Below is an extract from Daiwa research report of 3 Oct 2008 to illustrate the cost advantage of Man Wah over HTL. MAN WAH: Man Wah\'s main manufacturing site is located in Dayawan, east of Shenzhen. This large factory is located in an industrial business park, built with the intention of easy and large capacity expansion. The company completed its Phase II expansion at the site recently, taking annual capacity production to a very large 430,000 sets per year. How big is 430,000 sets? This site\'s capacity alone is more than 10x larger than Lorenzo International\'s (Lorenzo) (LOREN SP, S$0.08, 2) CY07 capacity of 36,400 sets/year. When we visited Man Wah\'s Dayawan site, we were impressed by the size and scale of the operations. The Dayawan site employs thousands of workers, some making foam the width of a city bus, others doing nothing but nail-gunning wooden frames together in rapid succession. It also houses around 2,000 sewing machines. HTL: We visited HTL\'s manufacturing site in Kunshan, PRC, in June 2008 hoping to get some answers to these issues. We have visited the main sofa-manufacturing factories of all three leather sofa manufacturers (ie, Man Wah, Lorenzo, HTL), and Cacola, which also makes some leather sofas. For us, the site visit supported our theory that some of HTL\'s margin problems stem from its manufacturing structure. We generalise manufacturing into two opposite types of manufacture. One extreme is \'assembly line\' manufacturing, which has each worker in the line doing a specific task, or a limited set of tasks. The opposite type of manufacturing is \'batch\' manufacturing, where workers do a broad set of tasks. The former is the much more common approach, while we believe the latter is less common. HTL uses \'batch\' manufacturing. Some of HTL\'s processes are done centrally (eg, leather treatment, cutting, sewing), but the bulk of the sofa manufacturing is done in batches by teams of workers. For example, a team might get an order for two brown sofas of a specific make/model and one black sofa of another. The team would assemble a pile of components and measurement instructions to make those sofas, from which they would complete the order almost from start to finish. In the previous two pictures of the factory floor, one can see that teams are working on different sofa styles with numerous tools and components next to the sofas. This contrasts with an assembly-line sofa factory, where workers might just be doing one thing (eg, nailing frames together) with a single tool. The key advantages to the batch process are that there is less inventory risk and higher quality accountability. The key disadvantage is that the manufacturing process is slower. We observed that HTL\'s workers spent more time switching tools and positioning themselves vis-ÃÆÃÂ -vis the sofa. Theoretically, workers on a batch production line also take more time to learn how to build a specific style, whereas \'assembly line\' workers can get \'into a rhythm\' more quickly.
I come across this recent article dated 1 Apr 2009 in Chinese in which a Cheers franchisee talks about her Cheers shop. I picked up 2 key messages: 1. In response to the economic crisis, the sales have moved towards mass market and the sales figures are good. 2. Man Wah put a lot of emphasis on staff training. There is a nationwide structured training program for sales staff - 1 week of traning every 3 months! For those of you who can read Chinese, here is the link (clicking it doesn\'t work, but copying and pasting it in address bar does):
www.chinairn.com/doc/70320/405939.html#
Hi scbchan, My reply to your answers; 1)Man Wah main sofa seller is the inclining sofa. That is the reason why they are doing so well in the past. But the inclining sofa is a niche market and the market size is definately smaller than the traditional sofa. I asked friends who came back from America and they told me the economic is like shi*t. Shops are closing down and people are going out of jobs. There are hundred of thousands of empty houses and apartments. I told them that the media is reporting positive turnaround and they laughed. Hence, believe in what you are seeing on TV at your own rish. The inclining sofa caters to the middle class. This is the sector that probably get hit the most in this recession. Think about this, the middle class gets battered, the really rich will not buy CHEERS sofa while the mass market will not upgrade. I believe Man Wah has been fortunate to squeeze out whatever sales they have in the past quarters. In the coming 2-3 quarters, their results will show that the US economy hits all businesses. They are not excluded. 2) I disagreed that wage increased can be planned. The government regulation of minimum wage has not been thorough felt until this past quarter. That was the feedback from Cacola\'s briefing last time. 4) Is Man Wah the lowest cost producer in sofa? I certainly don\'t think so. Do they have the largest retail network? I also don\'t think so. Then what is their strongest competitive strenght? 5) I am not sure about their utilisation rate or their bank facilities. I can only take it at face value that you are right. Moving forward, my concern is that their US customers will stretch the receivable days and this will severely affected their cash flow and increase their need for larger working capital. Hence, they will need to cut dividend and curb expansion plans to facilitate the cash flow. I am advocating a shift into sectors which will benefit from government stimulus package... Consumer sentiment has already been affected by the economic downturn. I seriously doubt it will return to its previous level so soon. :S :S
Sound bad hah. Still waiting for share buy back...when will that happen? Many S-chip coy proposed Share buy back but never take any actions. Hope MW is not going to be one of them!
Land of Leather in administration Consumers are spending less because of the economic downturn Retailer Land of Leather has called in administrators after attempts to sell the firm and raise extra money failed. The company said it had made every effort to cut costs but that market conditions remained tough and January sales had been \"very disappointing\". Talks with potential bidders ended in December after it said the offers gave \"insufficient value\" for shareholders. Land of Leather - which employs 850 people -issued three profit warnings in 2008 as sales slumped. The Kent-based firm said it had appointed Lee Manning and Nick Edwards of Deloitte as joint administrators. Customer protection \"The administrators are working closely with the management to protect the interests of customers who have paid deposits on furniture orders.\" \"We have taken a number of steps both to protect customers and to inform them of how the administration affects their circumstances.\" All those who either paid a deposit by credit card or Visa debit card, or who have paid a deposit by any means since 26 December are fully protected, said Deloitte. Meanwhile customers who paid a deposit by cash or by a non-Visa debit card before 26 December will be offered a discount on other stock if their original order cannot be fulfilled. \"However, it is the objective of the administrators to sell the business as a going concern and have all deposits honoured\", added Deloitte. Stores are open for business as usual, but Deloitte is urging customers who have paid deposits to use the sales hotline, email enquiry address and website, rather than to visit the stores, unless they aim to pay the balance on goods ready for delivery. Consumers have been cutting their spending as a result of the economic slowdown, hitting sales of items such furniture. Last week rival Sofa Workshop said it had started steps to appoint administrators. Land of Leather has 109 stores in the UK and the Republic of Ireland
