Decades Long Battle for Lead-time Shrinkage in the Furniture Industry and its Impact on Global Supply during a Pandemic - What's Next?

Matthew Waugh, Executive Director of Finance & Operations, Furnitureland South, Inc.

Matthew Waugh, Executive Director of Finance & Operations, Furnitureland South, Inc.

In ultra-competitive markets companies often look for ways to differentiate themselves to sustain brand viability and growth. Companies often find themselves in decade long battles with competition that often can seem insurmountable to obtain but must stay in the fight or get left behind. Battles such as price leader, technological advances, quality, and fast fulfillment such as short lead times from order placement. We can look at companies such as Amazon that set such standards in fast moving markets. This battle is well known in the furniture industry, and it’s the never-ending fight for short lead-times to supply a market that has seen immense increase in demand following a Pandemic. Stimulated demand due to federal funding to consumers, as well as supply shortages that have increased the urgency and has conditioned consumer mindsets to get in line and place their order in fear of facing even longer fulfillment times.

We know this concept all too well, this is directly tied to the supply and demand laws, as supply dries up and becomes constrained demand will increase naturally. This natural occurrence is magnified staring at the face of stimulated demand and the impacts of inflation as consumers rush to buy low before prices increase. The furniture industry, as well as many other industries that supply consumer goods, and especially those who have moved to primarily offshore manufacturing since the late 20^th century have been fighting this battle and it continues to this day. As the playing field levels with stock levels are at an all-time high, and as warehousing space and storage of supply now at a premium, what impacts does this fight for lead time supremacy have on the global supply chain for the foreseeable future and What steps can companies take to make sure they aren’t over buying stock and tying up capital in inventory to stay liquid?

Many furniture companies will coin phrases such as “Quick Ship” to emphasis that they have products in categories that are available faster than other companies in similar space. Where this gets tricky is a domestic manufacturer who sources parts and material from overseas might have a more competitive advantage over a 100 percent finished goods manufacturer who imports products. Although the flow of materials needed to manufacture can get tricky to maintain, most domestic manufactures can control flow of finished products a little easier and can control their state side finished goods inventory better than an imported manufacture can. As a standard rule of thumb, finished goods inventory has always been calculated based on inventory sold and shipped to consumers times the amounts of weeks it takes to supply, from PO placement to ship to a consumer if retail and distributor from the given manufacture. Most companies will maintain safety stock levels a percent of this calculation so they never run out of stock and will use an average of the demand calculation to smooth out any volatility.

Over the past 2 years manufacturers have fought to keep up with consumer demand, often using this simple calculation to purchase raw materials and plan future production. Another variable in this calculation is the uncertainty of the supply chain variation. If production is done overseas what data points are reliable to use in calculating how long, it will take to ship internationally?

Congestion was felt at just about every global port in Asia as well as the U.S. were locked down at various points throughout the pandemic and many of them are just now seeing normal in transit times but still above pre pandemic timelines. U.S. manufacturers of finished goods have seen its own challenges with raw material price fluctuations and domestic freight companies who have been impacted from inflation and labor shortages. What does all this mean? Over supply is the result, many companies relied on the methods above to continue to produce and stock focusing on lead time swelling to meet consumer demand not knowing when the demand would soften and begin to normalize.

“Cash is King in uncertain and unpredictable markets and the ones who haven’t tied that up in inventory will be the ones who will take advantage as the post pandemic supply landscape normalizes”

As companies begin to transition into this new phase of supply surplus many should revisit stock calculation methods and narrow down merchandizing lines investing in advertising tosupport the inventory that needs to be liquidated. Look for international shipping rates to decrease as imports should slow down due to over supply closer to retailers. How this inventory is managed will depend on future consumer confidence. The playing fields for short lead times will become every manufacture’s advantage what will companies do? Focusing internally on service, support of product warranties and streamlined processes using technology will be the differentiator? Companies will enter into a new phase of demand planning making sure if supply disruption happens again what steps will be taken to stay closer to the demand curve?

Partnering with retailers and their specific needs will be extremely important, making sure every PO placed has confidence in supply throughput. Import manufacturers will look to develop local finished good assembly shops toperhaps reduce the amount of finished goods that are imported allowing for the added flexibility to pivot and change based on need, maybe a finish change? Or different fabric selection on an upholstered item? These are all common practices amongst some manufacturers and the ones who put emphasis on this strategy will ultimately be in a better position once supply levels decrease back to pre-pandemic levels. Scrutinizing MRP protocols (Materials Resource Planning) and how materials are acquired will be a focus of emphasis knowing that being the ultimate lead time winner may not be the best thing to withstand downed consumer demand and supply flooded markets.

Many companies that produce consumer goods not just furniture manufactures are beginning to realize that being somewhat competitive in a decades long battle not the best might just be enough to avoid falling victim to supply and demand volatility moving forward. Cash is King in uncertain and unpredictable markets and the ones who haven’t tied that up in inventory will be the ones who will take advantage as the post pandemic supply landscape normalizes. Companies can utilize their cash assets to continue to invest in their own infrastructure. Companies should look inward, focusing on consumer touchpoints, improving processes, andassociate experiences. Companies that invest in these aspects of the business will position itself for sustainability in this new era where supply is available and the race for lead time supremacy takes a back seat.