Guillermo Navallez was living his dream by owning one of Sonora’s more popular furniture stores. He began Guillermo Furniture Store many years ago near his Sonoran home. The area of Sonora, Mexico was surrounded with vast amounts of timber that allowed him to produce hand crafted products like tables and chairs. Guillermo was able to sell his furniture at a premium due to these quality handcrafted products. However, it wasn’t until the 1990’s when the competition among furniture stores began to pose a threat to his business. Foreign competitors were injecting local competitors with their high-tech level of design, making furniture to exact specifications. This was a serious threat to Guillermo Furniture Store because profit margins were sinking while costs were increasing.
Guillermo needs to make some serious decisions or his furniture store will need to close. In the following paragraphs the learning team will provide Guillermo with an analysis of alternatives that will allow him to change things around for the better. Furthermore, a pro forma cash flow budget will be provided to give Guillermo an analysis that will show the impact of these suggested alternatives. After these alternatives are presented, the learning team will provide Guillermo with a recommendation of final decision.
Analysis of Alternatives
We have decided to examine three options for Guillermo. (1) He can maintain his current position and try to survive by cutting costs. (2) He can become a broker for a foreign furniture maker. (3) He can upgrade his machinery to make furniture less expensively.
The Guillermo’s Furniture Store could merge with other entities with the intentions of developing a larger organization. However, the following would be of discrepancy:
• The percentage of ownership distributed
• The branding options
• The resources readily available
Brokering the foreign furniture maker is the second alternative that has been identified by the Guillermo’s Furniture Store. Utilizing the option to represent their competitors would deem to be for the other competitive manufacturers currently operating.
In the third alternative, the Guillermo’s Furniture Store would change the current production process by implementing a more high-tech model. With utilizing such an approach, it offers the organization the opportunity to retain its own brand and ideas, and the ability to independently control the revenue generated. Now that we have identified the various alternatives available to the Guillermo’s Furniture Store and the impact each scenario will have on the organization Guillermo has most of the information needed to make a sound decision. (1) Guillermo seems to be the kind of man who can tell where the wind is blowing. He has maintained his current position, but not indefinitely. He knows that he will be fighting a losing battle with rising labor costs and falling furniture prices.
(2) Becoming a broker for a foreign furniture company is a very attractive option. While Guillermo loses some control over what is produced, he is freed of the pressures of production. Having for many years established a wide distribution network, his focus will turn to promoting the flow of goods through it and increasing volume.
(3) By upgrading his facility, Guillermo can begin to produce furniture at prices that will permit him to compete with the foreign vendors that have entered his market. This option represents a high initial investment, and it has the highest risk, but it comes with the highest rewards. If sales follow projections, net income would rise by over 400% over current conditions, and only slightly less in relation to the brokerage option. The purpose of researching the in and outs of each scenario and projecting the revenue from sales to be generated is to establish a presence within the newly developing market; to minimize the risks that exist by doing so, and to increase…