Harvard Case - Verklar Austria
"Verklar Austria" Harvard business case study is written by Anne Coughlan. It deals with the challenges in the field of Operations Management. The case study is 17 page(s) long and it was first published on : Jan 1, 2004
At Fern Fort University, we recommend Verklar Austria pursue a strategic shift towards a digitalized, customer-centric, and sustainable operations model. This involves leveraging technology and analytics to optimize supply chain management, manufacturing processes, and product distribution, while simultaneously enhancing customer experience and reducing environmental impact.
2. Background
Verklar Austria is a family-owned business specializing in the production of high-quality, custom-made wooden furniture. The company faces challenges in maintaining profitability due to increased competition, rising material costs, and evolving customer demands. The case study highlights Verklar's traditional, manual-intensive operations, lack of data-driven decision making, and limited online presence.
The main protagonists are Peter Verklar, the owner and CEO, who is committed to preserving the company's heritage but recognizes the need for change, and Eva Verklar, Peter's daughter, who represents a new generation with a vision for digital transformation and customer-centricity.
3. Analysis of the Case Study
Competitive Analysis: Verklar faces competition from both local and international furniture manufacturers, including large-scale, mass-produced furniture and smaller, niche artisans. Verklar's competitive advantage lies in its craftsmanship, customization capabilities, and commitment to sustainability. However, this advantage is threatened by the rise of online retailers offering lower prices and wider product selections.
Operations Analysis: Verklar's operations are characterized by manual processes, limited automation, and inefficient inventory management. This leads to high production costs, long lead times, and inconsistent quality. The company lacks a robust information system to track data and make informed decisions.
Customer Analysis: Verklar's customer base primarily consists of discerning individuals seeking high-quality, custom-made furniture. However, the company struggles to reach new customers and lacks a strong online presence. Customers desire faster delivery times, personalized experiences, and transparent communication.
Financial Analysis: Verklar's financial performance is under pressure due to rising costs and stagnant revenue. The company needs to improve operational efficiency, reduce waste, and enhance profitability.
Strategic Framework: We utilize the Porter's Five Forces framework to analyze Verklar's competitive landscape and identify opportunities for strategic positioning. The framework highlights the threat of new entrants, the bargaining power of buyers and suppliers, and the intensity of rivalry within the furniture industry.
Operations and Supply Chain Management: We apply the Lean Manufacturing principles to identify and eliminate waste in Verklar's operations. This includes implementing Just-in-Time (JIT) production, Kanban system, Value Stream Mapping, and Theory of Constraints to optimize material flow, reduce inventory, and enhance efficiency.
Digital Transformation: We leverage the Digital Transformation framework to guide Verklar's adoption of technology and analytics. This involves implementing an Enterprise Resource Planning (ERP) system, integrating e-commerce, and leveraging data analytics for forecasting, inventory management, and customer insights.
4. Recommendations
1. Implement a Digital Transformation Strategy:
- Invest in an ERP system: Integrate all operations, from order management to production planning and financial accounting, for improved data visibility and decision-making.
- Develop an e-commerce platform: Enhance online presence, reach new customers, and offer personalized experiences through a user-friendly website and online ordering system.
- Leverage data analytics: Utilize data from ERP and e-commerce platforms to optimize inventory management, forecast demand, and personalize customer interactions.
2. Optimize Operations and Supply Chain Management:
- Implement Lean Manufacturing principles: Reduce waste, improve efficiency, and enhance quality through JIT production, Kanban system, and Value Stream Mapping.
- Optimize inventory management: Implement a Materials Requirements Planning (MRP) system to ensure timely procurement and minimize inventory holding costs.
- Improve logistics and distribution: Partner with logistics providers to streamline delivery processes and offer faster, more reliable service.
3. Enhance Customer Experience:
- Personalize customer interactions: Utilize data insights to offer tailored product recommendations, communication, and service.
- Improve communication and transparency: Provide real-time order tracking, proactive updates, and clear communication throughout the customer journey.
- Offer flexible payment options: Expand payment options to cater to diverse customer preferences.
4. Foster a Culture of Innovation and Continuous Improvement:
- Encourage employee participation: Implement Kaizen initiatives to foster a culture of continuous improvement and employee engagement.
- Invest in R&D: Explore new materials, designs, and technologies to enhance product offerings and maintain a competitive edge.
- Embrace sustainability: Implement green operations, reduce waste, and promote environmentally friendly practices.
5. Basis of Recommendations
These recommendations align with Verklar's core competencies in craftsmanship and customization, while addressing the evolving customer demands for digital experiences, faster delivery, and sustainability. They also consider the competitive landscape, leveraging technology and analytics to enhance efficiency, reduce costs, and improve customer satisfaction.
Financial Justification:
- Improved efficiency: Lean manufacturing and ERP implementation will reduce waste, optimize resource utilization, and lower production costs.
- Increased revenue: An e-commerce platform will expand reach, attract new customers, and boost sales.
- Enhanced customer loyalty: Personalized experiences and improved communication will lead to higher customer satisfaction and repeat purchases.
Assumptions:
- Verklar is committed to investing in technology and digital transformation.
- Employees are willing to embrace change and adopt new technologies.
- Customers are receptive to online ordering and personalized experiences.
6. Conclusion
By embracing digital transformation, optimizing operations, and enhancing customer experience, Verklar Austria can secure its future in the competitive furniture market. This strategy will improve profitability, enhance customer satisfaction, and ensure the company's long-term sustainability.
7. Discussion
Alternative Options:
- Outsourcing production: This could reduce costs but potentially compromise quality control and brand image.
- Focusing solely on traditional methods: This risks falling behind competitors and losing market share.
Risks:
- Resistance to change: Employees may resist adopting new technologies and processes.
- Technology implementation challenges: Integration of new systems and data management can be complex.
- Competition: Other furniture manufacturers may adopt similar strategies, requiring constant innovation and adaptation.
Key Assumptions:
- The furniture market will continue to evolve towards digitalization and customer-centricity.
- Verklar's customers will value the combination of craftsmanship, customization, and digital convenience.
- Verklar's management team is committed to leading the company through this strategic shift.
8. Next Steps
- Develop a detailed implementation plan: Define timelines, resources, and key milestones for each recommendation.
- Pilot test new technologies: Implement pilot projects for ERP, e-commerce, and data analytics to assess feasibility and refine processes.
- Communicate the vision: Engage employees, customers, and stakeholders in the transformation process to ensure buy-in and support.
- Monitor progress and adjust: Track key performance indicators (KPIs) to measure progress, identify areas for improvement, and adapt the strategy as needed.
By taking these steps, Verklar Austria can transform its business model, secure its future, and continue to offer high-quality, custom-made furniture for generations to come.
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Case Description
Verklar is the leading maker of roof windows based in Europe. Its Austrian subsidiary has historically dominated the Austrian market, with about 85% market share. However, at the time of the case, its market share has dropped to about 75%, and many of its dealers have either dropped the line entirely or are buying not from the company, but from the few remaining large dealers who still buy directly from Verklar. This has prompted the president of the subsidiary to devise a new way--called the Quota System--to run the distribution channel in the country to improve performance. Asks the reader to examine the sources of market share decline and whether the proposed Quota System solves the channel's problems.
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