| Business Policy - BUSM29845 | Atherley Case | | By: Group 5 Faryal Ahmed, Sonya Oodit, Andrianna Cholmondeley, and Kausar Dhahir | March 12,2015 |

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Summary:
John Atherley is the owner of Atherley Furniture Company located near Orillia, Ontario. Until 1998 the chairs division results and profits has been declining because of economic performance. From the year 1995 to 1998 John Atherley total profits have begun to suffer from $340,000 in 1995 to 260,000 in 1998mean 24% loss in it time span. The company chair division have three models of chair “Caledonia”, “Atherley”, and “Parkdale”. Sales from “Atherley” and “Parkdale” have been decreasing has of “Caledonia” model been increasing. The company has concerns that they began looking back four years, in income statements on all three models to figure out the expenses and revenues. Atherley Company has to manage the chair line property to increase profits and reduce costs and expense.
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Industry: household manufacturing goods industry
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Problem Statement & Objective
Problem: Sales are decreasing in the chairs division since 1998 & the sales of certain models like Atherley & Parkdale are decreasing. They have to figure out how to increase profitability and sales.
Problem: To have a higher sales growth they have to know how to improve management in order for the chair division to have better success.
The objective is to focus on bringing up the sales in the chairs division and improve on efficiency for future competition.
The objective also to focus more on manufacturing “Caledonia” models in order to catch up on backorders and retailers wouldn’t have to wait weeks for them.
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SWOT
Strengths:
* Good Reputation * Loyal to its workers and retailers * Steady employment Rate all year round

Weaknesses * Parkdale chairs are no longer in style/outdated * The inventory is going up while profits are declining on Parkdale * Management is hesitant in investing in plant expansion & equipment * Rising heavy debt load and declining earnings on Caledonia
Opportunities:
* Outsource production * Many competitors that can negotiate contract agreements * Introduce new models * Do market research for new chair model * Collaborate with wholesale retailers
Threats:
* Economic recession * Steady growth of import competition * Domestic and foreign producer are rising in competition * Back orders from the Caledonia may cause a shortage on customer loyalty and future

SWOT Summary The company is known for it good reputation and it loyal to workers and retailers, also rates on employment remind the same all year around with those it helping to keep Atherley business to continue. Weakness like inventory going up and profits going down is affecting the company. Rising debt load could bring down the company. Atherley adding new chair models and seeing what retailer want will help with profits to increase. Dealing with economic, competitors making better things, and back orders on furniture can cause customers loyalty and bring damage to the Atherley Furniture.
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Financial analysis
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Alternative # 1: Eliminate the production of the Parkdale model because it is out of fashion and labour cost is the highest to produce this product.
The over-all profit is decreasing from 5% to -4.85% this shows that this product is of no help to the company. With increasing inventory on hand from 2005 to 2008 and with the highest cost of labour to produce this product causing its gross profit to decrease of a total of 9.47% as shown on excel sheet.
It would be better to eliminate this product line because it requires too much expense such as labour cost. It also hasn’t seen and profit growth for the past 3 years and it consumers taste is already shifted away from it.
Alternative # 2: Caledonia Modern wood forming machines could be modified to use in the production of the Atherley model so that they can produce more modern quality product.
Based on the excel sheet for Atherley it shows that cost of goods sold is increasing from 70% to 74% for this product. Gross profit is decreasing as well from 30% in 2005 to 25.78% in 2008 as well as profit decreased 4.53% over-all. However it is not a major decrease, if the machine is modified to help the production of Atherley model it can increase the over-all profit and help the stability of the company.
Alternative #3: expand the modern making machine plant to produce more Caledonia products efficiently.
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Based on the Net Profit Margin formula this type of product is most efficient one. Starting off with 15% in 2005 and increasing to 18.46% in 2008, a total increase of 3.46% as shown on the excel spread sheet.
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Based on the Gross Profit Margin this type of product has a positive increasing gross profit which means the company is and will be able to manage future operating expenses. In 2008 it now is 39.23% compared to 35% in 2005.
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The cost of goods sold is also decreasing which is a good sign that the cost of this product isn’t too major to monitor. Compared to 65% in 2005 it’s at 60.77% in 2008.
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Other expenses have increased to 20 .77% in 2008 compared to 20% in 2005. A relative small amount of .77% increased based on the excel sheet. This shows the company is managing their expenses effectively with this product.
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If the company product more of the Caledonia product it will be beneficial because not only is it increasing profit but it will increase the company’s reputation as a whole.
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Potential entrants
Potential entrants
Porter’s five forces

(Medium power) * Low-medium cost to entry. Start-up cost is low, easily use modern making machine to make furniture and just need some entrepreneur skills to start. *

(Medium power) * Low-medium cost to entry. Start-up cost is low, easily use modern making machine to make furniture and just need some entrepreneur skills to start. *

(High power) * Buyers and suppliers are attracted to competitors because Atherley Furniture labour costs are high and are unable to produce the demanding product efficiently. *
(High power) * Buyers and suppliers are attracted to competitors because Atherley Furniture labour costs are high and are unable to produce the demanding product efficiently. *
Industry competition
Industry competition
(High & Medium power) * With several competitors, switching cost is relatively low. * Buyers taste is changing and demanding products from other competitors however there is an increasing demand for “Caledonia” type.
(High & Medium power) * With several competitors, switching cost is relatively low. * Buyers taste is changing and demanding products from other competitors however there is an increasing demand for “Caledonia” type.
Substitutes
Substitutes

Buyers
Buyers
Suppliers
Suppliers

(High or Low) * If they increase price for materials then companies will have to increase product price as well as labour cost. Atherley labour cost is already high. * Low with the help of modern wood making machine, Atherley has an advantage here *
(High or Low) * If they increase price for materials then companies will have to increase product price as well as labour cost. Atherley labour cost is already high. * Low with the help of modern wood making machine, Atherley has an advantage here *

(High or low power) * High because different products from competitors, better inventory management, easy for buyer to switch. * Low because the Atherley Company have the ability and equipment to be able to produce the demanding product. * (High or low power) * High because different products from competitors, better inventory management, easy for buyer to switch. * Low because the Atherley Company have the ability and equipment to be able to produce the demanding product. *

IDENTIFICATION OF ALTENATIVES
Alternative # 1: Eliminate the production of the the Parkdale model because it is out of fashion and labour cost is the highest to produce this product. in-order to minimize higher cost.
Pros:
* Salary expenses will decrease if he reduce employees * More time and effort can be into making the Caledonia product efficiently which brings in the most sales. * The money can be reinvested into his company as whole, by increasing the wages for employees who produce the other products they will feel they are treated fairly now.

Cons: * Inventory will have to be sold at a discount in order to reduce them * Unemployment will increase * Ability to improve this product which could have increase revenue is no longer an option.

Alternative # 2: Caledonia Modern wood forming machines could be modified to use in the production of the Atherley model so that they can produce more modern quality product.
Pros:
* The use of the modern making machine here could create an attracting design for Atherley model and can be demanded more by customers/retailers. * Salary expenses can be reduced and cost will decrease because the machine now will help produce the product resourcefully. * Profit made here can be reinvested to the company to help cover labour cost and maintain the machine.

Cons * Increase in debt has management reluctant to spend on more equipment. * Caledonia has been on backorders i.e. items are not in a stock, modifying the machine to produce something else will not help the back orders, it might increase. * Labour cost will increase.
Alternative #3: expand the modern making machine plant to produce more Caledonia products efficiently.
Pros:
* Caledonia model requires less employees so labour cost can be reduce * Caledonia model is more modern design and is the most demanding product; producing more will get rid of the backorders. * Profits made here can help manage the debt loads and help with the expansion of the plant.
Cons:
* If retailers/customers taste changes and are demanding another product than Caledonia then the company profits will decline. * If the machine is not maintained properly and malfunction then the company will be faced with a big downfall.
Alternative # 4: increase more production of the different products which has different design as well as introduce a company website and online purchases.
Pros:
* It will attract new customers if he has different models * It will increase sales Employment will increase * Customers will be able to see what the company is offering without going to the store. * Customers can make purchases online this will improve customer relationship.
Cons.
* Employees and salary expense will increase * Debt will increase to create new products. * A lot of time will be invested in creating new product and for monitoring the website.

Recommendations

Alternative # 1: Eliminate the production of the Parkdale model because it is out of fashion and labour cost is the highest to produce this product in-order to minimize higher cost. * It would be best for John Atherley to stop the production on “Parkdale”. Parkdale’s model is only producing half of it total production. Expenses will decrease by layoff some employees, and will also reduce overstock. Money that is being use to male “Parkdale” can go towards his company to increase profits again. This will also gain more time and space to make more “Caledonia” model which has the most sells in the company.