Herman Millar Inc Business Case
The office furniture manufacturing industry market in the United States is very competitive since many companies offering similar products. Companies compete primarily on price, product and service quality, differentiation, design, speed of delivery and customer service. Firms compete within each market segment and are pressured by growing competition from overseas manufacturers particularly from China and Vietnam. Six manufacturers-Steelcase, Herman Miller, Haworth, HNI, Kimball International and Knoll-account for approximately 60% of the U. S. office furniture market.
The remainder of the market is captured by a large number of small and privately owned businesses that successfully supply the local community’s retail demand.
The large number of existing companies definitely shaped the landscape of the Chinese market competition. Furniture manufacturing industry concentration has increased in last couple of years because many operators have gone out of business. Following the downturn of US economy, high unemployment rates, have created an intensely competitive environment for existing players; faced with low margins and volatile input costs, many underperforming operators were forced to exit the market.
However, as the economy will recover, demand for new office furniture is expected to increase, expanding the number of companies over the five years to 2016. In conclusion, the intensity of rivalry is moderately high. Although current concentration of the industry is a low, the trend of the industry is to become more competitive in future. This would decrease the potential future profit of department store industry. Threat of new entrants The barrier to entry in this industry are medium and are steady.
In the US office furniture industry, the capital required to enter the industry is considerably higher.
New operators entering the industry face various challenges, including existing and well established distribution networks among operators and suppliers. To remain price competitive, the new operators need to establish strong supply relationships with manufacturers and wholesalers in order to secure good quality and low-priced stock. Since the concentration is expected to rise, it places an indirect pressure on new entrants that need to invest more in advertising to develop brand and market awareness. Marketing and promotional activity must exceed that of the existing players to build customer awareness and overcome retailer resistance.
Furthermore, the productivity difference between the small-sized companies and the large-sized companies is very large. The combination of all this evidence indicates that the entrant barrier into the US office furniture industry is relatively high. Bargaining power of Supplier The intense internal competition force for resources among the large number of manufacturers pushed the bargaining power of suppliers to the most significant influence on domestic furniture industry. This refers primarily to suppliers of most important goods i. e. raw material and electric power, which are used in intermediary consumption during furniture manufacture.
Purchases of raw materials are the largest expense for the Office Furniture Manufacturing industry, accounting for about 43. 7% of industry revenue. This proportion is typical for manufacturing industries, since operators require significant raw materials to produce final outputs. Input materials used for office furniture include hardwood, such as oak, cherry and maple wood; plywood and veneers; steel; glass; plastic; and glue. During the five years to 2011, the prices of these inputs have been volatile, making it difficult for manufacturers to anticipate future spending and reduce costs.
In general, rising commodity prices have negatively affected the industry, increasing purchase costs for manufacturers. Bargaining power of buyers According to the research of IBIS World, department store sales depend heavily on the financial health of the consumer sector, including per capita disposable income. During periods of economic recession and decreasing income of people, consumers cut their spending by delaying purchases or substituting brands’ products with lower level products. This is heavily influenced by the unemployment rate and general economic growth.
In the periods of strong economic activity people’s disposable income increase, and vice versa. Threat of substitutes Furniture has been used for thousands of years and built mostly of wood. There is little evidence indicating that wood furniture will be totally replaced by some other material in the foreseeable future. In the industry of furniture manufacture probability of substitutes is almost impossible. Current global trends have a favorable influence on increase in demand for furniture, due to ever faster obsolescence and shorter furniture lifetime, i. . due to frequent changes in design and manufacture technology. Possible threat of trend changes exists, i. e. furniture made from other materials than wood, that is, various metals, plastics and glass. However, despite the reduction of wood in furniture manufacture in the past years, wood is expected to stay one of the most important raw materials for furniture manufacture, because of its advantages when compared with other materials.
What are the driving forces and the key success factors in the industry
Having contacts within key markets: It is preferable that manufacturers have established links with a number of customers, including wholesalers, contractors and retail outlets, rather than having one or two that account for the majority of their business. Guaranteed supply of key inputs: Established links with key suppliers enable a steady flow of key inputs and price locks, which may provide cost savings for bulk purchases. Flexible production processes: Furniture items are often custom-made.
Producers must be able to adjust products to suit individual requirements. Adapting to changing customer preferences: Goods produced should reflect current trends favored by consumers in order to remain competitive. Highly trained workforce: Staff is required to assemble office furniture efficiently and provide quality workmanship.
What is Miller’s strategy? Which of the five generic competitive strategies most closely fit the competitive approach that Miller is taking? What type of competitive advantage is Miller trying to achieve
They focus on a growth strategy, through innovative products and production processes. Reinvention and renewal. They survived the Great Depression and multiple recessions, recovered from the dot-com bust and were able to continue expanding overseas. They adapted to save the company, by introducing new designs.
In 1996, Herman Miller began an aggressive drive to reinvent its operations and established a fruitful relationship with the Toyota Supplier Support Center. Unique to the office furniture industry, the relationship enabled the company to adopt and implement world-class, lean manufacturing processes based on the Toyota Production System principles. Through the Herman Miller Production System (HMPS), the company dramatically reduced manufacturing square footage and inventories, cut lead times for standard product from 8 weeks
