Saturday, June 14, 2008

Rosewood Case Study: Implications of producing for export to Mexico and other parts of Latin America

Rosewood Case Study: Implications of producing for export to Mexico and other parts of Latin America

A balance between market driven and manufacuring abilities research determines which products will be made available in foreign markets. Product modifications, packaging and reworking to meet local regulations, languages and differences in customer service requirements may simply answer the question based on costs. For many companies the costs out-weigh the benefits.

A simple anecdote may easily illustrate the differences in implications for customer driven versus manufacturing capabilities product placement in foreign markets. In 2004 while living in Busan I was looking for a specific product, a green-glass globed banker's desk lamp. Wandering from market to market and department store to department store it was impossible to find one. There were no varieties of green glass globed lamps anywhere let alone a standard or classic design of a banker's footed lamp. Finally purely by accident I wandered into a building which appeared to be a medium sized department store but upon closer inspection was seven floors of wholey imported Italian furniture.

Resembling a warehouse with retail sales prices displaying similarly repetitive stocks of similarly priced products I was surprised to discover similarly designed lamps, not at all what I was looking for, however of a substitution grade product. Upon closer inspection from shop to shop I was able to find a burnished brass lamp footed with dark burnished marble, nothing like intended purchase, but of a satisfactory price and design. Inspection of other Italian inspired import products recalled quality designs however the materials appeared of inferior workmanship and details finishing were rough-shod. It was difficult to determine original versus possible Chinese forgeries however all prices reflected perceived Italian origin.

However the questions remain:

Can minimal or no modifications of Rosewood products be made? This will keep costs down especially as new markets may be fraught with cyclical demand, sluggish sales and imitator products which could competitively capture consumer demands. For example, Dunkin' Donuts entry to Korea was soon followed by public market sold competitor products with imitation donuts inside a similarly coloured and styled box with the label, "Donald Donuts" for a fraction of the price.

Will current inventory management systems be able to supply the new market or will costly adjustments need to be made to production and supply chain demands? The ongoing beef saga regarding US sourced beef products as recently as two years ago required all beef imported from the US be devoid of bone fragments, which in US and Canadian meat processing facilities, may be impossible to support economically. One tiny centemes long fragment was found in a shipment a couple of years ago causing an entire quarantine of the entire flash frozen meat shipment (I for one would have gladly eaten of this cowed product).

Can necessary market modifications be made with current production and manufacturing technology? Following the Italian furniture encounter I wrote to Bass River Chairs to enquire after their export markets in Asia convinced they produce a better product. Their reply was that their facilities could not support exports, it had been tried before, and it was a fiasco. Bass River Chairs has since gone bankrupt.

Ease of transport/manufacturing? Furniture does not predispose itself to ease of export as my home furnishing shipping from Abu Dhabi may attest unless perhaps Rosewood may break-down its product into flat-pack home assembly units as at Ikea. Being able to do so would implicate Ikea pricing.

Features, Options, Local Requirements? Mexico and Latin America have yet to provide specific research on customer demands regarding veneered office products. This could prove very costly as Mexico is not a similar market either to Canada or to the USA. It could in fact prove a black-hole in terms of costs just as some clothing manufacturers such as Giordano have found when attempting to market a global annual collection. Portions of China and Germany have proven to be markets to exit in terms of minimizing local rework, modifications and redesign. Export products often succeed where minimal modifications are required.

Feasibility and pertinence of implementing DRP and/or MRP processes:

Both entirely relevant to Rosewood in terms of distance between manufacturer and Latin American consumers. Great distances and time for delivery exist perhaps reduced with a FTZ stocking warehouse in Florida (which may suffer from excessive shrinkage however). Review of these systems may have a net benefit for current market costs savings as well.

Distribution Requirements Planning (DRP): Overarching concerns regarding finished product distribution. How shall Rosewood strategize minimal costs for distribution to Latin American customers? Where and what sized warehousing or stocking inventories will be required? How much time will be required to trans-ship products from central housing to customer regional locations in SA? How will economies of scale in load bearing and load volumes match customer demand, exceed costs, and generate profits? Feasible but cost effective?

Forecasting, Gross Demand, On-hand, On-order Inventory Requirements: Assuming Rosewood has already put such measures in place, do they possess a similar effective grasp of Latin purchasing demands to provide necessary precedence for forecasts of that demand? Are time periods and cycles of purchase in Latin America available? Will measures be similar or dissimilar to current export markets? Is there an opportunity to divert excess inventory to Latin America rather than liquidate through clearance? What portions of Latin American markets will determine fixed or variable demands for the master schedule? Will schedule forecasts actually satsify the master demand schedule on an ongoing basis or will costly modifications of that schedule be necessary?

Materials Requirements Planning (MRP): What portion of a customer's order may be flat-packed to minimize shipment volumes? What raw materials may be direct ordered from overseas suppliers and delivered to FTZ Miami for component system assembly at the warehouse there? What scheduling requirements exist to effectively manage Latin American orders? Will the costs of reorganising the schedule be offset by profits in the Latin American market? Again feasible and pertinent but is there a profits based reward?

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