Guillermo_Furniture_Store_Concepts

Guillermo Furniture Store Concepts Christina Hill FIN/571 October 31, 2011 Jesse Carter Situation Analysis Guillermo Navallez has been making furniture for years near his Sonoran home. Sonora, Mexico is known for being a beautiful vacation spot. The area is also known for being a large furniture manufacturing location in North America. The area around Sonora has a good supply of timber for the variety of tables and chairs produced by his company. One of the primary benefits for conducting business in the area is that labor relatively inexpensive. Guillermo Navallez currently prices the handcrafted products in his store at a slight premium to account for the quality and workmanship represented of his company. Guillermo’s new competitor’s primary business advantage is that it utilizes high-tech production equipment to build furniture. This factor creates economies of scale. Due to production efficiencies, this new foreign competition is also able to sell the custom furniture at a lower price. Performance reporting is another analysis tool that can be used by Guillermo Furniture in order to make assessments and make critical strategic decisions could be the performance report. Small communities of Sonora have risen to become one of the world’s largest retailers in the nation’s headquarters. The substantial population increase in Sonora can be contributed to the mild weather, beautiful scenery, inexpensive housing, traffic-free roads, and a new international airport. The population expansion and growth has also caused a significant rise in employment opportunities and the cost of labor. Due to these factors, Guillermo Furniture Store is experiencing organizational hardships which include employee attrition and decreased profit margins. The key objective of this document is to analyze the Guillermo scenario and apply various financial concepts and principals to the situation. Concepts and Practices In order to effectively compete in its current market, Guillermo should access financial concepts and make decisions based on short-term and long-term strategic business objectives. In order to create value and synergy, Guillermo should focus and strengthen its competitive advantage. It should focus on doing what it does best better, faster, and quicker. By analyzing the current market, Guillermo determined that smaller and larger companies where aligning through mergers and acquisitions. This strategy was found to promote organizational and manufacturing efficiencies; however, it did not align with Guillermo short or long term business objectives. Guillermo was not interested in purchasing smaller locations or being bought by larger organizations. Guillermo also then spent some time looking at the foreign competition and their high-tech solution. Guillermo determined that there would be significant initial costs. There would also be an increase in overhead costs but a labor times would decrease to roughly 20%. Direct costs would also decrease. Selecting this option would cause the net income to increase. A second competitor, currently operating only in Norway, has been looking for channels to distribute in North America. Guillermo reviewed an option to coordinate his existing distributor network and essentially become a representative for this other manufacturer. While he may retain some of the high end custom work, he could move his company from primarily manufacturing to primarily distribution. This option would also increase the company’s net income but less than the previously reviewed option. Guillermo should also review potential return on investment which is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. Optimal pricing points should also be analyzed. Conclusion Guillermo Furniture Store should utilize and analyze using a variety of financial principles, financial markets, and business ethics to form a foundation for financial decisions References Emery, D. R., Finnerty, J. D., & Stowe, J. D. (2007). Corporate Financial Management (3rd ed.). : Prentice Hall University of Phoenix. (2011). The Guillermo Furniture Store. Retrieved Oct 31 2011, from University of Phoenix, Week One, FIN571