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Submitted By
TEAM ANOTHER SANITARIUM
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Group Details
Serial Name ID No.

01 Saimum Jahan Ovi B160204101

02 Sakif Al Sayed B170204002

03 Mohitul Islam Khan B170204055

04 Ashrafi Tarafder B170204062

05 Mushfiqul Alam Bhuiyan B170204069

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Case Summary
American Furniture Warehouse was acquired by Jake Jabs in 1975 when America
was facing an economic and political crisis. Keeping the financial situation of the
American people in mind, Jake Jabs started the business with good quality products at
a lower rate. American Furniture Warehouse (AFW) is a business based in Denver,
Colorado. Jake Jabs is the CEO and there are no other officials, executives, or
shareholders to influence and give opinions to change and operate the business. AFW
outsources their merchandise from developing countries where the production costs are
low and they purchase them in very bulk quantities, so the manufacturers also give
them the best rate. AFW also has a very good reputation with the customers for giving
the best product for the best price. That’s why manufacturers also feel comfortable
giving them the best product too. They also sell their product with a non-refundable
policy. AFW offers the customers to fix the goods by their own staff because it can be a
hassle to send them to the manufacturer to fix it. AFW has a team of representatives to
travel and find out the best design and price for selling. They have applied creative
problem-solving techniques to reduce cost unfolds through their decision to build their
own chairs, saving dramatically on freight costs. A garden-variety hardwood dinette
chair can be manufactured abroad and the pieces assembled at AFW for much less
than the cost if they were shipped already assembled. They also have other many new
policies to reduce costs. AFW takes chances on new, upstart vendors that other
retailers may not have discovered. There are risks and rewards to this strategy, but
AFW has found the rewards outweigh the risks, on balance.
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Introduction
American Furniture Warehouse (AFW) is one of the biggest and most well-known
furniture-selling retail brands in America and is also famous as a brand all over the
world. They sell their merchandise to the customers so conveniently that the suppliers
are also willing to do more business with them as possible. Their unique selling
proposition or USP is that they offer high-quality products at a very reasonable rate
which is not possible by their competitors. Because the suppliers offer them the lowest
rate since they are purchasing a very big lot regularly with no return policy. This
motivates the manufacturers to connect with them very comfortably. Even the suppliers
also send samples from very far distances because they are one of the biggest and the
best resellers. But still, AFW doesn’t have outlets outside Colorado. Although the
customers have demanded more, they don’t want to change their business.

Objective
The points we want to figure out and come up with some opinions and ideas with this
case study are stated below:
1. Factories in many developing nations have lower cost structures, but that is often
attributed to fewer benefits and lower wages for workers. What are the ethical
tradeoffs for retailers and shoppers when merchandise is sourced from countries
where labor practices fall short of standards Americans deem acceptable? Do
shoppers really care about workers halfway around the globe, or are they more
concerned about how many dollars are flowing out of their own pockets?

2. The world is our marketplace. AFW employs global sourcing, uses many
negotiating tactics, and shifts channel tasks to keep its costs as low as possible.
Enumerate the tactics AFW uses to keep its prices low. What other strategies
and tactics could a furniture retailer use to hold the line on retail prices?

3. What criteria should AFW use when deciding whether to see a new vendor? How
might it apply some of its best practices with its biggest vendors to new, smaller
vendors? What strategies or innovations could it employ to stretch the
productivity of its buying staff?
By answering these questions we can figure out why AFW does its business the way
they do it and what else can they add to make its business more profitable and unique.
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Ethical Trade-offs
Some ethical trade-offs for retailers and shoppers while making the price lower of
merchandise are discussed below:
 Low cost: Now the market is very competitive. To stay in the market. You
have to make a higher profit. For this purpose, all companies think about the
price nothing else. The less cost they can face the higher the profit they
acquire.
 Raw Material: Every country in the world is not efficient with every type of
product. The raw materials they need to make a certain type of product may
not be available sufficient in that specific country. So, the country with
sufficient resources of the raw material of the merchandise can provide the
goods at a very low cost than other countries. Some countries have some
comparative advantages in agriculture-based products. So, producing those
merchandise can help them earn more and help others get them at a very
cheap price.
 Currency: The value of money is not the same around the world. The value of
the US Dollar is higher than most developing countries’ currencies. This
impacts the income standards of the country and comparing with other
countries with currencies of comparatively less value. That creates an issue in
whether the earnings of the developing or underdeveloped country are valued
or not. Mostly the exchange is proper according to the other country’s
standard income. Though it is not always the case but foreign exchange
makes up for the lesser earnings.
Mainly the ethical trade-off for the retailers is that they are purposefully outsourcing their
goods to developing countries where labor wages and working conditions are lower
standards compared with the United States. However, for many companies, lower
production costs are more important than these ethical trade-offs.

Shopper’s Perspective
In most cases, shoppers don’t care where their products are being made and in what
conditions are the workers in while making them. These situations don’t come to their
mind whether the workers are getting the wages they deserve or not and whether they
are being taken care of or not. Because they are mostly ignorant and unaware of these.
Shoppers mostly are concerned with the things they are directly connected with. Mainly
the quality of the product, which has to be good, and the price of the product, which has
to be low. They try to find out the best deals. This influences the retailers to buy at a
lower price, which ultimately goes to impact the wages of the workers who are making
the products.
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Tactics of AFW to Keep Prices Low

The tactics that AFW follows to keep its product’s price lower than other furniture brands
are pointed out below:
1. Buying Bulk: AFW buys its product in very bulk quantities. It sells so much, it is
able to buy in volume. It directly imports full containers of merchandise. This
helps to keep a low price compared to the competitors.

2. Negotiation: AFW’s buying staff travels the world looking for the best deals. As a
result, buyers are often able to negotiate prices 30 to 60 percent less than
competitors’ prices for comparable merchandise.

3. No-return Policy: AFW makes it a policy not to return merchandise to a factory. If

something is broken, its staff of 120 trained service technicians can repair just
about any furniture problem they may encounter, often for pennies. Because of
its no-return policy, if it makes a buying error, AFW will mark down the item and
not repurchase it. With no returns to process, vendors sell to AFW for up to 15
percent less than to other retailers for that reason alone.

4. Wrapping With Blankets: AFW takes delivery on blanket-wrapped merchandise

rather than carton-wrapped. Not only are the blankets reusable, but not putting
the merchandise in cartons in the first place can save as much as 5 percent on
the total purchase price.

5. Assembling the Goods: AFW has applied creative problem solving to reduce cost
unfolds through its decision to build its own chairs, saving dramatically on freight
costs. A garden-variety hardwood dinette chair can be manufactured abroad and
the pieces assembled at AFW for much less than the cost if they were shipped
already assembled. Typically, 1,000 assembled dinette chairs fit in a standard-
size container. AFW buys 4,000 identical chairs in pieces and fits them in that
same container. It pays its domestic workers roughly $2 per chair to assemble
them and can sell each chair at retail for less than what other retailers pay for the
same chair at wholesale.

6. Advance Payment: AFW sometimes pays in advance to get a better price, and it
has a policy of always paying on time, a value factories respect and reward.
AFW already has so many good tactics to maintain and keep a low price. But here are
some other strategies and tactics could a furniture retailer use to hold the line on retail
prices in the future and gain a sustainable comparative advantage:
1. Shifting Manufacturing Countries: To hold the price line they need to keep the
costs, mainly production costs, in line. So, they can shift the country from where
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they are importing to a country with lower costs when the current country’s work
cost goes up.
2. Minimal Design: They can go for minimal design in furniture and promote it as
“Being minimalistic is the new style”. This will help to maintain a low cost and
hold the price of the goods for a long period.
3. Exchange offer: They can offer a new policy, where the customer can exchange
their old furniture for a minimum discount. The company will refurbish the old
furniture and sell them. This will lower the shipping costs for new goods. The
policy will be promoted as “Green Furnishing” because of recycling and
environmental friendliness.

Strategies for Vendors and Buying Staff

If AFW wants to find new vendors, it can consider the following criteria:
1. Price: AFW needs to find vendors who will offer low prices for the goods as its
current vendors.
2. Quality of Product: The quality of the product needs to be ensured because the
customers will not tolerate any compromise in quality.
3. Check References: They will go through references about vendors and how they
were doing in past in business.
4. Customer service: They should also do research about the customer reviews and
the service those vendors provide.
5. Ethics and Integrity of the Vendor: Both sides’ ethics and integrity in business
should be considered as it would be a long-term thing and no one should suffer
any ethical dilemma.
6. Professional Employees: It should be looked at if the vendor’s employees are
professional at handling oversea businesses or not.
7. Recommendations from Others: Find any recommendations about the vendors to
see if they are worthy of doing business with or not.
8. Existing Relationships: Look into the current business associates of the vendors
to see and find how their businesses are done among them and this will give an
idea about the vendor’s process and relationship with AFW in the future.

AFW has some new practices for elevating the business. One of the practices is that the
accessory that they sell are from Mexico and they sent a buying staff to Mexico where
she convinced the manufacturer to make goods according to the tastes of Colorado
customers. So, to imply some practices like this with the biggest to small vendors, they
need to offer the vendors some new policies and give them some benefits to consider
their practices. They might consider any beneficial practices like they use as no return
policy, advance payment, buying bulk quantities, etc. and do further business because
AFW is one of the biggest retailers and brands.
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Strategies or innovations could AFW employ to stretch the productivity of its buying
staff:
 Expanding network: To stretch the productivity of its buying staff AFW could
locate its staff in more countries that they regularly do business with in order to
make a meeting with vendors easier and more accessible. AFW should continue
to take risks in discovering new upstart vendors because the benefits tend to
outweigh the costs and once they find a good vendor that no one else has
discovered, they can reap full benefits. The criteria for whether to see a vendor or
not should be whether that vendor has the capabilities to offer prices meeting the
best they can get from other vendors
 2nd-time Consideration: smaller vendors can provide 2nd-time permission as
they are working with one rule that if one product is with defect they will never
give scope to sell this specific item. They will not mention it to vendors if they
have quite logic behind those defects then they can get more opportunities to
stay in the market.

Conclusion
Here we can see AFW is doing very well in its own way. They are collecting the
merchandise from developing countries and sell their goods in their native country.
While buying goods from various places they get quality products at low prices. That
helps them to do business as well as make higher profits than competitors. Here we can
see some issues of ethical matters but no one sells their goods at loss people from
developing country are also making money and that is enough according to their county.