Inventory Control Techniques for the Furniture Industry
- Market Trends: Volatility, Globalization and E-Commerce
- Industry Challenges
- 3 ways to Ways to Improve Inventory Control in the Furniture Industry
As a discretionary industry, furniture is very susceptible to changes within the economy. The furniture industry is a great example of a discretionary industry, because it is an industry where the goods and services are considered non-essential to consumers but are purchased if the consumer has sufficient income. Wholesalers that sell larger volumes of furniture are subject to the volatility of the market, as well. When the global economy is productive, the B2C and B2B furniture industry will see positive growth, but when there is volatility the industry is impacted. One recent example is the recession of the 2000s. While the furniture industry took a major hit with the economic downturn, it has managed to bounce back in recent years and the industry is actually performing almost twice as well as the overall economy, growing at a rate of 6-7% year-over-year.
The furniture industry itself is divided into various sectors, with areas such as household, institutional, and commercial office furniture. It gets further divided based on materials (wood, metal, etc.) and based on the type of furniture itself (cabinets, mattresses, etc.). As the industry continues to expand in reaction to economic growth, it is estimated that the global market for furniture and floor coverings will reach $695 billion by 2019. The US accounts for roughly $30 billion of the industry total, while the larger European furniture manufacturing countries are Germany, Italy, Poland, and France, comprising 17% of world production combined.
Market Trends: Volatility, Globalization and E-Commerce
The furniture industry is highly reactive to the economy and global trends. A current trend in the industry is the evolution of the work from home business model. More and more companies are employing staff that do not require a centralized office space. This cuts down costs but also eliminates the need for investment into office space and associated furniture. On the flip side, the trend towards telecommuting has led to a rise in the demand for home office furniture.
The growing trend of living in smaller spaces is also driving a need for compact, multi-purpose furniture to free up precious space within the home. Multi-purpose, versatile furniture is also more in demand as the number of one- and two-person households has increased. Online shopping and e-commerce wholesalers have contributed to the growth of online furniture stores, growing at a compound annual growth rate of 16.6%.
In the US in particular, some of the fastest growing areas are furniture for bedroom and dining room, responding to the renewed vigor of the housing market and new construction. For Europe and the UK, the strongest area in the furniture industry is luxury and high-quality furniture, also being driven by a stimulated economy. The recent volatility in the UK with regards to the country’s decision to stay or leave the European Union will have a direct influence on the furniture industry. The decision will likely also ripple into other countries tied to the European Union’s economic status in the coming years.
One of the biggest challenges in the furniture industry is competition – most especially with countries in Asia. With the combined attributes of low cost labor, access to popular raw materials, and leading edge woodworking machinery and edge finishing lines, countries like China and Thailand are edging forward in the market causing additional saturation into an already very crowded market.
Storefront businesses are also finding it hard to compete with e-Commerce furniture distributors, as online sales and shopping preferences skyrocket. Many stores have found ways to incorporate online purchasing options to level the playing field and in some cases also offer incentives such as free delivery or installation or same-day pickup to stay competitive.
Another challenge in the industry is keeping inventory on-hand and available for customers. Customers look for timely delivery or availability when making purchases, and furniture is no exception. This becomes a major challenge, however, as different styles and consumer trends rule the market. It’s difficult to predict which styles will be the most popular in the future as trends change rapidly. Distributors and wholesalers that can effectively track the seasonality of their products or even the demand pattern changes for certain types of furniture will have the competitive advantage without the additional cost structure of carrying too much inventory. Agility in inventory management is a key factor for keeping costs contained and profit margins maximized.
3 ways to Ways to Improve Inventory Control in the Furniture Industry
1. Seasonal Inventory Tracking: With varying trends in the market, whether seasonal or due to fashion shifts, it is imperative that the distributors and wholesalers closely monitor changes so that the business can avoid accidentally carrying products that have a diminishing demand trend in the market. Many purchasing agents and buyers get stuck in a routine with suppliers where their buying behavior becomes thoughtless and maximum orders are submitted to capture short term volume discounts. These practices even happen with products that are experiencing rapid declines in demand. Patio furniture, for example, becomes a hot item in the spring and summer months, but distributors that are not carefully watching the trends or seasonal sales forecasts run the risk of holding too much inventory into the next season. Having visibility into the seasonality of the business is paramount to keeping a company’s inventory under control.
2. Item Level Safety Stock Management: Increased focus on inventory availability is also an important factor for distributors. One way to ensure that customers will always receive an order on time is by having the right levels of safety stock in the warehouse. However, there is a fine line between a controlled safety stock and unnecessary overstocking. With safety stock, the business is able to run smoothly. With unnecessary overstocking, a business loses money by tying capital up in products with little or no demand. For example, EazyStock’s inventory optimization software monitors item level data in real time to predictively monitor safety stock needs of the business. Through smarter safety stock management, a business can determine how much safety stock to hold by looking at past precedent and sales in order to forecast correctly.
3. Increased Forecasting Accuracy: Purchasing and forecasting accuracy can drastically boost a business’ profitability while giving the company a competitive edge. Traditional inventory management systems are limited in their forecasting abilities. Automated forecasting in inventory optimization solutions like EazyStock utilize workflows for smoother purchasing practices where less money is tied up in over stocked items. Less time is spent having to manually calculate purchasing orders and in turn results in freed up capital that can be invested elsewhere to keep the business moving forward. One great addition to a company is increased sales and marketing campaigns, especially now that there is so much competition stemming from e-Commerce. With boosted marketing to help create new online strategies, businesses can watch positive growth of the customer base. Smarter forecasting can account for promotion management to ensure forecasts are accurate and safety stock levels are in place to avoid costly stock outs.
There are several more possibilities on how to improve the demand forecasting accuracy and some good strategies that should be focused on. If you want to gain further insight into this topic then download our free white paper: