National Furniture has had difficulty with it’s sourcing in the past.  The parents of Bob Wood Jr. had maintained consistent relationships with certain raw materials and production input producers.  Unfortunately, over time, these companies experienced the same problem with machinery obsolescence and rising costs that National Furniture did.  Bob Wood Jr., not wanting to change sources, was content to let costs rise.

He hired consultants to analyze the capital structure and cash flows of National Furniture.  Their recommendation was to phase-in, new cost control procedures.  The company began this shift to using brokers last year and was able to increase it’s margins by 6% this year.  Next year, as it shifts the remainder of it’s business to brokers, margins are expected to increase by another 4%.  While this year, the consultant fees absorbed a large percentage of the savings, next year the full force of the savings is expected to be realized.

Furthermore, the brokers carry substantial weight with the raw materials and input suppliers, so errors are resolved much more quickly and easily.

Thus, while sourcing had developed into a significant liability for National Furniture, the new sourcing structure will allow the company to enjoy the same advantages most other companies have been enjoying the entire time.