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Flevy Management Insights Case Study
Agile Supply Chain Strategy for SMB in Furniture Retail

There are countless scenarios that require Enterprise Performance Management. Fortune 500 companies typically bring on global consulting firms, like McKinsey, BCG, Bain, Deloitte, and Accenture, or boutique consulting firms specializing in Enterprise Performance Management to thoroughly analyze their unique business challenges and competitive situations. These firms provide strategic recommendations based on consulting frameworks, subject matter expertise, benchmark data, best practices, and other tools developed from past client work. Let us analyze the following scenario.

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Consider this scenario: An SMB furniture retail company is grappling with challenges in Enterprise Performance Management, hindered by inefficient supply chain operations and evolving market demands.

The organization is facing a 20% increase in supply chain costs and a 15% decline in customer satisfaction due to delivery delays and stockouts. Externally, the intensification of e-commerce competition and consumer demand for fast, free shipping are pressuring the traditional retail model. The primary strategic objective is to transform the supply chain into a more agile, responsive, and cost-efficient system to enhance customer satisfaction and competitive positioning.

The furniture retail industry is undergoing significant transformation, driven by shifts in consumer behavior towards online shopping and expectations for rapid delivery. These changes necessitate a reevaluation of traditional supply chain models to prioritize agility and efficiency.

Strategic Planning Analysis

The current state of the furniture retail industry is characterized by a rapid pivot to e-commerce platforms and an increasing emphasis on sustainability and ethical sourcing.

We begin our analysis by examining the competitive forces shaping the industry:

  • Internal Rivalry: High, fueled by both established furniture giants and emerging online players striving for market share.
  • Supplier Power: Moderate, with retailers seeking more sustainable and ethically sourced materials, giving some suppliers an edge.
  • Buyer Power: High, as consumers have more choices and are increasingly price-sensitive and demand high service levels.
  • Threat of New Entrants: Moderate, due to the significant investments required in e-commerce infrastructure and brand building.
  • Threat of Substitutes: Low, given the specific demand for home furnishings, though service and delivery can be differentiators.

Emergent trends in the industry include:

  • Increasing consumer preference for eco-friendly and sustainably sourced furniture, presenting both a challenge and opportunity for retailers to adapt their sourcing and marketing strategies.
  • The rise of AR and VR technologies in enhancing online shopping experiences, offering opportunities for differentiation but requiring significant technology investments.
  • A shift towards smaller, more versatile furniture to match the downsizing trend in living spaces, opening new product development avenues.

Learn more about Retail Industry New Product Development

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Internal Assessment

The organization possesses a strong brand identity and customer loyalty within the local market but struggles with supply chain visibility and responsiveness, impacting its ability to meet changing customer demands efficiently.

SWOT Analysis

Strengths include a well-established brand and a loyal customer base. Opportunities lie in leveraging technology to improve supply chain agility and embracing sustainable practices to meet consumer expectations. Weaknesses are seen in supply chain inefficiencies and a slow response to market trends. Threats encompass the rising competition from e-commerce platforms and changing consumer preferences.

VRIO Analysis

The company’s brand reputation and customer loyalty are valuable resources that are rare and costly to imitate. However, the supply chain's lack of agility is a weakness that needs to be addressed to capture the full value of these assets.

Capability Analysis

Success in the current market requires capabilities in supply chain agility, e-commerce, sustainable sourcing, and digital customer engagement. The organization has strong brand and market knowledge but must enhance its supply chain and digital capabilities to remain competitive.

Learn more about Supply Chain Customer Loyalty

Strategic Initiatives

Based on the competitive nature of the furniture retail sector and internal assessments, the management has decided to pursue the following strategic initiatives over the next 18 months :

  • Supply Chain Optimization: This initiative aims to reduce supply chain costs by 15% and improve delivery times by 20% by implementing advanced analytics for demand forecasting and inventory management. The value lies in increased efficiency and customer satisfaction. This will require technology investment in analytics tools and training for staff.
  • Digital Transformation for Enhanced Customer Experience: By integrating AR/VR technologies into the online shopping experience, the company aims to increase online sales by 25%. The initiative leverages digital innovation to meet evolving consumer expectations, requiring investment in technology and content creation.
  • Sustainability Initiative: Transitioning to 100% sustainable materials within 3 years to meet consumer demand and regulatory requirements, aiming to enhance brand loyalty and market differentiation. This requires investments in supplier development and sustainable materials sourcing.

Learn more about Customer Experience Inventory Management Customer Satisfaction

Enterprise Performance Management Implementation KPIs

KPIS are crucial throughout the implementation process. They provide quantifiable checkpoints to validate the alignment of operational activities with our strategic goals, ensuring that execution is not just activity-driven, but results-oriented. Further, these KPIs act as early indicators of progress or deviation, enabling agile decision-making and course correction if needed.

What you measure is what you get. Senior executives understand that their organization's measurement system strongly affects the behavior of managers and employees.
     – Robert S. Kaplan and David P. Norton (creators of the Balanced Scorecard)

  • Supply Chain Cost Reduction: A critical metric to evaluate the financial impact of supply chain optimizations.
  • Online Sales Growth: Measures the success of digital transformation initiatives in driving e-commerce revenue.
  • Sustainable Sourcing Percentage: Tracks progress towards sustainability goals, important for brand positioning and compliance.

These KPIs offer insights into the effectiveness of strategic initiatives, providing a basis for continuous improvement and adjustment to strategy based on performance and market changes.

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Enterprise Performance Management Deliverables

These deliverables represent the outputs across all the strategic initiatives.
  • Supply Chain Optimization Report (PPT)
  • Digital Transformation Roadmap (PPT)
  • Sustainability Implementation Plan (PPT)
  • Financial Impact Model (Excel)

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Supply Chain Optimization

The organization utilized the Demand-Driven Material Requirements Planning (DDMRP) and the Theory of Constraints (TOC) to enhance its supply chain optimization initiative. DDMRP is a multi-echelon planning and execution method that protects and promotes the flow of relevant information through the establishment and management of decoupling points in strategic locations across the supply chain. This framework proved invaluable in reducing supply chain costs and improving delivery times by ensuring that inventory levels were optimized to meet actual market demands. The Theory of Constraints, on the other hand, focuses on identifying the most significant limiting factor (constraint) that stands in the way of achieving a goal and systematically improving that constraint until it is no longer the limiting factor. In the context of supply chain optimization, TOC was instrumental in identifying and addressing bottlenecks.

The team implemented these frameworks as follows:

  • For DDMRP, the organization conducted a detailed analysis of customer demand patterns and identified strategic decoupling points to buffer against variability in supply and demand.
  • Implemented dynamic adjustment of inventory levels based on real-time market demand signals and supply chain conditions, leveraging DDMRP software tools.
  • Utilized TOC to map out the entire supply chain process, identify the most critical bottlenecks impeding flow, and apply focused improvements to relieve these constraints.
  • Reevaluated supply chain processes and adjusted strategies based on the insights gained from TOC analysis, ensuring continuous improvement.

The result of implementing DDMRP and TOC was a 15% reduction in supply chain costs and a 20% improvement in delivery times. These frameworks facilitated a more responsive and efficient supply chain operation, directly contributing to enhanced customer satisfaction and a stronger competitive position in the market.

Learn more about Continuous Improvement Theory of Constraints

Digital Transformation for Enhanced Customer Experience

During the digital transformation initiative, the organization embraced the Customer Journey Mapping (CJM) and the Value Proposition Canvas (VPC). Customer Journey Mapping is a framework that helps businesses visualize the process a customer goes through when engaging with a company, from initial contact, through the process of engagement and into a long-term relationship. It was particularly useful in identifying key touchpoints and areas for digital enhancement to improve the overall customer experience. The Value Proposition Canvas, on the other hand, is a tool that helps companies ensure that their products and services are positioned around what the customer values and needs. It was crucial for aligning the digital transformation efforts with customer expectations and demands.

The team followed these steps in implementing the frameworks:

  • Developed comprehensive customer journey maps for different customer segments to identify critical digital touchpoints and areas needing improvement.
  • Conducted workshops with cross-functional teams to fill out the Value Proposition Canvas for each major customer segment, focusing on how digital transformation could enhance value delivery.
  • Used insights from CJM to prioritize digital initiatives, such as the integration of AR/VR technologies, that could significantly enhance the customer experience.
  • Applied the VPC to ensure that new digital features and platforms were closely aligned with customer needs and expectations.

The implementation of CJM and VPC frameworks led to a 25% increase in online sales. These frameworks guided the organization in making informed decisions on digital investments, ensuring they delivered substantial value to customers and directly contributed to the initiative's success.

Learn more about Digital Transformation Value Proposition Customer Journey

Sustainability Initiative

For the sustainability initiative, the organization adopted the Triple Bottom Line (TBL) framework and the Natural Step (TNS). The Triple Bottom Line is an accounting framework that incorporates three parts of sustainability: social, environmental, and financial. This approach was crucial for evaluating the comprehensive impact of transitioning to 100% sustainable materials. The Natural Step framework provided a science-based approach to sustainability, helping the organization to systematically reduce its ecological footprint by making smarter, more sustainable material choices.

The organization proceeded with the following steps:

  • Assessed current sourcing, production, and distribution practices through the lens of the TBL framework to identify areas for improvement in sustainability.
  • Engaged with suppliers and partners to align practices with TBL principles, focusing on social responsibility, environmental stewardship, and economic viability.
  • Implemented TNS to identify critical sustainability challenges and develop strategic actions to address them, such as transitioning to sustainable materials and reducing waste.
  • Conducted regular reviews and adjustments to the sustainability plan based on TBL and TNS insights, ensuring continuous progress towards sustainability goals.

By implementing the Triple Bottom Line and The Natural Step frameworks, the organization not only progressed towards its goal of using 100% sustainable materials but also enhanced its brand loyalty and market differentiation. These efforts led to a more sustainable, responsible, and competitive business model that resonated well with consumers and stakeholders alike.

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Key Findings and Results

Here is a summary of the key results of this case study:

  • Reduced supply chain costs by 15% through the implementation of DDMRP and TOC frameworks, optimizing inventory levels and addressing bottlenecks.
  • Improved delivery times by 20%, enhancing customer satisfaction and competitive positioning in the market.
  • Achieved a 25% increase in online sales by integrating AR/VR technologies and aligning digital transformation efforts with customer expectations through CJM and VPC frameworks.
  • Made significant progress towards using 100% sustainable materials, enhancing brand loyalty and market differentiation through the TBL and TNS frameworks.

The strategic initiatives undertaken by the organization have yielded notable successes, particularly in supply chain optimization and digital transformation, which directly contributed to cost reductions, improved delivery times, and increased online sales. The implementation of DDMRP and TOC frameworks effectively addressed supply chain inefficiencies, while the integration of AR/VR technologies, guided by CJM and VPC frameworks, significantly enhanced the customer experience online. However, while progress towards sustainability is commendable, the report lacks quantifiable outcomes related to the percentage of sustainable materials currently used, indicating a potential area of underperformance or slower progress than anticipated. Additionally, the heavy reliance on technological solutions, while effective, may have overshadowed the potential for simpler, cost-effective process improvements or alternative strategies that could have further enhanced outcomes, such as a more aggressive approach to local supplier partnerships to reduce supply chain costs and environmental impact simultaneously.

For next steps, the organization should focus on accelerating its sustainability initiative, perhaps by setting more aggressive interim targets and increasing transparency about its progress. To build on the success of the supply chain and digital transformation initiatives, a continuous improvement framework should be established, leveraging data analytics to refine and adjust strategies in real-time. Additionally, exploring partnerships with local suppliers could further reduce costs and support sustainability goals. Finally, considering the evolving market dynamics, the company should continuously scan for emerging technologies and consumer trends to adapt and innovate proactively.

Source: Agile Supply Chain Strategy for SMB in Furniture Retail, Flevy Management Insights, 2024

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