The year 1975 saw the tail end of a recession that came on the heels of the 1973
ID: 336577 • Letter: T
Question
The year 1975 saw the tail end of a recession that came on the heels of the 1973 Arab oil embargo, the fall of Saigon, and the resignation of Richard Nixon. That same year, Jake Jabs took over the American Furniture Company in Denver, Colorado, renamed it American Furniture Warehouse (AFW), and started turning it into a high-volume discount home furnishings retailer Jabs responded to concerns that resonated with consumers in a tough economy: tighter pocketbooks, job insecurity, rising energy costs, a growing number of households as baby boomers branched out, and greater receptivity to generic products. Jabs was an experienced furniture retailer and had operated his own furniture manufacturing concern. Unbeknownst to Jabs at the time, global sourcing would become a more prominent way for his company to stock its showrooms Fast-forward to the present. Consumers tastes change at a faster clip. They have higher standards than ever, and they demand bargains. As an inherently frugal man, Jake Jabs loves to give the public good value while keeping overhead low Jabs is the CEO, but he employs no executives. No titles of vice president or executive vice president are anywhere in sight. The company is family-owned and is not beholden to stockholders demanding that high profit margins or quarterly objectives be met. Without pressure from such entities, AFW has continued to grow and thrive. Jake Jabs obsessively trolls for ideas on how to keep prices low, quality high, and merchandise current. People from all over the western United States visit AFW's megastores. They are intrigued with the values and constantly ask that AFW open a showroom near them. To date, AFW has preferred to remain a regional player. Its buys are based on the preferences and trends of Colorado customers Some of the many tenets to which AFW subscribes include striving to offer the lowest prices and the best guarantee, employing a no-pressure sales staff, having the best displays and selection, employing a careful delivery staff that works seven days a week, providing outstanding product information and customer service, and repairing merchandise on site rather than shipping anything back to themanufacturerExplanation / Answer
1. The ethical trade-offs here are usually the welfare of the factory workers on one hand and the cost benefits by paying them almost at par as per their country standards. Even after paying the workers at par with the country standards, companies stand to lose their reputation for any small issues that may arise due to labour union issues, poor literacy and lifestyle of workers affecting their working style which might harm them and make the company treat them the same way other workers in their country are being treated.
Ofcourse, shoppers don't really care about where the fabric is coming from or which worker has worked on the product they are buying. Customers get alerted only when they are shown this by media or newspapers. Infact, its a good thing that an American company is able to provide business to some factory workers in a develpoing country because of which they are able to earn and live their livelihood. It should be a matter of proud for the American company.
2. Tactics AFW uses to keep its costs as low as possible are:
a. No return policy
b. Delivery of blanket-wrapped merchandise rather than carton-wrapped merchandise.
c. Shipping parts of un-assembled chairs rather than assembled chairs due to which they are able to ship parts of many chairs in the space taken by 1 assembled chair.
d. Volume Discounts due to large quantity buys.
e. Savings on employees in terms of their relocation/travel costs, overheads, etc.
Other tactics furniture retailers can use arE:
a. Production in developing countries.
b. Local sourcing.
c. Outsourcing.
3. AFW should look at the following criteria for seeing a new vendor:
a. History of the vendor
b. Current clients of the vendor
c. Business Scale of the vendor
d. Relationships of the vendor with its clients and sub-vendors
e. Capabilities of the vendor
f. Material being bought by the vendor and its importance to AFW.
AFW can also apply following best practices:
1. Supplier Categorization
2. Spend Analytics for vendors
3. Vendor Scorecard and feedback sharing
To stretch the productiity of its buying/purchasing staff, it can use:
1. Spend Analytics across all raw materials purchased.
2. Using data analytics to drive the suppliers up and down.
3. Continuous training to the staff.
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