The second opportunity I am recommending is franchise model. This could be a short-cut to deliver the service to more people in need as well as expand the business. Franchise model are applied by many successful restaurants, retail, supermarket chains like McDonald’s, IKEA and 7-11. More than 80% of the store of McDonald’s in the world are owned and operated by its franchisees (www. mcdonaldsfranchises. com). To participate in McDonald’s franchise system, the participant can only purchase an existing restaurant directly from the company for 500,000USD.
Knowing the restrict standard for operation management by McDonald’s, these established restaurants offer a relative easy start for the participants after an intensive one year training to guarantee the world-class service and product. While for IKEA, 30 stores out of total 260 shops are under IKEA franchise system, which helps to expand the business to different locations. INGKA holding runs the shops in North and Easter area and franchised shops located in South and West are under full control of franchiser from the very startup of retail development.
IKEA franchise model is a good franchise model to be applied to Furniture Bank. The entry level is low so that any participants in different cities of Canada who are willing to contribute themselves to charity business can easily start. In fact, a simple operation office with truck facility is enough to kick off as a franchised chain of Furniture Bank. Such Furniture Bank chain coordinates with the head office in Toronto to arrange furniture delivery from the center warehouse to local clients. When the business capacity gets to build up, the franchise participant can later take a warehouse to store the local furniture donation.
The steps of development can be put into the franchised agreement, i. e. : 1-5 years’ progressing plan of establishment Truck operation and premise investment are both less favored, because both opportunities involve large amount of capital, yet the payoff of the investment is full of uncertainty. As it says on the case, “how sure are we that we will be able to create more pick-up and delivery runs for the additional trucks to keep them fully utilized? ” Truck service is not really “self-sustaining” as it looks.
According to the “input-transformation-output” model, trucks operation only plays the role to connect three main functions, as “pick and drop”. It depends on the need of the client and the donators, takes part in the operation as the logistic service function. I would say the function of trucks for Furniture Bank is like the pizza delivery for Pizzahut. It doesn’t make senesce to recruit more delivery guys unless more orders can be forecasted for sure. As for capital investment, the need for a long-term site sounds pretty urgent as the current site provided by the government for free is going to be used for affordable housing.
But base on the income statement for the year ending Dec 31, the expenses almost tripled the amount of 2006, though the revenue only doubled. The gross profit margin actually dropped, and the expenses of operation increased by 230%! Investment on the property would definitely put pressure on the cash flow. Therefore instead of paying 1. 5-3. 5 million to buy the property, lease is a better option under current tight financial situation. I have shortlisted two options of “internet technology” and “franchise model” to be tried, meanwhile some implementation need to be explored.
I would introduce the Just-in-time strategy as the 1st implementation. Instead of borrowing the whole process of JIT, I would suggest to only adapt JIT way of thinking. H. Hall 1987 pointed out that JIT has its own limitation: it set high standard to the suppliers to only product the right quantity that the customers demand at desired time. Therefore, to Furniture Bank, knowing the suppliers of the furniture are actually individual donators who also partly customers (they pay fee for furniture collection), it is impossible to set such high standard.
But the integrated website can make the right-in-time working for Furniture Bank. The on-line furniture data base enables some of the advantage of JIT to be implemented without too much restriction. The clients select the furniture and place direct order directly to donators and furniture house. Customers can also post their request of certain furniture on-line so the donators can check and response. Once the order is matched, the truck will go to collect and deliver the furniture in on go.
The fee for pick-up from these donators who finds the new owner on the website can be a lot lower than those standard one, same discount deliver fee also to be offered to the furniture receivers place order directly to donators. The intergraded website works as the role of “on-line transformation process” The implantation of adapting the JIT thinking on the integrated website for Furniture Bank is to minimize the inventory, decrease the turn-around time on transportation and other unnecessary steps like furniture tour. Besides JIT, there is another way can be developed to improve the capability.
Heizer and Render 2008 assess the key facts of operation decision which can be implicated into process with a strong strategic execution, and lead to competitive advantage. Is there any operation decision able to make an effective change on Furniture Bank? I assessed “service” as the key fact in the beginning of the discussion, however, the current process lacks of some key dimension of service quality. Currently, the company primly relies on the City of Toronto through a project called “Street to Homes” to locate their customers then provide furniture to these people.
And the only direct contact to the customer is mainly through truck and call center. That proves there is no sufficient responses and empathy between the company and the customers, and a gap of communication and access occurred during service process. (Parasuraman, Zeithaml and Berry (1985)) A strategy to emphasize the service quality and close the gap should be defined. We need to find a way enable the company interacts with their customers. On-line Furniture Bank is to get to the client in the digital world. In the real world, such connection can also be built up.
More importantly, considering the current condition of the home starters with limited information source, there is great need to set up some small offices across the county in the center of city where customers can get to experience the service directly and effectively. The service facility for these centers can be very simple: 20-30sqm with couple of computers, a volunteer as reception and brochures or furniture catalogues available for take-away. This kind of Furniture Bank shops can be operated by company directly, or more efficiently, by the franchise participants.
I suggest locating the shops where the customers are easy to spot and access, operate like an information center and rep office to provide furnishing and home advice for the clients, help them to find their desired furniture on line. Moreover, it is also important to arrange the follow-up visit to customers’ new home who received furniture from Furniture Bank, to maintain the connection with them, understand their needs and expectation. Such centers are able to build up a network of volunteers as well as home starters, fill in the gap of communication and responses.
It is also good marketing to build up the reputation within the industry and soon enough will benefit the business significantly. Besides the above suggestions, around the service quality improvement, more ideas can be explored e. g. : outsource the truck service to improve the logistic efficiency. I believe Furniture Bank has strong corporate strategy focusing on the outcome, leading to clear direction of operation strategy, and above all service is the key criterion to be innovated for better outcome.