Chinese Furniture Industry

Transcription

1 Chinese Furniture Industry Fostering Profit Margin Through Furniture Procurement BY Wu Cui Hong Head of Furniture Procurement Division September 2011 Continental Solution Solutions For Procurement

2 Contents Comments 1 An overview of chinese furniture industry 2 Why the procurement is so important now? 4 Adopting procurement for inventory control 5 Procurement for small or medium size furniture companies 6 Standards labeling and requirement in furniture industry 7 Communication and implementation on Standards 7 Summary 8 About us 9 Contact us 10

3 COMMENTS CHINA FURNITURE INDUSTRY Comments Wu Cui Hong Head of Furniture Procurement Division Global furniture industry is an exciting and booming industry even after years magnificent growth, the potential of this industry always amuse me as we continuously see the increasing demand world widely. China has the most market share for global furniture exporting business, and we make our effort everyday to help our clients to obtain great saving through our procurement service, as we know the furniture industry in China just like back of our hands. Our furniture procurement team at Continental Solution has solid experience and expertise in the field. Our extensive manufacturer network are combined with various level capacity and workmanship to meet your different requirements and needs. With our individual tailored and refined approach to outsource your furniture production in China low cost facilities to improve your business profitability. The furniture industry is evolving over years, designers furniture are become more welcome among consumer as consumer are more interested in customized furnitures. The competition is also intensified on price, quality, branding and concepts and we found clients are having increasingly higher requirement on material and craftsmanship quality over the years. We understand the furniture not as a mercantile, but it is a piece of art that people live with it everyday and quality is what we care about the most. We work with clients to make sure furniture factories are able to deliver the production according to their lists of requirements and also offering customized and artistical furniture service. Furniture procurement is rather a complex process, since there are hundreds of furniture related standards and labellings requirements. Mistakes can delay products launching and product liability issue in home market. We closely work with factory to monitor and examine every part of production. Our philosophy is simple: We pursue absolute accuracy and preciseness. 1

4 OVERVIEW CHINA FURNITURE INDUSTRY An Overview of Chinese Furniture Industry Figure. 1 China Furniture Exported In Value From Year 2002 to 2010 ( $US Billions ) Source: National Bureau of Statistics of China Growth in China furniture industry can be described as spectacular, it well captured the emerging market economy booming phenomenon, and the growth rate of furniture industry is far beyond the average GDP growth. In 2002, one year after China joined World Trade Organization, the value of furniture exported to rest of world is merely 54 billion US Dollars. In 2010, the figure had been 6 times in values (Figure 1). The growth is still keeping its momentum, and the overall prospects of this industry in the medium and long term is quite optimistic and positive. Figure. 2 Annual Percentage Change% China Furniture Exported Year 2002 to % % % % % % % % Source: National Bureau of Statistics of China It is worth nothing that annual export sales growth rate is around 30% averagely (Figure 2), this number is consistent over the years, except in 2009 it had negative growth due to global financial crisis triggered by sub-prime mortgage derivatives in Wall Street. The consistent number of growth rate indicates this industry is experiencing healthy and reliable expansion that not due to seasonal or temporary factors lead to short term prosperous. 2

5 OVERVIEW CHINA FURNITURE INDUSTRY Figure World Trade of Furniture in Value ( $US Billion Dollars) The global furniture industry had a good steady run from year 2000 until 2009, it grew at 12-15% annually on average. If we compare to China furniture industry, it is much less robust in terms of growth rate, and as we can see from figure 4, the annual percentage change is much versatile than China furniture industry * 2010** 2011** Source: CSIL Figure. 4 20% 10% 0% -10% -20% Source: CSIL 7% 8% Figure % 9% 18% 18% 8% *Preliminary 10% ** Projected World Trade of Furniture in Annual Percentage Change % * 2010** 2011** 9.82% 2002 *Preliminary 17% ** Projected 6% -20% China Furniture Export in Global Market Share 11.23% % % % 2006 Source: National Bureau of Statistics of China & CSIL 20.28% % % % 5% 35.3% 2010 Furniture purchases are competing with other discretionary consumer and business spending and can easily be deferred as they are often not essential items. As the result, the performance of the furniture market is deeply depending on the general economy as a whole, real estate market, household formation, and moving, renovation activity. At business side, when the economy is at downtrend, the management will decide to withheld the furniture upgrade and office expansion plan until the economy starts to recover. It could explain why the global furniture industry is at slow growth pace after 2008 s financial crisis. The China furniture industry is experiencing more consistent and high growth rate in past decade. In figure 5, it shows that the China has been gaining global furniture market share on yearly basis, up to year 2010, it has 35.3% of global shares. Despite the global economy issues, this industry is still at booming phase, and the potential future of furniture industry in China is very up-beating. 3

6 PROCUREMENT IMPORTANT CHINA FURNITURE INDUSTRY Why the procurement is so important now? The globalization is literally happening around us everyday as we can see the products were made from overseas from supermarket, shops, on-line shopping. Made In China is becoming a phenomenon in last countries are deprived to trade-in their labor, resource and environment for economic growth; As to developed countries, competition drives business to find all possible ways to cut cost in order to remain competitive to its rivals. Strategic sourcing is a must adopted corporate strategy as it become increasing common in business world and competition is moving from adopting of procurement to refinement of procurement strategies. 15 years, it virtually leads to us think it stands for cheaper. How to transform this phenomenon into business reality is every entrepreneur are pursuing at; However, procurement is not an idea, but a complicated purchasing process requires great quality of procurement and risk management. This is the basis of Continental solution has formed its mission to transform such economy phenomenon into your business advantage. Our procurement service is integrated with risk management framework to secure the furniture procurement network that consolidate the ongoing cost benefit in a sustainable manner. If people think the globalization has reached its potential and starts to fade out its cost advantage. This is not true, indeed, the globalization will continue to reveal from its tip of iceberg in coming years, as less developed Continental Solutions is specialized in procurement service to give solutions for all procurement related service, such as vendor selection, contracts management, production schedule management, quality control programs, logistics management and etc. We can make the procurement so much easy to reach and accessible without financial commitment. It just does not make sense if you have to spend for saving. 4

7 PROCUREMENT FOR INVENTORY CONTROL CHINA FURNITURE INDUSTRY Adopting Procurement for Inventory Control Furniture industry is correlated to general performance of economic as a whole, since it is not a discretionary spending like some other living necessities. The economic state itself is volatile in unpredictable nature. For example, none would expect Lehman Brother hit the financial market so hard, the US financial market almost collapsed; None had foreseen the European s sovereign debt was far more serious than every intelligent economists thought. The trading business suffers when they keep too much stock in warehouse, at the time of the economic went south, the unsold stocks became illiquid cash sitting in the warehouse, as the result, the business was not utilizing resource at optimal level. Furthermore, the cost of inventory management is become excess during bad economic times. Our Procurement service able you to keep your inventory level low while it does not affect your firm s normal business operation. We implement our production management system to the factories in China, and it is easily to be modified and adjustable to meet your stock level demand; Here is the principle formula to determine of how procurement can cut your inventory cost. Warehousing cost per inventory * Number of inventory Staffs wages Warehouse rent Equipment purchase and maintenance Security Tax & Insurance Administration cost > Logistics cost per inventory * Number of inventory Inland Transportation cost Freight Cost Custom and paperwork fees Insurance & Tariff Administration cost From this formula, when the warehousing cost is larger than logistics cost at given number of inventory, it is cost effective to use procurement to order method not only to eliminate the cost on warehousing, more importantly, it can free up cash of the business to allocate surplus resource in more productivity and profit generated area of business. The only challenge is the time management that mismanagement of logistics can cause temporary stock shortage. In addition, we also partnering with warehousing companies cover most major regions in china at much cheaper rate, which is another solution move your warehouse to China and turn it into your supply base. 5

8 PROCUREMENT SERVICE CHINA FURNITURE INDUSTRY Procurement for small or medium size furniture companies benefit from moving factories to oversea. Major furniture makers have their own factories in China or other cheap labor countries, example like Ikea. It made other medium or small size furniture makers are very disadvantaged on overall business strategies. Furthermore, it is not feasible for them to set up manufacturing base in cheap labor countries, as their economic scale of production is not large enough to reap Intense competition in furniture industry can be described as drastic, wholesalers are competing on price, design, materials and quality. Since most of small to medium size furniture makers are able to source furnitures from oversea. However, there are many limitation on such activities; Lack of control of 1)production management; 2) quality management 3) final products is not anticipated as original design; 4) after sales support and warranty 5) Disadvantaged on information asymmetry and nontransparent. Companies are facing with resource and local knowledge limitation when choosing furniture production outsourcing to oversea facility, and they also subject to risk management issues that can put organizational supply chain into weak link of organization operation. An effective procurement strategies require the territorial professionals and experts who understand and know the local industry to manage the oversea furniture supply chain on-site and in real time to improve procurement performance at substantially level. This is crucial that choosing right procurement service partner to secure organization s supply chain to consolidate the cost benefit of furniture production outsourcing and procurement strategies. 6

9 STANDARDS & REQUIREMENT CHINA FURNITURE INDUSTRY Standards, Labeling and Requirement in Furniture Industry The objective of standardization is to ensure that all furniture available on the market is safe to use and in some countries, material were used in furniture have to comply with rule of environment sustainability. Manufacturers normally apply standards voluntarily in their product development. Having a common language for test methods, dimensions, safety and strength characteristics is considered a major benefit of furniture standards. In the United States and Canada, most standards are voluntary but some are regulated by State or federal laws. The European Committee for Standardization (CEN) is responsible for harmonizing standardization. They are proposed as a basis for wider international work on furniture standards under the ISO Technical Committee (TC 136) on Furniture. At the international level, harmonization is implemented by the International Organization for Standardization (ISO). For example, the ISO 7173:1989 standard entitled Furniture Chairs and stools Determination of strength and durability. Certification and labeling requirements Considerations affecting individual buying decisions whether institutional, industrial or private. Institutional buyers (public building and construction segment looking for furniture for public premises, offices, schools) often have procurement policies that include requirements on product quality, these policies may impose special conditions on such matters as environmental load, packaging and transportation, and recycling. They require to use of wood originating exclusively from legal and sustainable managed sources. Commercial and industrial enterprises dealing with building and construction projects, hotels, offices and shops are more likely to emphasize the safety, quality, functionality and design of furniture. Communication and implementation on Standards It is important the manufacturer is understanding comprehensively the required furniture standards and certification are to be produced. Misaligned communication will lead to unqualified products standard that may not permit the products to make available to the consumer market. Implementation of required standards throughout furniture production is essential that furniture manufacturers are applying adequate production process and materials usages. Our production and quality management service is designed to enforce the manufacturers are complying with contractual requirements and standards. We collaborate with furniture manufacturers from beginning to end of procurement process to enhance to communication and implementation on products standards compliance. 7

10 SUMMARY CHINA FURNITURE INDUSTRY Summary Global furniture industry is a massive market it has over $100 billion USD trading volumes in After 2008 financial crisis, The growth slow down to around 5% annually, we believe once the world economy took full recovery, the growth rate will resume to 10% annually. Meanwhile, developing countries and regions like China has been taking the lead, built upon their respective competitive advantages and China gradually have covered almost 35% of the world market. The furniture manufacturing industry in the country is developing strongly and showing great potentials. In order to take advantage of China economic of scale and cheap labor in furniture manufacturing industry, choose a appropriate and effective procurement strategy is essential to achieve and retain substantial cost savings benefit. Procurement is not just a simple idea of buying from somewhere cheaper, but it has to take consideration of many other factors, such as production management, quality control, logistics management and standards and requirement for furnitures sourcing activities. A superb procurement performance leads you to obtain absolute competitive edge in targeted market over the rivals, as the furniture industry is become increasingly competitive and consumer demand is overwhelmed by supplies. In order to exceed competitors in such rigorous environment, Continental Solution offers procurement service to help you cut considerable savings on total cost of furniture manufacturing outsourcing, and the cost savings makes available to allocate more resource to refine the design, improve the quality, adopt fine materials, to make you furnitures more predominant in the market without any additional financial commitment. In summary, globalization and procurement should be on the same topic, the globalization is making the countries more connected than ever; as consequence, the international trade is becoming more convenient and accessible; the world can not be without manufacturing, and procurement is just make the business sound far more competitive and profitable, and to doubters, think outsourcing is much come to close chapter, indeed, it only has revealed its tip of iceberg. 8

11 ABOUT US CHINA FURNITURE INDUSTRY About us About us Continental Solution Int l Ltd is a company based in China region that are specializing in supply chain solutions. We focus on procurement & strategic sourcing, quality inspection service and logistic management service for our global clients. Understanding and knowing China in business side is one of our greatest advantages to serve you in every aspect of procurement process. Continental Solution Continental Solution is founded in 2008, it has more than 65 team members working across China, our headquarter is located in Wuxi, Jiangsu Province. Over the year, we has built a reputation for providing quality and professional services to a wide range of clients in both the private and public sectors. Our expertises allow us to deliver rapid and measurable results for your business. What We do At Continental Solution, we are committed to providing quality services to our clients. To help meet our clients needs, with extensive industry knowledge, focus and experience, we provide procurement and sourcing service, quality control & inspection, logistics management, and many more. With our streamlined service which covers every aspect of procurement process as we take care every thing for you before, during and after procurement. Industry We Focus We only focus on the industry we know the best, and our team members are well experienced and knowledgeable in specified industry and we are capable and willing to work with our clients on specified needs and requirements. Industrial Manufacturing Industry Furniture Industry Consumer Products Industry Textile & Apparels Industry 9 9

12 CONTACT US CHINA FURNITURE INDUSTRY Contact us Contact us Address: Level 12, Moresky 360 Building, 123 Renmin Middle Road, Wuxi, Jiangsu, China Phone: Monday Friday: 8:00 am 9:00 pm GMT + 8 hours Saturday: 8:00 am 5:00 pm GMT + 8 hours Fax: enquiry@continentalsolution.com Web: Continental Solution Solutions For Procurement 2012 Continental Solution Int l Ltd All Rights Reserved 10 10