Guillermo Furniture Store Concepts Paper FIN 571 Guillermo Furniture Store Concepts Paper Sonora, Mexico was the ideal location for Guillermo’s Furniture Store to thrive due to the abundant supply of cheap timber paired with relatively cheap labor costs. Guillermo has been producing high quality products, mainly chairs and tables, which would sell at premium prices. Unfortunately, Guillermo’s exclusively did not last; a competitor from overseas using a high-tech manufacturing approach could sell similar products at lower prices.
In addition, Sonora began to expand and grow due to a large retailer whose nation’s headquarters were located from Guillermo. With the increase in infrastructure came an influx of people. This lead to increase labor rates as well as costs. This lead to a decrease in Guillermo’s profits as his costs rose and his prices were forced to fall. In order for Guillermo’s Furniture Store to regain their place in the furniture Industry changes would need to be made. Like many companies facing similar problems Guillermo decided to look at his competition and how they operate for insight into how he would be able to save his furniture business.
Guillermo needed to establish a competitive advantage, this change needed to ensure an increase in value or economic efficiency for the company. Guillermo’s first found out that many smaller companies were consolidating with larger companies through mergers or acquisitions. Being a part of a larger organization typically leads to an increase in efficiency by consolidating costs as well as manufacturing. This option was undesirable to Guillermo; he was not interested in purchasing smaller locations as well as did not like the ideas of being acquired by a larger company.
Guillermo’s second option came from one of the very companies, who were responsible for his troubles. The Foreign company use of technology to streamline the manufacturing process was not only efficient but was also effective in reducing errors and costs while significantly increasing the amount of production. The initial costs would be substantial and in addition the company would also increase their overhead expenses such as salaries, utilities, taxes and insurance. However, labor times would decrease to 20 % of current times and the companies direct costs would decrease significantly.
Overall, the company’s net income would soar and increase more than 400 % from $47,183 to $218,202. This possibility could regain Guillermo’s position as a leader in the furniture market. The third potential solution was discovered through communication with one of Guillermo’s distributors. One of Guillermo’s competitors currently only operating out of Norway was interested in distribution in North America. In addition to this competitor a second competitor was relying on chain distribution.
Guillermo’s thought was that he could use his existing distribution network to become a representative for this manufacturer. This would then take Guillermo in a new direction completely; he would now be primarily a distributor with minimal manufacturing. This option would eliminate almost all labor times as well as material costs. Guillermo’s direct costs would decrease slightly while he would experience slight increase in his overhead costs; such as salaries and additional insurances and taxes.
However, Guillermo could expect to see an increase of almost 150 % in his net income going from$47,183 to $68,973. In the end, Guillermo needs to establish which potential change will give his organization the competitive advantage he is looking for while increasing his economic efficiency. Guillermo had high hopes for his patent pending coating process however there is not a significant market for the finished coating. Guillermo will be able to use this market as an additional source of income however the organization will still need to make a significant change to continue their operations.
Guillermo was not interested in the first option due to his desire to maintain full ownership of his company. After reviewing the numbers Guillermo’s second option seems to be the most profitable and will allow for future expansion. While the initial costs will be high Guillermo will be able to continue to do what he loves, while making a name for himself in the furniture market. In business being able to adapt is essential, this is the first test for Guillermo’s company being able to overcome the obstacles and preserver will help the company in the long run.