Current situation in the European furniture industry

The term furniture in the sense of this paper is used to include furnishings in offices or homes (e.g. kitchen cupboards, office chairs or upholstery) as well as “furniture-related” accessory like carpets, lamps or decoration material (cf. for instance [12, 13]). Depending on the specific type and brand of furniture, elements can be anything from low cost / low interest items (e.g. decoration candles or shoe cabinets) to high value / specialty goods (e.g. expensive designer kitchens), depending on their financial and emotional value to the private end customer. (This paper does not focus on corporate furniture end customers or large non-profit organisation like hotels, universities, public administration etc., as this market follows other rules.)

Even though furniture elements often have a long useful life, only few of them are usually repaired and overhauled. This is partly due to the fact that personal taste may change strongly over such a period of time and partly due to the cost of repairing compared to the purchase of a new furniture element. Typically, repaired elements are either high value-furniture system elements (e.g. kitchens and/or shelving systems) and/or easy to repair goods, often made of wood that only require, for instance, new hinges or can be glued. In total, the market for used furniture is not that large, as is not that for related MRO services.

In Germany, specialised furniture-only retailers are facing a tough competition (cf. for instance [12]): Increasing sales via food or do-it-yourself retail chains and e-commerce of furniture lead to new competitors in the market, but, especially, to a high level of price transparency for the consumers. Due to over-stocks and many retail outlets close to each other, traditionally, German furniture retailers are engaged in a ‘price war’. The

result on the retail side is that more and more retailers are merging or acquiring former competitors. Also, large retail chains are both expanding their own networks and taking more control of supply chain processes.

The manufacturer side of the furniture industry is traditionally comprised of SMEs. Most retailers are organised in large purchasing associations that represent a huge purchasing power unmatched by the manufacturers.

Therefore, the price pressure in the end customer market has traditionally been passed on to the manufacturers, leading to a strong wave of bankruptcies and mergers in this part of the industry, too.

In the past, most manufacturers have focussed mainly on several of the following options (cf. for instance [14]): improving marketing & design, expanding sales to new markets, globalising their procurement, automising their production processes or moving production to low-cost countries.

Supply chain management has, however, not been a key focus, even though many see that the transportation and inventory costs have increased strongly.

Raw material cost has spiralled, especially due to the price increase of oil and wood. Moving production to low-cost countries and/or utilising global sourcing strategies further increases the importance of supply chain management.

In total, both manufacturers and retailers are suffering from low profit margins but, currently, do not systematically exploit the potential benefits of integrated supply chain processes.

An empiric study in 2009 found that, furniture manufacturers understand that both integrated logistics and IT processes and cooperative approaches with suppliers and customers are crucial to improve their business (cf. [15]).

Nevertheless, cooperative concepts that have successfully been implemented in e.g. the automotive industry and in the FMCG industry have mostly been ignored up to now. This paper assumes that it is the apparent lack of key “standardisation drivers” as within the automotive or FMCG industry that leads to there being no widely established IT, process or handling equipment standards.

4 CONCLUSIONS

Based on their profitability, both the retailers and the manufacturers would benefit strongly from trying to adapt some of the process, IT and equipment standards that – outside of the furniture industry – are often considered to be an off-the-shelf basic requirement for success. Especially considering the goods and information flow in a more holistic, integrated approach with

an improved demand and supply management should strongly improve the situation for all parties involved while at the same time offering a better customer service to the end customers.

Nevertheless, cooperative integration / standardisation approaches from other industries show the benefits of supply chain collaboration possible. It, therefore, seems very likely that the retail chains and purchasing associations will sooner or later try to implement similar concepts and standards like in other industries. Here, using standardisation approaches such as the SCOR-model could help the communication and integration between partners of complex supply chains.

Already, a few of the larger retail chains are beginning to adapt some of the concepts. This is leading to an increase of retailer driven pick-up logistics or even a backward integration into the manufacturing industry. Other retailers are broadening their service and customer base by also offering specialised service as a logistics service provider. Those manufacturers and their industry associations that are best prepared to participate in developing these standards will also be best prepared to face the future challenges.

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