Production Planning in the Furniture Industry

This week as I was trying to figure out what to talk about, I was really struggling to come up with a good topic. At first, I was trying to find a smaller company that excelled at managing their resources. Then I started looking for any company that was known for their exceptional planning ability. Without any luck, I decided to look at an overall industry: the furniture industry. The article that I found discusses three ways that furniture manufacturers can improve their production planning and management techniques.

Improve the Company’s Inventory Management

The first way is to improve the company’s inventory management. Controlling the inflow and outflow of inventory is key for an efficient furniture manufacturing company. Basically, the control of inventory is a balancing act that aligns the furniture production with the expected customer demand. This creates a lean manufacturing system that lowers the risk of product shortages and excessive inventory. This is very similar to a concept that we have covered in class: The Master Production Schedule (MPS). A MPS has many benefits. For starters, it helps management prioritize certain requirements. Because a MPS is regularly updated, it is easier for management to see the areas that require the most attention—such as an area that has a lower inventory level. Additionally, a MPS helps stabilize production by giving management the ability to form an expectation. This expectation allows management to predict how much furniture should be produced and in which period to produce it. This expectation also helps management forecast when the supplies should be ordered so that they can produce the necessary amount of furniture. At the end of the day, a MPS helps a furniture manufacturing company efficiently produce and sell their inventory.

Manufacture Similar Products Together

Another way that a company can improve their production management techniques is to manufacture similar products together. This will enhance communication across the manufacturing department and create a more efficient production process in all aspects of the company, which in turn will increase the company’s ability to meet customer demand. For a furniture manufacturing company, this would mean that leather products, such as living room furniture, should be produced together, while wooden products, such as dining room furniture, should be produced separately from the leather products.

Invest in an Enterprise Resource Planning System

Lastly, a company could invest in an Enterprise Resource Planning (ERP) system. An ERP system is a process by which a company manages and integrates the key components of their operations. An ERP management information system integrates areas such as planning, purchasing, inventory, sales team, marketing, and finance. The ERP software enables each department to share information and processes with other departments throughout the company. It basically acts as the central nervous system by receiving information and transmitting it to different parts of the company. In the case of a furniture manufacturing company, the production, purchasing, inventory, and sales departments will be able to share information with each other through the same system. This will allow the different teams to better understand what is needed in order to more efficiently satisfy the customer demand.

 

So what do you guys think about production planning and management techniques? Is the MPS the most beneficial way to forecast production levels? Should all companies invest in an ERP system? Let me know.

 

References:

http://www.winman.com/blog/how-furniture-manufacturers-can-improve-their-production-management

http://supplychain-mechanic.com/?p=204

https://www.investopedia.com/terms/e/erp.asp

17 thoughts on “Production Planning in the Furniture Industry

  • April 5, 2018 at 8:44 am
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    Kyle,

    IKEA is one of the industry leaders in the Furniture Industry. IKEA products are designed to be simple, so that consumers can easily assemble the furniture. Selling the furniture in-put-together allows IKEA to bear less production costs, and sell to the consumer at a more affordable price. The MPS can be beneficial for many companies, and I think that IKEA’s business model and strategy is a great example of a company that does not just focus on one thing like MPS, but a company that was completely revolved around efficiency in both its product and production.

    You spoke about other systems like Enterprise Resource Planning (ERP), which help maximize companies planning. I think these systems have a place in companies today, but I also think it is equally important for companies to have great business structures that meet their desired consumer, such as IKEA.

    SOURCE: https://rctom.hbs.org/submission/ikeas-business-and-operating-models-a-match-made-in-heaven/

  • April 5, 2018 at 6:54 am
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    Daniel,

    I like how you related the Master Production Schedule back to lean manufacturing. Both are almost similar in a way. The MPS deals with the scheduling of the demand of products. This schedule helps determine when inventory is low and once inventory reaches a certain point, managers can reorder. This leads to a efficiency because of the ability to order products as necessary. There is no overabundance in inventory, just the right amount. Lean Manufacturing is a never ending effort to reduce waste which exactly what creating an MPS does. A MPS orders the right amount when necessary, never creating a drastic overflow of inventory. To answer your question, yes I do think the MPS is the most beneficial way to forecast production levels. But the use of the MPS requires constant attention in order for it to be useful. A manager must be able to correctly use and understand how the MPS works. Collaboration is key in situations that require teamwork. Across the many departments a business has, collaboration is a factor that can determine their success. Should all companies invest in an ERP system? Well first, “ERP systems tie together and define a plethora of business processes and enable the flow of data between them. By collecting an organization’s shared transactional data from multiple sources, ERP systems eliminate data duplication and provide data integrity with a “single source of truth” (oracle.com). Not all companies should invest in an ERP system because it may cost more to them than it is beneficial.

  • April 5, 2018 at 12:03 am
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    Daniel,

    Thank you for this piece and the points that you bring up in it. I really like the article you chose and how it breaks down three ways furniture manufacturers could improve. First, you talked about inventory management. This is an important aspect for any company, but for furniture companies especially. Without enough inventory, no products would be able to be made. This is exactly why a MPS is important, so I like how you brought it up. Since the MPS can be updated, it is an extremely helpful tool and gives the company and its management a sort of stability in its production. Since many pieces of furniture are made from similar parts, it is also important to know the inventory levels of these parts so that the company is able to product its products when necessary. A way to keep this simpler would be to make similar products together, since they likely use very similar parts for manufacturing. An ERP here could be very helpful because it is just the sharing of data. The more people know within the company, the less time that has to be spent in expatiation instead of making more products. The link below explains a little bit further about how an ERP system can be beneficial to a company, especially a manufacturing company.

    http://www.eresourceerp.com/why-is-erp-important-to-a-company.html

  • April 4, 2018 at 11:26 pm
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    Daniel,

    Thank you for your analysis of the furniture industry’s use of the MPS and their production planning. Referring to your question, I think MPS is an effective way to forecast production levels because it is a Master Production Schedule and as such, it contains all of the information needed for the production process including: planned receipts, scheduled receipts, forecasted demand, on-hand inventory, etc.

    I also had trouble finding a small company that utilized MPS well. However, I did find information (linked below) about an application called Kinaxis® RapidResponse®
    that “allows companies to concurrently and continuously plan, monitor, and respond in a single environment and across business functions.” This is essential for companies and will help make the MPS process much easier and more efficient. Additionally, this could be game-changing for small businesses who may not have the capital to hire someone or knowledge to implement an MPS system of planning.

    https://www.kinaxis.com/Global/resources/application%20brochures%202015/Master%20Production%20Scheduling%20RapidResponse.pdf

  • April 4, 2018 at 8:51 pm
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    The efficiency of production planning is heavily dependant on the systems that are used in order to track inventory flows through a supply chain all the way from the suppliers through to the end customers. This is the value delivery network. Creating a balance of efficiency and quality is imperative for a business to have sustainable success, especially in the furniture manufacturing business. Additionally, finding the optimal balance between the correct levels of on-hand inventory with demand forecasts in order to avoid shortages and backorders or overflows of inventory as well. One of the world’s largest furniture retailers is IKEA which has successfully developed their production management system so that they can hold more than 9,500 products in each of their stores and still be profitable.
    Their many strategies to lessen the pressures of having a large inventory include managing their order costs, setup costs, labor and equipment, payments to suppliers, and service success. Transportation costs can be significant because of the amount of material necessary to create their products. They do this by trying to reduce their number of materials in all of their products and using recycled materials in all places possible but not at the sacrifice of quality. The relationship Ikea has with its supplies is also important to its production functions. They communicate with many different suppliers so that they can get the lowest possible price and pass those savings onto their customers. This creates not only a pricing advantage for their customers wbut helps build strong and lasting relationships with their suppliers as well.

  • April 4, 2018 at 8:16 pm
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    Daniel,

    Thank you for your post on production planning and how it applies specifically to the furniture industry. While many blog posts go into detail on a single company, yours discussed an entire industry! I thought this was a unique and interesting blog post because of that key difference.

    You mentioned that improving a company’s inventory management is crucial to improving the company’s production planning. Using concepts we have learned in class, such as the Master Planning Schedule (MPS), you described how critical it is for furniture companies to implement lean inventory strategies in their businesses models. Reading your post made immediately made me think of IKEA, “the world’s largest home furnishing retailer that has 298 stores in 37 countries.” IKEA, because of its massive scale, is forced to take its inventory management extremely seriously, because production errors and back orders could potentially end up costing the company millions in revenue. IKEA uses a “cost-per-touch inventory tactic,” which means that customers must select and retrieve the furniture on their own which minimizes costs for IKEA. This strategy makes sense, because the fewer times a product is moved from location to location, the fewer costs associated with that product. Minimizing touches is just one of the many inventory management strategies implemented by IKEA. I encourage you all to read more about it in the link below.

    https://www.tradegecko.com/blog/ikeas-inventory-management-strategy-ikea

  • April 4, 2018 at 5:29 pm
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    Daniel,

    Interesting post about furniture manufacturers and their production management improvement methods. To answer your first question, I think that those three techniques can be beneficial, but do not contain much substance. “Improved inventory management” is a key goal of any manufacturer ever. MPS is of course a nice way to address this, but most manufacturers already have some take on this. What it should recommend is refining MPS’s because many companies have likely not touched their MPS designs since inception and they should refine them to address changing landscapes. MPS is likely the easiest way to manage inventory, but simply having a MPS does not mean you are helping yourself. The MPS must be created with reliable and up-to-date forecasts and data.

    The suggestion to manufacture similar products is a simple and potentially effective improvement technique for a company who could implement it. However, this may involve a larger overhaul of processes, layouts, and operations altogether which may be more costly than it is worth.

    Finally, the ERP suggestion almost seems like a no-brainer. Of course an ERP system will make life for any operations manager easier. The benefits are countless. Except for smaller, more centralized companies, ERP systems are a must-have in today’s operations management landscape.

  • April 4, 2018 at 5:13 pm
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    Kyle,

    Thanks for an interesting post on the furniture industry’s production planning. When looking into your question on Master Production Schedule (MPS), I stumbled upon an interested article in the Supply Chain Management Review. In this article, the author examines a company that manufactures industrial equipment. He highlights the problems that the company experienced as a result of communication through an MPS. He first explained the system- marketing worked with the customer; the planning system coordinated activities; supply chain worked to the schedule. The problem was that it took to long for changes and requests to make its way to the supply chain, and the supply chain and the customer were often not aligned. In response, management chose to cut out the middleman and allow supply chain direct contact with the customers, instead of marketing, and supply chain could focus on the things customers wanted. As a result, they were able to strengthen their brand- customer complaints dropped, lead times fell, and efficiency improved.

    Link: http://www.scmr.com/article/the_customer_centric_supply_chain2

  • April 4, 2018 at 4:44 pm
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    Daniel,

    Thank you for your insightful analysis on the topic of production planning. To answer your questions, I think both options are highly beneficial in different ways. To me, an MPS system sounds like it would be most beneficial when used in a smaller company context. For example, a local production firm that doesn’t have the established production schedules that a larger firm would have might really benefit from this type of program to help them maintain production schedules and keep inventory flowing. On the other hand, the ERP system would probably be most beneficial when you look at a much larger company. A company that is nationwide that has different corporate locations all over the company would need something like an ERP system to ensure that all of their different operations are working in sync. We saw in class the other day that often times to make a decision, you need to have input from all of the different teams to ensure that all of the different components can fulfill their jobs. For example, the marketing team will need to ensure that there is a market to sell increased products to, finance will have to ensure that the marketing budget does not exceed appropriate spending, supply teams will need to ensure sufficient raw materials for the production team to turn into finished goods. An ERP system would really help a company in that context.

  • April 4, 2018 at 4:03 pm
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    Daniel,

    Thank you for your post and for discussing the furniture industry and the possible production strategies. I found this topic particularly interesting because my mother is a professor at Rhode Island School of Design and a furniture designer. I have also studied abroad in Denmark where furniture design was a primary focus. It is interesting to think about the ways to incorporate quality and also manage efficient mass production.

    After designers like Charles and Ray Eames or Le Corbusier’s initial designs caught on among consumers they had to shift from individualization to creating mass quantities while still maintaining quality. They can do this by utilizing a bill of materials and seeing how the components connect. If some parts of the chair are less important for the design they can have those produced more cheaply.

    My mom typically produces one unique piece but the amount of time it takes for her to design and create each piece leads me to believe she should produce larger quantities to reach economies of scale. I think this would allow her to strike a balance between individualized design .

  • April 4, 2018 at 2:47 pm
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    Daniel,

    In regards to your question about implementing an ERP system, I think there are a number of questions that firms must ask themselves. The WSJ recently posted an op-ed by a Deloitte Consultant about ERP systems. In the post, the consultant writes, “Implementing an ERP system is typically a long, labor-intensive, and expensive process.” With this in mind, it is probably not appropriate for every firm to install an ERP system. For instance, the Richmond-based firm that my group is working with for our SC Analysis project does not even use a POS system. The cost, training, and maintenance of the system were seen as unnecessary costs to incur given the marginal perceived benefit. For a firm that does not even utilize a POS system, and ERP system is surely not appropriate. That being said, the book highlights a small firm that has utilized an ERP system: Golden Road. Golden Road is a small craft brewery that had effectively implement an ERP system. However, the book mentions that the system is cloud-based which likely helps drive down costs associated with the implementation of such a system (textbook p. 455).
    For firms that believe they can afford the relatively high barriers to entry, the article raises another point that firms must consider. The consultant mentions that a colleague of theirs recently completed a study of consumer product companies, and has discovered that many of these clients are underutilizing their ERP systems. The consultant conducting this study remarked that “these organizations could potentially save millions of dollars simply by using the system as blueprinted.” I think this quote raises an extremely important point about implementing technology—firms that decide to invest in technology must be committed as an organization to learning about and utilizing technology. For firms that have decide that they can (1) afford an ERP system, and (2) have decided that it makes sense in context of their size and nature of operations, they must consider the skill level of their work force, as well as their willingness and likelihood that they will learn and adapt to using the ERP system.

    Source: http://deloitte.wsj.com/cio/2016/01/05/how-to-reap-expected-benefits-of-erp/

  • April 4, 2018 at 6:17 am
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    Daniel,

    Exploring the furniture industry as a whole is an interesting approach to explore resource management and planning. The furniture industry is an industry that has a wide spectrum of production processes. At one end of the spectrum, there are companies like Ikea where they sell the parts for a particular piece of furniture and the customer is responsible for the assembly. At the other end, there are smaller companies that view furniture making as a craft. They make custom pieces for customers based on plans designed by craftsmen in partner with the customer. Companies like Raymour and Flanigan and Restoration Hardware fill the middle of the spectrum. As a result of this wide spectrum, the various companies have different inventory practices with different production methods. However, all the companies have the same goals in mind: minimize costs, maximize profits, and satisfy customer demand and expectations. An article from Bloomberg on Restoration Hardware (https://www.bloomberg.com/news/articles/2018-03-28/restoration-hardware-s-evolution-into-upscale-club-pays-off), discusses the shifts Restoration Hardware has made in attempts to improve customer service. Restoration Hardware is improving its customer service by carrying less inventory and simplifying its logistics. This change shows how inventory management and planning can be used together to improve customer relations. The furniture industry example shows that regardless of the various companies that make up an industry similar approaches can be implemented to improve planning and management.

    The three ways that you discuss for how furniture manufacturers can improve their production planning and management techniques show how the concepts we learned in class are interconnected and are extensions of one another. The first way you mentioned to improve a company’s inventory management system is to create a lean manufacturing system. Lean manufacturing emphasizes the importance of minimizing waste. Implementing the proper use of a master production schedule (MPS) would enable furniture manufacturers to have a plan for the number of end items to be produced during a period. Linking the MPS with the lean manufacturing system would indicate to the manufacturers the when and how much of each product will be demanded. The other two ways you mention that will help furniture manufacturers improve their planning and management highlight the importance of communication between the different sectors within a company. Proper communication leads to efficiency and the company to better meet customer demand.

  • April 3, 2018 at 5:47 pm
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    Daniel,

    In response to your question, I think any and every organization would benefit from the implementation of an Enterprise Resource Planning System. Smaller companies might be able to do it on a simpler and smaller scale in-house, but a very popular trend at the moment is outsourcing services like these (ERP) to third-party companies who specialize in the business. Depending on the size and reach of a company, hiring someone else to manage and install an ERP system can save huge amounts of time and money. A tax solutions company, Vertex, very recently made the switch and hired Acumatica. Here’s the story:

    http://www.cpapracticeadvisor.com/news/12406122/vertex-announces-integration-with-acumatica

    For Vertex, they hope to improve company-wide communication through this partnership, and that is exactly what Acumatica specializes in. Acumatica provides software tools to their partners and a full set of business applications that allow companies like Vertex to store and access data easily, efficiently, and accessibly. With Acumatica, each department within Vertex will be able to communicate in a common language in a common space. If financially feasible, I definitely think every company should invest in some sort of ERP system.

    • April 4, 2018 at 4:58 pm
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      Nicholas,

      I definitely agree with your opinion that all companies, if they have the resources, should implement an ERP system. Something that I found interesting in both the article you posted and one that I found for another post was the emphasis on how much time ERPs can save employees. By allowing the system to takeover more mundane tasks, employees now have more time to focus on impactful work. Although smaller companies, especially start-ups, often do not always have the capital to implement an expensive system like an ERP, they are often the ones who need it the most. Last summer, I worked at a start-up where people were constantly doing tasks that were mundane and repetitive. If there had been an ERP system that took away some of this work, there would be more time to focus on “strategically valuable work,” which allows the company to be more competitive.

    • April 4, 2018 at 8:15 pm
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      Nicholas,

      I agree that any organization would benefit from using an Enterprise Resource Planning system. I think it is wise for companies to use a third-party specializing in this business to manage their ERP system. Since these systems are so important for a company to communicate and align with the rest of the company operations, it seems fitting for companies to leave this responsibility to professionals. Most companies find it useful to consult many different teams within the company before making big changes or decisions. To do so, an effective Enterprise Resource Planning system must be in place. Without an ERP, companies may begin to lack in internal communication, putting them at a competitive disadvantage in the industry. When researching this topic, I was surprised to see Peoplesoft listed as a popular ERP system used by companies, which was the software used by the company I worked for last summer. This software was extremely unintuitive and many employees had to seek assistance with the system from the ERP manager of the company, who I am now realizing held a vital position.

  • April 2, 2018 at 9:06 pm
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    Daniel, thanks for your post regarding resource planning. I found it interesting that you chose to look at the furniture industry. Whenever we write these posts, I too try to find a specific company to write on. However, in looking at an industry you outline ways that apply to most companies that fall within the given category. I enjoyed reading about improving management techniques, grouping during production, and investing in ERP to better your planning. I checked out the article from Supply Chain Mechanic, and when reading through that I thought to myself, “What else is out there?” So, I went looking for another take on resource planning. I came across this article: http://manufacturing-software-blog.mrpeasy.com/2018/02/20/efficient-production-planning/, which outlines why efficient production planning helps maximize production output. Here, the article refers to MPS as Manufacturing Resources Planning (MRP). There are some similarities present between MRPEasy’s article and yours, such as that having a planning system in place will optimize your manufacturing processes. However, the article from MRPEasy also states some different advantages to having some form of MRP. Increased data collection, improved customer service, reduction of excess inventory, and availability of materials are a few advantages. However, the most important that stood out to me was that an advantage of better competitiveness. It was interesting that having a planning system in place can increase an operations competitiveness within the market. Check out the article at the link above to read in full. Thanks Daniel!

    • April 3, 2018 at 11:24 am
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      Kyle,

      After reading your post and the article that you referenced, I wanted to do a little digging around to learn more about about Manufacturing Resources Planning (MRP). According to an article from the Harvard Business Review in 1975, “hundreds of manufacturing companies have bought MRP systems for production/inventory control,” illustrating that this concept has been around for an extremely long time. Even in 1975, almost all the major computer manufacturers had developed software packages to support planning systems, and virtually all of the major industrial consulting firms were advising companies to use them. Additionally, the American Production Inventory Control Society (APICS) launched a “massive crusade to inform corporate users of the benefits of the MRP systems.” Even in 1975, MRP was crucial to the success of manufacturing companies, and it continues to be equally as important today. Thanks for your post Kyle!

      https://hbr.org/1975/09/behind-the-growth-in-materials-requirements-planning

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