Interim study report - Executive Summary (January 2008)
(The final study report will be available by the end of September 2008.)
This is an interim report of the Sectoral e-Business Watch study on the furniture industry. The study informs about the state-of-play how companies use ICT for managing their business processes, internally and in exchanges with suppliers and customers. It identifies related opportunities, possible barriers for ICT adoption and digital integration and assesses the impact of ICT deployment for firms and for the industry as a whole. Possible implications for policy actions are indicated.
Findings presented in this interim report are based on literature, expert interviews and case studies. The final report will –in addition– consider the results of an international survey of enterprises on their ICT usage conducted by the SeBW in August/September 2007.
The study addresses, in particular, policy makers (in the fields of innovation and ICT-related policies and in sectoral policy) and representatives of the furniture industry (notably firm managers, decision-makers in marketing, procurement, ICT and e-solutions, and human resources managers).
For the purpose of the study, the furniture industry is defined as those business activities described by NACE Rev. 2 in Chapter 31, namely 31.01, 31.02 and 31.09. These correspond to: manufacture of office and shop furniture, kitchen furniture and other furniture.
The EU-25 furniture industry is an economically important sector, providing employment to 1.2 million people and generating a turnover of 109 billion Euros in 2003. In most of the European countries, furniture represents between 2 and 4% of the production value of the overall manufacturing sector.
The sector is dominated by small and medium sized enterprises. This is both a point of strength of the EU industry, as these companies are generally more flexible and quick in adapting to market changes, and a point of weakness, as they are more likely to lack investment capability.
A quickly changing and highly competitive environment is putting increasing pressure on EU furniture manufacturers. Product innovation and reduced lead times are the key success factors for businesses to respond to such challenges and to remain competitive. A closer link with both intermediary and final customers is also a clue to keep the pace with market changes and provide adequate customer service. Horizontal and preliminary to these factors is the capability of furniture manufacturers to rely on properly skilled human resources.
Furniture firms need to pursue innovation strategies based on creativity, quality and differentiation of products, as well as improved customer service. Investments are made in the areas of automation of production processes, design and creation, advertising and communication.
The analysis carried out by the Sectoral e-Business Watch focuses on a few selected issues and areas of activity where the impacts of ICT and e-business are particularly relevant. These are:
CAD/CAM tools are playing an increasingly important role in furniture companies of all sizes and product lines. These tools act as stepping-stones to a wider integration of the product information flow through the production process, also improving the efficiency of the design and engineering process. Analysis carried out for the present report provides first insight on how design tools can be exploited for the purpose of customer-driven production and innovation, allowing a cost and timely-effective way to meet customers’ needs.
The analysis has pointed towards many areas where software tools could improve the speed and accuracy in which product data is generated and communicated within a furniture company. The introduction of 3D modelling tools has the potential to increase the efficiency in the product development process and enhance the customer experience at the point of sale, providing virtual visualisation of product options and ultimately leading to customer-driven production and innovation.
A further goal would be to increase the efficiency of the design process and foster overall integration with manufacturing and marketing & sales activities. Integration of design with manufacturing and marketing & sales enhances the overall supply chain efficiency and improves responsiveness to changing market conditions.
The degree of implementation and the impacts from the adoption of CAD and other ICT applications will be further analysed in the final report, which will provide the results of the CATI Manufacturing Survey 2007.
Issues concerning sustainability and “green” design are becoming a very important part of the furniture design and production process. This general trend is driven by national and EC regulation and is fostered by customers’ awareness. In order to effectively respond to environmental challenges, a comprehensive approach is required: environmental issues need to be taken into account from the product concept and design phase onwards, through procurement, production and post-sales, until de-manufacturing. The analysis carried out in this report indicates that innovative companies have started to adopt environment-friendly strategies, based on ICT tools for the life cycle assessment of furniture products. It is worth noting that these companies succeed in converting the burden of additional costs (due to compliance to strict regulation) into a competitive advantage: the possibility to base communication and marketing on “green” issues that are particularly appealing with the high-end segments of the market.
The furniture industry faces new business complexities. Product demands span a broad range, from commoditized to highly customized products. Customer demand is continuously changing, while competition from low-cost countries is increasing. To keep pace with the customers’ demand, manufacturers are offering expanded product lines and custom options. The wide variety of dimensions, colours, finishes, fabrics and product options -leaving aside the value of the stock, efficiencies in storage and logistics - are placing increased demands on information systems to provide the functionality and flexibility required to address all the business requirements. On top of this, are the demands by customers for reduced delivery times.
The EU furniture industry has made large investments in production and modern manufacturing techniques. Insights from literature and interviews for this report indicate that flexibility of operations and manufacturing process efficiency have been achieved not so much from investment in high-tech robotics, but more relying on skilled workforce and general purpose manufacturing equipment. In order to sustain competitiveness at an international level, however, the European industry needs to further advance in efficiency and reduction of lead times.
The realisation of extensive cost reductions and time savings, by integrating all aspects of the supply chain, can be supported by the implementation of proper ICT and e-business solutions, such as SCM. This process is strictly dependant upon the effective implementation of internal business processes management systems, such as ERP.
Reduction of lead times and optimisation of stocks are key success factors for furniture manufacturers. SCM systems and the integration of business processes they bring about are by far the most important applications in this area. Potential benefits of SCM are evident; however adoption and usage are still limited to larger firms while smaller players face relevant constraints and barriers. Supply chain integration is strictly dependant upon the effecttive implementation of internal business processes management systems –such as ERP– as well as the introduction of organisational changes.
A main feature of the furniture industry is the number and diversity of business players along the value chain, including handicraft companies and professionals. The diversity of ICT systems in place and of competences is a major hurdle to integration.
In particular, e-business integration is still lacking between manufacturers and independent distributors, due to the characteristics of furniture distribution networks and the complexity of industrial categorisation and coding. e-Marketing and e-sales activities towards final customers are still limited in this sector, and are aimed at providing technical and commercial information rather than actual e-commerce functions.
Furniture manufacturers and retailers may benefit from improved interoperability and standardisation both for integration of business processes and for the development of B2B and B2C commerce activities.
A major issue that would increase the efficient use of ICT and e-business in the furniture industry is addressing the need for standarddisation. Furniture manufacturers (and retailers) may benefit of improved interoperability and standardisation both for integration of business processes and for the development of B2C and B2C commerce activities.
Industry associations and the EU Commission have been involved in standardisation initiatives for the furniture industry in recent years. Substantial efforts are being made on the technological side. The CATI Manufacturing Survey 2007 will illustrate to which extent standards have been adopted in this industry and which impacts they have produced.
Policy implications (preliminary)
Policy measures for the furniture industry should address the issues of skills enhancement, interoperability and standardisation and the creation of a favourable environment for innovation.
ICT and e-business are rapidly changing the way business is conducted in this industry. Innovative applications require changes in organisation and working procedures. Skill upgrading and training of personnel are important to assure the successful implementation of new applications; however SMEs may have difficulties to exploit opportunities related to the introduction of new technologies due to the lack of the necessary skills. Policy at both regional, national and EC level may have a role in:
Examples from case studies demonstrate that management support, company-specific training and the involvement of human resources have been fundamental for the development and the adoption of innovative solutions within furniture companies. The results from the survey will provide insights on the issue of ICT skills in the furniture sector and the impacts of e-business on skill requirements
Policy measures in the area of standardisation should focus both at the sector and the cross-sector level, including:
Projects aiming at enhancing interoperability for the exchange of computerised data should be supported. As important efforts have been made on the technological side, policy measures should now aim at fostering faster and wider implementation, especially among SMEs through the widespread promotion of knowledge and usage of product data standards within the furniture industry and its business partners.
Furniture companies operate in a very competitive environment and have to pursue innovation strategies based on creativity, quality and differentiation of products. This requires continuous investments. The development and control of knowledge is getting increasingly critical. e-Business policies aiming at a favourable environment for innovation should include initiatives aimed at:
The deployment of such measures may benefit of the involvement of industry associations.
