Furniture Manufacturers Report:Report 1 of 2Prepared by 2020 2013

Executive SummarySituation: Economic recovery presents unique challenges to furnituremanufacturersAs the economy continues its slow and steady recovery, companyexecutives in the furniture manufacturing industry are realizing that the lightat the end of the tunnel represents a very different recovery from whattranspired after previous recessions.Significant structural changes to the market have occurred during thepast few years, driven by intense competition and downward pressure onprices, but coupled with increased demand for product range and flexibility.While this resulted in some healthy consolidation of what had become anoverpopulated industry, it also gave rise to a laser-like focus on maintainingprofitability, which in turn caused some hesitation to invest in technology forlong-term strategic advantages.Problem: Caught in a trap between old and newThe furniture manufacturing industry is, in many ways, caught in a trapbetween optimizing operations according to a traditional approach, whichhas served it well, and taking the perceived risk of investing in innovativetools and processes that will enable it to thrive in the long term.Solution: Investing for survival and growthCUSTOMER RELATIONSHIPMANAGEMENT (CRM)Product & Process Data MgmtSales Order MgmtEngineering AutomationMaterials & Supply Chain MgmtPlanning & SchedulingShop Floor ExecutionMachine IntegrationInstallation & Service MgmtBusiness IntelligenceDOCUMENT & DATAARCHIVING SYSTEMSFINANCIALSOFTWAREPOINT OF SALESOLUTIONSMANUFACTURINGSOFTWARESome companies, especially those located ingeographies where labor costs are high, havemade the hard decision to invest for survival andgrowth, particularly in manufacturing hardware andsoftware systems. These investments have createdan even more competitive market environment bystimulating customer demand for faster time tomarket, shorter lead times, more rapid innovation inproduct features and functionality, and increasinglycomplex catalogs and product data.Result: Better products, reduced lead time,improved marginsBest-in-class manufacturing companies runextremely lean with regularly scheduled hardwareinvestments and deployment of software systemsthat can bring significant improvements throughoutthe enterprise. Only through such investmentscan companies meet the multiple challenges ofexpanded market addressability, better products,reduced lead time, improved margins and lowercosts.Investing for Growth: Report 1 of 22

Gaining Competitive Advantage Through TechnologyDuring the past several years, intense competition and downwardpressure on prices coupled with increased demand for product range andflexibility have resulted in significant structural changes to the market.While this resulted in some healthy consolidation of what had become anoverpopulated industry, it also gave rise to a laser-like focus on maintainingprofitability, which in turn caused some hesitation to invest in technology forlong-term strategic advantages.Some companies, especially those located in geographies where labor costsare high, have made the hard decision to invest for survival and growth,particularly in manufacturing hardware and software systems. The benefitsof these investments created an even more competitive market environmentby stimulating customer demand for faster time to market, shorter leadtimes, more rapid innovation in product features and functionality, andincreasingly complex catalogs and product data.In addition to the competitive nature of local markets, the globalization of theworld economy has become a major concern for businesses that previouslywere able to focus on local markets, even while retaining the practice ofserving markets and customers without exploiting the flexibility of multipleproduction locations.The furniture manufacturing industry is in many cases caught in a trapbetween optimizing operations according to a traditional approach, whichhas served it well, and taking the perceived risk in moving forward withinnovative tools and processes that will enable it to thrive in the long term.Failure to Optimize Nearly Crippled the U.S.Automotive CompaniesAn excellent example of the negative impact that this approach can haveon an industry involves the big three automotive companies that oncedominated the United States market. In 1980, Ford, GM and Chrysleraccounted for more than 70% of all light vehicle sales in North America, buttoday it is around 40%. For too long, these companies embraced the beliefthat their hold on local markets combined with the high labor and transportcosts of competitors in Europe and Asia would allow them to retain marketshare without investing in technology and innovation.Unfortunately, the same can be said today of some parts of the furnitureindustry. A good case in point is the enormous gap between furnituremanufacturing facilities that continue to run using outdated machinery andsoftware systems and what can be considered state-of-the-art facilities.As the economy does recover and the housing market once again enters agrowth phase, these leading companies will be well positioned to expandtheir market coverage through local manufacturing or optimized sales,marketing and delivery processes.Investing for Growth: Report 1 of 23

The Real Cost of ProcrastinationSurprisingly, there is widespread continuation of outdated practices, such asmanual and disjointed order acceptance and management, which representssignificant labor costs for data entry, error checking and correction, as wellas the costs associated with order duplication. In addition, last minutechanges to orders are difficult to handle and cause all kinds of complicationsfor the manufacturer, particularly in the scheduling department and on theshop floor.“We had 14 systems, mostly manual processes around them, and we couldn’t launch a newproduct line because our systems and processes were so bogged down.”Scott HodsonCEO, Superior CabinetsEven when companies have previously developed or purchased earlyincarnations of enterprise software systems to manage production,these implementations are now creaking under the strain of their age andinability to deal with things like product customization, LEAN production orone-piece-flow, all prerequisites in today’s market. These legacy systemscannot provide business and manufacturing intelligence such as productionstatus, factory performance, order history and real-time cost analysis.The cost of maintaining such legacy systems will become prohibitive andeventually impossible.Things Can and Do Turn AroundIf we return to the automotive industry example, we can see that things canand do turn around. Over the past few years, Ford in particular has investedheavily in technology and processes that replaced traditional approaches toserving the market, while optimizing standardized manufacturing processesand managing flexibility. Ford automobiles now lead the way in productquality, desirability and configurability.In the furniture manufacturing industry, it should be clear that the days oflimited catalogs with few options are long gone, and that future growthand success come from a technology-focused approach to developing andmanaging an extensive catalog with a constantly developing range of optionsand accessories. Similarly, a make-to-inventory production philosophy maynot be sustainable, other than for low-margin commodity manufacturers.The demands for large scale customized product manufacturing requirea systematic software controlled process for one-piece-flow and LEANmanufacturing to provide a profitable competitive advantage.In addition, companies that have moved or intend to move to a sustainableapproach to continuously improving machine technology must embracethe opportunities for increased efficiency and capability that this brings.By integrating software and hardware to manage things like nesting andflexible management of integrated machine lines, companies can realizesubstantial benefits over and above the pure performance improvement ofnew machines.Investing for Growth: Report 1 of 24

Where to Go From HereThe downturned economy of the past several years has resulted insignificant structural changes in the furniture manufacturing industry, withpositive and negative results. The industry is now leaner, but the focus onmaintaining profitability has caused some manufacturers to resist investingin technology for long-term strategic advantages. This hesitation may causethem to lose market share in the long run.The days of limited catalogs, manual order acceptance and management,and extensive customer lead times are over. To maintain a profitableadvantage, today’s manufacturers must optimize standardized manufacturingprocesses while efficiently managing and tracking production status, orderhistory, real-time costs, and factory performance.Best-in-class manufacturing companies run extremely lean with regularlyscheduled hardware investments and deployment of software systemsthat can bring significant improvements throughout the enterprise. Onlythrough such investments can manufacturers meet the multiple challengesof expanded market addressability, better products, reduced lead time,improved margin and lower costs.As the economy continues to recover, the companies who have carefullyinvested in manufacturing hardware and software systems will bestrategically situated to meet the increased demands of an even morecompetitive market environment. The light at the end of their tunnel will bebright indeed.To maintain profitability, today’s manufacturers must: Track production status and order history Conduct real-time cost analysis Assess factory performance Provide product customization Manage expansive catalogs and options“You can either sit and wait for the recovery to happen, or you can figure out how and whereyou can invest, so that when it does come, you’re ahead of everyone else,”Scott HodsonCEO, Superior CabinetsLearn how industry-leading manufacturers are achieving lean manufacturingwith 2020 Manufacturing for Growth: Report 1 of 25

Furniture Manufactures Report:Investing for GrowthReport 2 of 2Prepared by 2020 2013

Understanding the Competitive LandscapeWhen considering the factors that have allowed companies to make the leapto “best-in-class,” some consistent commonalities come to light. For thesecompanies, two primary factors are present.First, when developing a strategic approach for future success, they considertheir competitors not only as they are, but as they are likely to becomeover the next three to five years. Integrating a strategy to gain competitiveadvantage is central to the overall long-term planning process of theircompany.Second, they select partners that understand the unique challenges of thefurniture manufacturing industry. In order to fully develop solutions thatdeliver quantifiable and significant benefits, the particular complexities ofend-to-end value and supply chain require an in-depth understanding of theunderlying market requirements and business practices.The industry is littered with examples of companies deploying genericbusiness systems that ultimately require implementations that cost multiplesof the initial outlay on software licenses and many times the originalestimate. This usually occurs because generic solutions do not (and cannot)cater to the specific needs of furniture producers and ultimately requireon-site customization and integration that should, in a perfect world, be partand parcel of the core capabilities of the system.In particular, companies considering such an evolution should factor in thefollowing benefits, which can be derived from a well implemented designedfor-purpose enterprise business system for order-to-delivery manufacturing,planning and scheduling.SYSTEMCOSTSLABORSAVINGSMONTHS6Investing for Growth: Report 2 of 212182

Direct Cost Savings: Companies can expect to do more business with thesame workforce, primarily resulting from the use of electronic order entryand engineering automation. Well-designed implementations can eliminateor substantially reduce the need for workers who previously spent mostof their time entering, checking and rechecking orders. These workers canbe reassigned to cope with increased production and focus on customerservice. In addition, companies should expect the automation of productengineering to be a core capability of any manufacturing solution thatpurports to deliver solutions dedicated to furniture industry challenges.Time Savings: The time taken to correct data entry errors, rescheduleproduction or replace incorrect products or components is a significantcost, with knock on effects that reverberate far beyond the bounds ofsimple error correction. A reduction or near elimination of bad data earlyin the manufacturing process will deliver real improvements in efficiencyand cost reduction. In the same way, automated order entry, managementand verification will reduce the overall time necessary for order processing,which provides additional savings.Increased Competitiveness: Automating the management and schedulingof production allows for improved scalability in the expansion of productoptions. Companies can considerably increase their product range andoption catalog without additional investment in workforce or machinery. As aprerequisite to this increased efficiency, the solution should provide a built-inproduct configurator that allows for automation of both standard and customproducts—there are documented cases where companies have doubled andtripled their manufacture of custom products, or halved time to market fornew designs with no additional cost.Business and Production Intelligence: When companies deploy a bestin-class solution that focuses on the specific needs of the furniture industry,they can monitor and analyze information that was not previously available.This leads to intelligent decision making through real-time visibility ofproduction status and monitoring of key performance indicators at the shopfloor and for the overall order-to-delivery process. This extends as far as theshowroom or dealer when electronic order processing is integrated directlywith a visual point-of-sale design solution.Investing for Growth: Report 2 of 23

Case Studies: Achieving Lean ManufacturingStörmer Kitchen in Enger, Germany, wanted to achieve both cost-effective,highly automated production and maximum flexibility. To reach this end,they developed an ambitious plan to replace the company’s entire existingprocess chain—from the initial customer contact to the finished kitchenproduct—by the beginning of 2014. Störmer Kitchen is confident the movewill deliver greater efficiency at a minimal error rate.“We are currently working with five systems, where one should be enoughto provide an end-to-end solution,” says Christophe Fughe, managingdirector at Störmer Kitchen. “I believe there is still a widespread fear ofnew innovations in the industry. In particular, companies believe that theysurrender part of their control. This will change in the future; the one thatacted first will win. Look at a Formula 1 race. Whoever has the right set oftires first wins the competition.”For Superior Cabinets in Saskatoon, SK, the economic slowdown with allits challenges also provided an opportunity to excel. It gave them the timethey needed to look long and hard attheir current processes and systemsso they could make their businessSuperior Cabinets Snapshotbetter.Business challenge: Predominantly manual“This wasn’t so much a softwareprocesses were eating up resources andimplementation as it was ainhibiting transformation. OurSolution: An end-to-end software solutionstrategy is centered on threeand best practice advice from manufacturingprinciples: expansion, scalabilityexpertsand the customer experience,” saidScott Hodson, CEO of SuperiorResults: Superior Cabinets has reduced costsCabinets. “Ninety-five percent of ourby 25%, opened 3 new locations and doubledefforts were going into managingproduct portfolio with no increase in ordermanufacturing processes. Weprocessing resources by implementing anwanted to turn that around: 95%end-to-end software solution.effort into growth opportunities likenew stores, increased same-storesales, new product development, thebest design teams and a heightenedcustomer experience.”Investing for Growth: Report 2 of 24

Transforming the IndustryThe ultimate goal for these companies is what is commonly referred to asan “end-to-end” solution that electronically integrates data and data flowfrom the initial furniture browsing and buying experience, to order definitionat the point of sale, to order acceptance by manufacturing, to productionoptimization and delivery.Some of the companies mentioned above are getting ever closer to thisobjective, driven by the desire to innovate and stay ahead of the competitivepressures resulting from changing market dynamics and global s paper is intended to assist companies and executives in assessing thepreconditions necessary to embark on the transformative change requiredto meet the market challenges that lie ahead, or at least to spark a chain ofthought or debate within the executive team, which may lead to new ideasand bold decisions.N&SEAESPINMM M U N I CAT& ERTUREDELIVERInvest in the FutureTo learn how 2020 Insight can streamline your business and help youachieve lean manufacturing, sign up for a demonstration, and we’ll show youthe return on investment that can be for Growth: Report 2 of 25

The furniture manufacturing industry is in many cases caught in a trap between optimizing operations according to a traditional approach, which has served it well, and taking the perceived risk in moving forward with innovative tools and processes that will enable it to thrive in the long term. Failure to Optimize Nearly Crippled the U.S.