Somerset Furniture Company (SFC) was founded in 1957 in Randolph County, Virginia. Traditionally, SFC manufactured large, medium-priced, ornate residential home wood furniture such as bedroom cabinets and chests of draws, and dining and living room cabinets, tables, and chairs. Somerset prides itself on customer service. They believe that late deliveries to its customers would harm its credibility and result in loss of customers and excessive inventories. Somerset has recently set up new strategies and tactics to meet goals and improve global supply chain. They first found their problems were, and focused on its core capacities that will improve productivities and reduce inefficiency to win in the global market. In the mid-1990s, SFC was faced with increasing foreign competition, high labor rates, and diminishing profits.
SFC decided to outsource several of its furniture product lines to manufacturers in China. This reduced the size of its own domestic manufacturing facility and labor source. SFC considered quality and time as its core competences. SFC planned to implement and strengthen its core by adopting EDI, RFID, and RTA (ready to assembly) to acquire more competitiveness on time by reducing time, improving the delivery of economic value to customers. Because of supply chain variability, shipments can be off schedule or delayed. Since 9/11, random security checks delay shipments. SFC’s global supply chain was getting lose its competitive edge and even faced shipment delays by as much as 40%. SFC was initially successful in their idea to outsource their business on a limited basis. SFC has since then discovered that as many companies do this same thing, out sourcing can result in a host of supply chain problems. Discuss possible remedies for its supply chain problems.
Reduce Variability: Somerset should implement processes and tools that will reduce variability. The current process orders furniture on a weekly and bi-weekly basis. The process takes between 12 and 25 days to develop a purchase order which is then released to the Chinese suppliers. With these kinds of gaps in order creation, it makes it extremely difficult to forecast demand. The supply chain can easily be improved by implementing a real-time internet driven system that allows for direct communication between the retail operations and the supplier. Suppliers then can begin manufacturing new furniture as orders come in. Additionally, implementing such a system will help ensure that once an order is received, that there is an urgency to deliver that order to the store, versus the current process where it may take from one day to a month before furniture is delivered to a store.
Somerset wants as much of the order delivered to a store as possible in order to improve their on hand inventory levels and reduce variability. Improved Transportation: Somerset should also leverage technology with its transportation companies. Technologies such as RFID can be used to provide real-time updates to the transportation company. With improved forecasting, thresholds can be established, so that once reached, a truck is pre-ordered with the expectation that a complete order will be reached once the truck reaches the manufacturing facility. With improved forecasting and the use of technology, the trucking company can better estimate its consumer needs, thus improving their preparedness. Shipping Partnerships: In order to improve the probability of securing shipping containers and to reduce the delays caused by security checks, Somerset should leverage partnerships with companies that have similar shipping needs. By increasing the scale of their shipping needs, Somerset and their partners can compete with larger companies like “Big W”, by placing advanced orders. Additionally, Somerset, will experience cost savings, because of the shared container costs.
The company will have fewer concerns with partially filled containers. Lastly, due to the increased scalability, the company (along with the business partners) may be able to leverage their size and avoid delays caused by security checks. Alternative Suppliers: Somerset should begin exploring opportunities with different global suppliers. Given quality concerns with production facilities and the difficulties with improving transportation and shipping resources, China may not be the best supplier for Somerset. By securing a different supplier, Somerset can not only improve its quality (thus securing its reputation), but also improve the expedience with receiving its ordered goods. These improvements can result in cost savings and improved customer service for Somerset. Discuss strategic and tactical changes that might improve the company’s supply chain performance. Collaborative Data Collection: Somerset needs to partner with the stores they deliver furniture to in order to gather sales and other data customer facing attributes like delivery performance, fill rate and order fulfillment.
They could use this data to address supply chain response time and make their production more flexible. This entire process should be automated and accessible over to all of the stakeholders. By evaluating this data and comparing it with data about their competitors Somerset can develop a more accurate model for forecasting future sales and returns by reducing the variability due to a shorter lead time. Optimizing the customer facing fulfillment system will provide insight into how to adjust their internal supply chain process. For example, Somerset will be able to shorten the time it takes to develop and release their purchase order to their Chinese manufacturers. However, this process needs to be automated and accessible to their Chinese manufacturer so they are better able to prepare to fulfill the orders in a timely manner. This purchase order process should be combined with a plan that incentivizes their manufacturer to process their orders quicker. They also need to penalize the manufacture for faulty products and late delivery. Although they currently have a Quality Control process they should have their own representative participate in the QC the process in China.
Since Somerset has the machinery to make the custom furniture, part of the agreement should include requiring their Chinese manufacturers to use them. They also need to find other manufacturers so that they can mitigate the risk if their primary manufacturer experiences a problem meeting the deadline or there is a problem with the shipping deadlines. New Product Release: Somerset should re-evaluate how they introduce new products and phase out old product lines. For example, instead of replacing the entire product line at the same time they could introduce new products that replace the products are beginning to experience a drop off in demand. They should also examine the cost of replacement parts. They should look for ways to replace the faulty parts at a minimal cost.
Standardized Parts: Somerset should identify parts that can be made interchangeable. The use of standardized parts would cut down on the time and skill required to make the furniture without affecting their customized features. Another option would be for Somerset to incorporate the manufacture of replacement parts into the facility where new products are developed. That could reduce the cost and time it currently takes to get replacement parts from China. In order to address the partially filled container problem and the creaking issue Somerset should ship the parts in standardized boxes that stack better an fill the containers. Then establish an assembly plant in the US. That also provides them with a final control over the quality of the finished product. Somerset should also add a distribution center in China where the products are delivered prior to being shipped to the US and another distribution center in the US near the port of entry.
This would help address the delays in delivery to the ports. Furthermore, Somerset should purchase their own trucks and coordinate delivery of finished product s with the pickup of raw materials. Additionally they could ship these standardized containers via airplane verses relying exclusively on ships. Although they can’t shorten the time it takes their containers to clear customs Somerset could reduce the time it takes to deliver them by purchasing their own delivery trucks to pick up the delivery from the dock. They can still contract with larger delivery services pick up from the distribution centers. Please note that these distribution centers could act as warehouses where additional inventory is stored. Product Visibility: In order to further remove uncertainty the individual boxes should be bar coded and the containers should have RFID capabilities. As a result of using technology, Somerset will have visibility to status of their products and shipments at all times.
The information derived from the enhanced process would enable Somerset to reduce the supply chain cost and continue optimize their supply chain efficiency ultimately cutting cost and increasing revenue. Discuss strategic and tactical changes that might reduce system variability. Somerset Furniture faces the challenge of trying to alleviate delayed shipments in their supply chain process from their current 40% variability rate. The dilemma with shipment lead time is that the determining factor is processed orders from the past. Somerset’s management team would evaluate their past orders to determine how much lead time was reasonable in order to forecast future furniture shipments. As we learned from the case, Somerset’s variability issues stem from many factors. Some of the factors are beyond Somerset’s control due to the strict compliance factors in International shipping.
For example, the size of Somerset’s business causes them to generate more security checks than larger companies because of the smaller and infrequent number of shipments. These security checks can lead to a three week delay in the shipping process. Also there is a 3-6 day lead time for containers to be loaded at the docks. There really isn’t much that Somerset can do about this lag time because ports have their own employees and contract labor group to handle loading and off-loading duties. Furthermore, ports order containers according to bulk demand and availability which makes it hard for companies like Somerset to control the 1-7 day wait time that it takes to empty and transport available containers to the port loading docks.
Another issue facing Somerset and other retail companies is that companies like SunKist and SeaLand, who own containers, only wish to order and manufacture enough containers that can be loaded and off-loaded on a continuous basis. This maximizes the fleet inventory of SunKist and SeaLand so that they can generate the most profits from their assets. Container Purchase: One way that Somerset can alleviate this problem is to purchase or lease their own fleet of containers from container manufacturers. This would allow them to reduce the 1-7 day variability wait period for empty containers. Somerset Furniture could own or lease this inventory and contract with companies like SunKist or SeaLand to store the empty containers at their docks for rental fees. By purchasing or leasing their own fleet of containers and contracting with available container owners, Somerset would also be reducing the excess space problem that they are having due to the dimensions of the containers. By ordering their own fleet of containers, Somerset could customize the orders to better accommodate their furniture shipments thus maximizing container space. Regulatory Compliance: Another challenge facing Somerset is that the inventory trip from China to Somerset’s Norfolk warehouse takes 29 days.
There really isn’t much that Somerset can do about this timeframe. In addition to the above waiting period, the stringent process that International shipments undergo during the Customs inspections is also beyond Somerset’s control. The only thing Somerset can do to alleviate this problem is to comply with every aspect of Customs to not cause a further delay in the process. Trucks can only be loaded with furniture when the containers past inspections at the docks. One would think that the common sense thing to do is to have trucks waiting on the containers to pass Customs to prevent further delays; however, 3rd Party trucking companies charge for hold over time. The reason behind the downtime charge is that they lose money if their vehicle fleet is not on the road carrying a load. The 1-3 day trip that it takes for trucks to get from Customs to Somerset’s warehouse is a minor issue compared to the potential 30 day period that it takes for the trucks to be unloaded at Somerset’s warehouse docks.
Supplier Incentives: The variability issues for Somerset that are within their control exist on the front end of the process beginning with the work order and purchase order process. For starters, one of the things that Somerset can do to eliminate wait time is to offer incentives to its Chinese suppliers to search for ways to process purchase orders faster. If the Chinese suppliers can accurately and efficiently reduce the 10-20 day wait period it takes to process purchase orders on the front end, then Somerset Furniture Company can reduce the potential 30 day wait period that it takes to unload trucks on the backend at their warehouse. This would help Somerset Furniture to be able to reduce excess storage fees that they have to pay to 3rd Party trucking companies for having their trailers occupied for many days at Somerset’s docking stations. Another tactical strategy that Somerset can employ is to seek ways to reduce the 60 day wait time that it takes for their suppliers in China to begin the manufacturing process.
Questions need to be asked. What kind of incentives can be offered to their suppliers to start the manufacturing process earlier? Are there other suppliers in China that Somerset can employ as sole supplier manufacturers? Employing sole suppliers would help to cut down on variability because there would be no other customers hindering the manufacturing process since Somerset would be the only customer. Lastly, rather than use low-cost suppliers in China, Somerset should do the math and see if it makes sense to become their own low-cost supplier in China. By searching for ways to reduce the 60 day manufacturing cycle¸ Somerset could reduce excess inventory and increase Just-In-Time (JIT) shipments. Also by searching for a sole supplier in China, Somerset could enjoy a streamlined manufacturing process with little or no lag time.
This in turn would help to alleviate the quality issues that Somerset was having because there would be one supplier to hold accountable for their product. Discuss strategic and tactical changes that might improve quality and customer service. We have listed multiple strategic and tactical changes that Somerset could potentially make to their organization that would not only improve the overall quality of their product, but would certainly improve their customer service. If Somerset made a deliberate effort to improve its transportation via technology, engage in strategic shipping partnerships, standardize some of its key parts, and offer supplier incentives, it would undoubtedly improve its quality and its customer service. Inspections: In addition to the above listed items, Somerset should acquire the services of an independent auditor or inspector.
By placing an independent inspector in the facilities of its Chinese suppliers, Somerset could greatly increase the quality of its products and would likely reduce the amount of customer complaints. Proactive Customer Service: Somerset could greatly increase its customer service by committing to a proactive customer service team. Somerset could increase the size of its customer service support function that would allow its customer service team more time to place courtesy calls, follow up calls, emails, and texts to customers that may have had a bad experience. A dissatisfied customer could likely become a lost customer if there is not a proactive customer service team to follow up on each issue.
Customer Service Score Cards and Online Surveys: Lastly, Somerset should make every attempt to listen to the voice of its customers. Somerset could provide its customers with customer service score cards and/or online surveys so that they could stay in tune with the changing demands of their customers. The exceptions such as late deliveries or damaged products should be addressed as expeditiously as possible, however, it is in the organization’s best interest to know and understand what their customers like, dislike, want, and need. Customer service score cards and online surveys would give Somerset priceless feedback and it would open lines of communication between the organization and its customers.