Western Cabinets –
Building a Cabinet or Building a Transformation?
Mark Klassen
University of Saskatchewan
Suresh Kalagnanam
University of Saskatchewan
INTRODUCTION
3. Medium cabinet companies (Western Cabinets)
4. Micro cabinet companies
“How can I transform the company?” This was the main question occupying the mind of Mr. Smith, who became the CEO of Western Cabinets following the death of the founder in 2007. Not long after assuming office, Mr. Smith felt that the company was at a crossroads but was unsure as to whether it required a change in the business model/ strategy or simply better execution. Mr. Smith has observed a number of issues – strategic, operational, personnel, financial, and control; he is keen on finding both short-term and long-term solutions.
Western Cabinets, founded in 1980 by cabinetmaker
Sam Dod, manufactures and installs high-quality cabinets in residential homes and condominiums. (See Appendix
1 for the mission and vision of the company.) Sales are predominantly made directly to the homeowner or through contractors who are either renovating or building new homes.
By 2009 Western Cabinets’ revenues had grown to $60 million and it had more than 300 employees. Growth was primarily achieved through expansion by adding showrooms in each major city in western Canada.
Mr. Smith believes that competition is getting tougher and is eroding margins and profits. On the one hand, big box stores such as Ikea and Home Depot offer cabinets at very low prices, and their ability to offer customized solutions is improving. For example, Ikea has recently offered a modularized cabinet solution that customers can design on its website. Moreover, the big box stores and large manufacturers have the ability to achieve economies of scale through forming strategic alliances with key suppliers, thereby significantly lowering their costs. Still, their ability to customize and offer unique solutions is not as good as the medium cabinet companies, but this is improving as they invest in technologies to link customer choice with manufacturing flexibility. One notable trend is the increase in imports coming from China.
The cost of the Chinese cabinets is low, but there have also been quality issues with the products. Product imported from
China is also difficult to customize and is more appropriately suited for the basic cabinet product lines. Big box stores experience warranty and customer satisfaction issues as the existing modularized products don’t completely match the customer’s expectations. The relationships between big box stores and their suppliers (including large manufacturers) can be strained as both parties point the finger at each other and neither wants to deal with the dissatisfied customer or bear the cost of warranty. The big box stores and large manufacturers are relatively stable, in that new entrants have not surfaced in that industry segment over the past few years and future new
EXTERNAL ENVIRONMENT
The industry is best described as fragmented, with the major players in the industry as follows:
1. Big box store retailers (e.g. IKEA, Home Depot)
2. Large cabinet manufacturers
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entrants are unlikely. Approximately one-third of the industry revenue is generated through this segment.
At the other end of the competitive spectrum are the micro cabinet companies that primarily consist of independent carpenters who build customized cabinets out of small shops or at the customer’s site, with virtually no overhead. They may have a few employees but typically exist as a sole proprietor business. They can offer some degree of customization through the “hands-on” craftsmanship, but they often do not have access to all of the raw materials sourcing that even medium firms like Western Cabinets do. They have limited ability to produce, given their capacity constraints, and are often noted as being slow to deliver
