A Simulation Model to Analyze the Impact of Outsourcing on Furniture Supply Chain Performance

As increasinglymore companies outsource to Asia, US furniture companies’ supply chains are becoming longer. Tomake their logistics networksmore efficient, companies need to choose the right supply chain model, promote cooperation with their partners in the supply chain, and adopt new technologies to make better decisions and to manage better. Discrete-event simulation models are powerful tools that can be used by furniture manufacturers to perform what-if types of analyses to estimate the impact of their decisions on the overall performance prior to making any real changes to their system.We developed such a simulation model for a typical furniture manufacturer in northeastern Mississippi. By simulating the supply chain of the manufacturer under various scenarios, we show that outsourcing all of the business is not necessarily the best option because it may lead to a local reduction of capacity. This capacity reduction impacts the flexibility and profitability of the manufacturer. Outsourcing decisions may also be affected by product type. In general, outsourcing labor-intensive, slow-moving, and easy-to-transport items makes sense. As increasingly more companies outsource to Asia, US furniture companies’ supply chains are becoming longer. At the same time, US customers are demanding higher varieties of furniture products and shorter delivery times. Thus, furniture companies trying to succeed in an industry witnessing dramatic changes must have efficient logistics management to have a competitive advantage. To make their logistics networks more efficient, companies need to choose the right supply chain model, promote cooperation with their partners in the supply chain, and adopt new technologies to make better decisions and to manage better. Operations research (Winston 2004) tools, such as simulation, can be very effective in aiding the decision-making process. Our objective is to make the furniture manufacturers aware of such tools by presenting a simulation model that we have developed for a typical furniture manufacturer in Mississippi. Before we describe the simulation model, we give brief historical views of the state of the upholstered furniture industry in the United States and the key logistics issues that furniture manufacturers face. The Upholstered Furniture Industry in the United States Beginning in the late 1990s, the US furniture industry quickly shifted much of its production to Asia. Major furniture manufacturers either shut down their plants or reduced their production in the United States, like La-Z-Boy Inc., the second-largest furniture manufacturer in the country with $2.1 billion in annual sales, which shut down much of its US production and moved to China (Chavez 2007). Now, major US furniture companies focus on brand management and logistics management: Furniture retailers seek direct outsourcing. Furniture factories in Asia also seek direct US business relations. In other words, the whole furniture supply chain, in a global scope, is experiencing a dramatic change. To survive in this dynamic environment, all stakeholders need to define, develop, and maintain their competitiveness via tuning their supply chains. In 2006, US consumers spent about $84 billion on residential furniture and bedding, which represents a 6.2 percent increase from 2005 (Epperson 2007). Table 1 The authors are, respectively, Associate Professor and Assistant Professor, Dept. of Industrial and Systems Engineering; Professor, Forest Products Lab.; and Associate Professor, Dept. of Industrial and Systems Engineering, Mississippi State Univ., Mississippi State ([email protected], [email protected], jzhang@cfr. msstate.edu, [email protected]). This paper was received for publication in August 2009. Article no. 10675. Forest Products Society 2010. Forest Prod. J. 60(3):258–265.