Hardy Hanson-Introduction

The company was established in 1949. The company has over 50 years of industry experience and
considers them to be the major UK supplier of woollen and synthetic felts and industrial foams.

The revenue of the company is about GBP 1 million. The company supplies rolls of felt, felt strips,
felt bobs and a wide range of decorative & display felts that are sold to both industry and individuals.
The company also customises felts and foams according to customer’s expectation.

They use different equipments like:

 CNC automatic travelling head gasket presses

 Roller Presses
 Swing Beam Presses
 Clicker Gasket Presses
 CNC CAD/CAM flat bed cutting system
 Band Knives [Company Website]

Washers and its types

A washer is a multipurpose thin disc made up of different materials like metal, plastic, cardboard etc.

Cardboard washers are used in furniture, clothing and upholstery, electrical repairing,
remanufacturing, fashion accessories, modeling etc.

Different types of washers include Cardboard washers, Felt washers, ventiated clip washers, zinc
plated washers etc.

Furniture is considered to be the primary market for washers and repair and remanufacturing to be the
secondary market.

Furniture Sector

The furniture industry is an important part of the global economy. Furniture industry comprises not
only the production of a wide range of products related to office, living room, bedroom, kitchen,

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garden, school furniture but also mattresses, furnishings, upholstery, parts of furniture etc. A wide
variety of raw materials are used in production of furniture like wood, rattan, plastic and metal and
more recently silver. Including various varieties of wood, wooden furniture is the major production
and exports of the furniture industry in almost every country.

World Furniture Industry

As the world economy is developing fast in the past 10 years, the furniture markets have opened up
more and the world furniture industry has been growing fast.

According to CSIL report, the production of furniture in world is worth about US$ 347 billion (£ 226
bn approx.).

From the pie chart below, we observe that Furniture production of developed countries combined
covers 61% of the world total. This is possible because of their long established production capacity,
advancement in science and technology, solid funds and rich management experiences.
While Furniture production in emerging countries currently amounts to 39% of the world total in
value.

Source: CSIL, 2011

The Canadian Furniture Industry is the 5th largest exporter of furniture in the world. The major
furniture producing countries in South East Asia are Philippines, Indonesia, Malaysia, Singapore,
Thailand, Korea, Taiwan and India. In the context of global furniture trade, Asia shows healthy signs
of growth with respect to its other international competitors. Asian furniture has always been popular
in developed countries like USA, Europe and Australia.

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Over 20 years of fast growth, China has been able to bring unlimited business opportunities and
vitality to the global furniture industry. Now, China has today emerged as a furniture production
centre, a circulation centre as well as an exhibition centre in the world. The rise of China's furniture
industry has brought about a new round of restructuring of the global furniture industry and trade
pattern. According to a recent estimate, the Indian furniture industry is estimated at around Rs 350
billion. Eighty-five per cent of this falls into the unorganized sector. According to a study by the
World Bank, the organized furniture industry is expected to grow by 20% a year and India, Brazil and
Russia will witness a boom. [Furniture Manufacturers, 2011]

Furniture Market-Europe and UK

The European Union furniture industry accounts for about half of the world's furniture production.
The production value of this industry in this region is around € 82 billion. Considered to be a labour-
intensive industry it provides employment for around 1 million people. Among the European
countries, Germany takes the lead as the largest furniture producing country, accounting for about
28% of total EU production. This is followed by Italy (22%), France (13%) and the UK (10%).

The pie charts below chow the major European exports and imports.

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 UK Furniture Industry

UK furniture manufacturing is a substantial industry. It contributes £8.3 billion to the country’s GDP,
which equates to almost 2% of manufacturing output, and employs 112000 people within 8360
companies. In addition to this, it is estimated that the industry comprises 18800 self-employed
individuals and an estimated 25000 interior designers generating an annual value of £2 billion.

The overall growth in furniture manufacturing was 4% which, in real terms, reflects a gradual decline
in output.

The main destinations for exports from the UK are the Republic of Ireland and the USA (29% and
12% respectively), followed by Germany and France (8% and 7%).

Import growth is primarily driven by China (27%), followed by Italy and Germany (14% and 10%
respectively) (BFC 2010).

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Below is the pie chart showing the major UK export and Import.

The below graph is taken from Mintel Retail Furnishing report which shows an increasing trend from
2009. In the year 2009 due to economic downturn, many companies were affected including Furniture
Industry. The chart also shows a decreasing trend from year 2015.

Source: MINTEL March 2011

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 Current Trends

UK furniture manufacturing is not immune from global forces and, as with other manufacturing
industries; it has witnessed a strong growth in imports over recent years, particularly from China and
Poland.

The transport of furniture can be inefficient, often entailing the movement of large volumes of fresh
air. Until ten years ago international trade was relatively small and imports accounted for just 15% of
sales. However, over the last ten years this figure has grown significantly and now imports account
for 42% of the end market.

The UK is the world’s fourth largest consumer of furniture. On global scale furniture manufacturing is
big business: it is estimated to be worth around US$240bn at factory gate prices. At the macro level
there are three major trends affecting global furniture production:

1. Consumption is growing in real terms in all major markets and is expected to continue to grow into
the future. This is primarily due to improvements in standards of living in emerging countries and
increased disposable income in developed. The markets exhibiting the highest growth rates are the
new EU members and much of Asia (including China).

2. Globalization is increasing and an international trade emerging. On a global scale, measuring

imports as a percentage of consumption shows a doubling from a fairly low 15% in 1995 to 31%
today.

3. Production is shifting from major industrial economies to emerging nations. Even more dramatic is
the fall in the proportion of exports that emanate from developed countries, with a consequent rise
from emerging countries – particularly Poland and China which have seen significant investment in
new plants designed specifically for exports.

China is now produces 9% of all furniture and 12% of exports and will soon overtake Italy as the
leading exporter. It has witnessed an annual average growth rate of 23%since 1978 – driven by both
internal consumption and exports. Domestic consumption is 75% of the output and has doubled in 5
years – driven by a growth in the size of urban housing. Main export market is US (50% of exports)
(UK 4th). [FIRA, 2011]

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 SWOT Analysis

The aim of SWOT analysis is to identify the key internal and external factors that are important to
achieving the objective. These come from within the company's unique value chain.

SWOT analysis groups key pieces of information into two main categories:

% Internal factors – The strengths and weaknesses internal to the organization.

% External factors – The opportunities and threats presented by the external environment to the
organization.

Once this is completed, SWOT analysis determines what may assist the firm in accomplishing its
objectives, and what obstacles must be overcome or minimized to achieve desired results.

Strengths:

 Strong Brand Identity

 Has good market share

 Have experience in Furniture Industry

 Ability to bespoke i.e. customise

 Strong Customer Relationship-Online services, service within 24 hours

 Low operating cost and Labour cost

Weakness:

 There is decrease in demand for traditional furniture

 Focussing mainly on cardboard washers

 Durability-Easy wear and tear

 Weak IT support

Opportunities:

 Other markets can be targeted

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  Different types of washers can be manufactured

 Recycled materials can be used for manufacturing cardboard washers

 Scope for expansion to International markets

Threats:

 Products are easy to produce (or copy) and too many competitors

 Competitors have good access to channels of distribution

 Use of alternative products apart from cardboard washers

 Competitors offer more variety at cheaper cost

Sources of Purchasing for Furniture

According to Mintel Retail furnishing report, 2011 IKEA is the most popular choice for furniture.
DFS is the next most visited individual specialist retailer. DIY chains and Argos have the biggest
presence after IKEA in the overall furniture market. Other non-specialists such as John Lewis, Next,
M&S and supermarkets are also important.

PEST Analysis

PEST analysis is concerned with the key external environmental influences on a business. However,

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it must be followed up by consideration of how a business should respond to these influences.

External factors are usually beyond the control and sometimes present themselves as threats.
However, changes in external environment also creates new opportunities.

Political factors represent the way and the extent to which a government influences the economy and
a certain business. Political factors are represented by specific areas, such as labour law, tax policy,
tariffs, trade restrictions and even environmental law. For e.g. In Europe politicians introduced the
Euro currency for standardization but there were many other economic impacts surrounding it. Also
the changing interest rates, bank charges and price transparency clause affect the market.

Economic factors refer to areas unique to economy and directly influenced by economy or comprised
by economy, areas such as inflation rate, interest rate, economic growth or exchange rates. The rising
price of fuel and transportation of bulky products are few examples to be considered for the rising
price of commodity.

Social factors mainly refer to demographic factors, which comprise factors educational levels of the
population generally, population growth rate and age distribution among the society, occupational
structure of the population etc. The social and cultural influences on business vary from country to
country. Social factors to some extend have an impact on the size and the marketing operation of the
company. For example, cross border purchasing, online shopping etc affects the buying behaviors of
the consumer.

Technological factors refer to automation, incentives, the rate of technological change and R&D
activity. These factors greatly influence other areas or aspects, including the minimum efficient
production level, quality, cost and even outsourcing decisions. It is vital for competitive advantage,
and is a major driver of globalization. For instance, the impact of e-commerce and e-trading on
business.

Porter Five forces Analysis

Michael Porter developed a very useful, widely used framework for categorizing and analyzing these
factors of an industry known as Five Forces model. In essence, this model suggests that the state of
competition in an industry is determined by five basic competitive forces: new entrants, suppliers,
buyers, substitutes, and competitors. [Bowman 1998]

Knowledge about competitive force underpins the critical strengths and weaknesses of a company and
also highlights the industry trend, which yield either opportunities or threats. Therefore, industry

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fundamental analysis is a starting point for strategic analysis as industry structure strongly influences
the formulation of competitive strategy. [Porter 1980]

1. Barriers of entry

In the furniture industry there are few barriers of entry. Recently, competition of countries with lower
labour costs, especially China, puts pressure on furniture price cuts at global level. International trend
towards assembly-line manufacture orientation represents one of entry barriers because it implies
production in big series.

 Competition of countries with lower labour costs puts pressure on furniture price cuts at
global level

 The industry does not require large amounts of capital to start production. This makes it
relatively easy for new participants entering the market.

 The industry is in general not very vertically or horizontal integrated. On the other hand
there are some effects of economics of scale in mass-producing furniture.

 In general, government does not apply special laws and regulation for the furniture
industry. This makes global trade easier.

2. Competitions and Rivalry

The furniture industry consists of many firms, especially on the international market.

 In the high-end market the competition takes the form of branding, design etc and
companies with well-known brands gain a competitive advantage.

 In general there are no or few barriers of exit in the furniture manufacturing industry.
However, highly specialized plants for furniture manufacturing would be could be an exit
barrier for some producers. Both low barriers of entry and exit can boost competition in
the industry.

3. Power of clients

 Because of the high intensity of the competition in the furniture industry one could expect
that clients on the retail level hold some power in negotiations with the manufacturers.

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 This suggests that costumers hold little power over the suppliers in this market.

 As there is the lack of vertical integration in the furniture industry the manufacturers to
some degree hold some power over the buyers. They have the possibility to integrate
forward, to own their own retail outlets, e.g. Ikea in the low-end market.

 The end-users are fragmented, small and plentiful, and cannot hold power over the
retailer. This is the case with most consumer products.

 There is absence of switching costs. When furniture is bought for the first time or
replaced it is easy for the end-user to choose another brand of furniture.

4. Power of suppliers

 The input factors are fairly standardized; thus the suppliers have little or no edge over the
costumers making the furniture producer the stronger part.

 There are many suppliers of these commodities and the individual firm, both costumer
(manufacturer) and supplier, have little influence on the market price.

 The price is set by the aggregated demand and supply in the respective commodity
market.

5. Threat of substitutes

 In the high-end furniture market there are few substitutes, especially with respect to the
product segments produce.

 In the low-end market there are substitutes in product segments making competition
fiercer.

 The most threatening substitute in the high-end market is replacing the upholstery; the
quality is high and instead of buying new products replacing the upholstery extends the
lifetime of the product.

Competitors of Hardy Hanson

 George Culleys.
 RH NUTHALL, Birmingham.
 ABEC Fittings, Birmingham.

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  Baker’s INC, Stamping and Washers Specialist.
 Banbury Plastic Fitting Limited.
 JDW, Iylesbury. [FIRA,2010]

Repair and Remanufacturing Sector

It is estimated that 3,600 million kg of household furniture and 1,180 million kg of office furniture are
disposed of annually in the EU.
Increasingly, the system also includes End-of-Life (EOL) activities such as recycling transport to
landfills and incineration.

Remanufacturing in the UK was worth an estimated £5 billion per year and employed up to 50,000
people (OHL, 2004). While furniture remanufacturing sector in 2009 was £74.8 million. A great
scope for remanufacturing [Adrian Chapman 2010].

According to Yellow pages, there are 166 companies listed as remanufacturing firms. Polls suggests
that actual reuse of office furniture is around 10,000 tones per year, the equivalent of 350,000 pieces.
Targets include schools, Charitable organizations and cash strapped organizations

Procurement of Cardboard by Hardy Hanson

Cardboard is procured by Hardy Hanson for making washers.

Some of the card board manufactures in U.K, Yorkshire

 Premier Van Guard Ltd.

 Clegg Paper Ltd.

 Georgia Pacific Ltd. [Upmystreet, 2011]

Cardboard Prices are Extremely Volatile in nature.

The price of fresh cardboard per tone is around £115-125. [Scrap news, 2011] While recycled
cardboard costs about £ 80-100. [Recycle, 2011]

Cardboard prices will see the highest and lowest this year [Tiffany Holland]. Therefore, recycled
cardboard per ton (£)= 0.66 * fresh cardboard price per ton (£) approximation

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Source: [Adrian Chapman 2010]

Financial Analysis

According to the data provided, the company sells washers in box, which contains 1000 washers. The
cost per box is £ 5 (It excludes Indirect Cost)

Direct Cost comprises of Labour cost and Material cost.

Labour Cost =£ 4

Material Cost =£ 1

Hence, Total Direct Cost = Labour Cost + Material Cost

=£ 4 + £ 1

=£ 5

Overheads are 25% of Labour Cost

Indirect Cost= Labour Cost * 25%

=£ 4 * 25%

=£ 1

Thus Total Cost = Direct Cost + Indirect Cost

=£ 5 + £ 1

=£ 6

It is assumed that the labour and material costs are expected to rise by 3 % per year.

For Year 2,

Direct Cost = £ 6 * 1.03

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 = £ 6.18

Thus Total Cost for next five years is calculated below:

LABOUR OVERHEAD TOTAL

MATERIAL
YEARS (£) (£) (£) (£)

1 4 1 1 6

2 4.12 1.03 1.03 6.18

3 4.24 1.061 1.061 6.362

4 4.37 1.09 1.09 6.55

5 4.5 1.12 1.12 6.745

We assume that demand for washers is 100000 per annum and direct cost is rising by 3 % p.a.

DIRECT COSTS DIRECT COSTS

YEARS (LABOUR) (£) (MATERIAL) (£) OVERHEADS (£) TOTAL(£)

1 400000 100000 100000 600000

2 412000 103000 103000 618000

3 424000 106100 106100 636200

4 437000 109000 109000 655500

5 450000 112000 112000 674500

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However, the demand for washers does not remain same for consecutive 5 years. Thus we assume that
demand for washers' increases by 10 % p.a. This assumption is based on Mintel’s Retail furnishing
report, which suggests that the production of furniture is expected to grow for next three years by 10
%.

Thus we calculate the total production cost as follows:

DIRECT COSTS
DIRECT COSTS (MATERIAL)
YEARS DEMAND (LABOUR) (£) (£) OVERHEADS(£) TOTAL(£)

1 100000 400000 100000 100000 600000

2 110000 453200 113300 113300 679800

3 121000 513040 128381 128381 769802

4 133100 581647 145079 145079 871805

5 146410 658845 163979.2 163979.2 986803.4

Initial Investment is assumed to be £ 100000. This amount can be used for

Marketing costs - £ 60,000

Research and data collection- £ 20,000

Other miscellaneous costs - £ 20,000

YEARS TOTAL PROFIT TOTAL S.P. OF DISCOUNT DISCOUNTED CUMULATIVE DCF(

PRODUCTION ( 5% REVENUE( EACH FACTOR CASH FLOW
COST(£) MARGIN) £) BAG(£)
(£)

0 100000  0 0    1   (100000)

1 600000 30000 630000 6.3 0.952 28560 (71440)

2 679800 33990 713790 6.489 0.907 30828.93 (40611.07)

3 769804 38490.2 808294.2 6.68 0.864 33255.53 (7355.54)

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4 871805 43590.25 915395.25 6.88 0.823 35874.77 28519.23

5 986803.4 49340.17 1036143.57 7.07 0.784 38682.69 67201.92

Profit margins and Discounted Cash flow is assumed to be 5%. Profit margin is kept low as other
competitors are also selling the same product and there cannot be sudden increase in price for the
company as they might lose some of their customers.

Suggested approach is to procure cardboard from scrap industry. The company can reduce lot of
expenditure and can save a lot per year. The company can save upto 34 % if recycled cardboard is
procured.

Years DEMAND DIRECT COSTS DIRECT COSTS Renewed cost OVERHEADS TOTAL
(LABOUR) (MATERIAL)

1 100000 400000 100000 66000 100000 600000

2 110000 453200 113300 74778 113300 679800

3 121000 513040 128381 84731.46 128381 769802

4 133100 581647 145079 95752.14 145079 871805

5 146410 658845 163979.2 108226.272 163979.2 986803.4

TOTAL- TOTAL-
650739.2 429487.872

DIRECT SAVING IN MATERIAL COSTS= £ 650739.2 - £ 49487.872= £ 221251.328

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% SAVING: 221251.328/ 650739.2= 34 %

Conclusion and Recommendation

Consumers and users of wooden furniture are sensitive to price. Manufacturers exploring new
environmental designs, which meet higher environmental standards such as -lower energy and
material consumption in the production process should also consider cost factors. This does not mean
company should pursue the lowest cost platform but it does mean that company should ensure that
good practices such as lean manufacturing are employed alongside environmental objectives.

The company should not just concentrate on furniture industry but also target sectors like automobile,
switchboards, pumps etc. The company should not just concentrate on cardboard washers but also use
substitute products like rubber, nylon and fibre washers.

It is recommended that the company should procure cardboard from recycle industry. As the cost to
procure fresh cardboard is more compared to recycled cardboard.

The company should also trade internationally. They should trade globally due to advancement in
technology and e-commerce. The company should invest in Research and development activities and
collect data from consumers. This will have better understanding and Customer Relationship
Management. The company should also spend in marketing activities like improving its website and
more of advertising. This will enable the company to have more customers.

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 References:

ADRIAN CHAPMAN, Caroline Bartlett, Ian Mc Gill, Ben Walsh (2010). Remanufacturing in the
UK,Resourcee recovery Forum. Lancaster, Centre for remanufacturing and reuse.

BFC (2010). Available: http://www.britishfurnitureconfederation.org.uk/about_furniture_industry.php

Last accessed 19th Jan 2012

Bowman, C, 1998, Strategy in practice, Pearson Education, Prentice Hall

Coursework4u.Available: http://www.coursework4you.co.uk/essays-and dissertations/pest

analysis.php Last accessed 24th Jan 2012

EUROSTAT (2009). Eurostat Statistical books. Eurostat stiatistical books.

FIRA (2010). Competitiveness of the UK Furniture Manufacturing Industry. www.FIRA.co.uk.

FIRA (2011). Available: http://www.scribd.com/doc/50319760/The-UK-furniture-manufacturing-

industry. Last accessed 22nd Jan 2012.

Furniture Manufacturers (2011) Available: http://www.furnituremanufacturers.net/world-furniture-

industry.html Last accessed 22nd Jan 2012.

Hardy & Hanson. Available: http://www.hardy-hanson.co.uk/ Last accessed 21st Jan 2012.

MINTEL (March 2011). Retail : Furniture insights. Microsoft.

Porter ME “Competitive strategy: techniques for analyzing industries and competitors”, originally
published : New York: Free Press,c1980

Recycle (2011). Available: http://www.letsrecycle.com Last accessed 23rd Jan 2012.

ScrapNews (2011). Available: http://www.scrap-ex.com Last accessed 24th Jan 2012.

Tiffany Holland. Available: http://www.letsrecycle.com,

UpMyStreet (2011). Available: http://www.upmystreet.com Last accessed 22nd Jan 2012.

World Furniture Outlook. Available at:

http://www.fmcchina.com.cn/news/9212/world+furniture+outlook.html Last accessed 10th December
2011

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