profile
however; the operation to fulfill the decision is having an adverse effect on the companys financial

standing. The incremental variable costs to produce the standard furniture would naturally rise
however; the cost of goods sold should be offset by the profit of the sales. This is not the case as the
profits are being utilized in the operation somewhere else. In this example a drain on the companys net
operating profit after taxes (NOPAT) is being drained away in the additional cost in storage in the form
of renting a warehouse to store excess inventory volume, in the form of unrealized sales of furniture still
in various stages of work in process, and the raw materials purchased sitting awaiting transformation
(Harrison, 2011). All these factors are hindering the companys ability to add value to the customer in
the form of increased capacity and labor to produce the desired furniture. If Mr. Thomas allows the
current situation to continue unchecked the companys financial profile will be reduced to an
unsustainable financial situation and ultimately fail.
In this particular situation Mr. Thomas cannot go back in time and change the past. Hindsight is
always 20/20. Mr. Thomas can make some incremental changes which should improve the various
operational problems his furniture company is experiencing. The recommendations are as follows:
1. Slow the growth of the standard furniture line and set its pace with the capacity and schedule
allocated. The company has a major bottleneck in production and at this point and must subject
the production of the standard furniture to it.
2. Mr. Thomas must clearly indicate the companys strategy to both the sales and production team
in order to achieve organizational congruency.
3. Measure and determine standard furniture production line capacity and assign a schedule to the
line.
4. Reduce raw materials ordering in order to reduce storage capacity requirements.
5. Hire additional labor or consider separating the two lines into two completely manufacturing
lines with additional capacity and space.

References
Froeb, L., McCann, B., & Shor, M. (2014). Managerial Economics: A Problem Solving Approach. Mason,
Ohio: CENGAGE.
Harrison, S. (2011). What Does a Change in Net Operating Profit Mean? Retrieved October 2014, from
Chron: http://smallbusiness.chron.com/change-net-operating-profit-mean-32972.html
Investopia. (n.d.). Market Cannibalization. Retrieved October 2014, from Investopia:
http://www.investopedia.com/terms/m/marketcannibilization.asp
Krajewski, L., Ritzman, L., & Malhotra, M. (2013). Operations Management: Process and Supply Chains.
New Jersey: Pearson.
Lomax, W., Hammond, K., East, R., & Clemente, M. (1997). The measurement of Cannibalization. Journal
of Product & Brand Management, 27-39.
LoR, C. (2010, June 2). Strategy Execution Tips: Turn Weaknesses into Strengths by Updating Your
SWOT. Retrieved October 2014, from OnStrategy: http://onstrategyhq.com/resources/strategyexecution-tips-turn-weaknesses-into-strengths-by-updating-your-swot/