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 J.H. Reid – Operations Plan

J. H. Reid Corporation seeks to have a world class manufacturing operation in an inner-city environment. To JHR, “world class manufacturing” means very high quality, cutting edge practices, culture of safety, with competitive cost structures, employee involvement, innovation, and high profitability. JHR will have a world class operation — from a product designed that incorporates simplicity and a consistent product platform (The interchangeable upholstery system), to synchronous manufacturing with an emphasis on throughput, cellular manufacturing, and in-process inspections, and further includes a corporate culture that emphasizes servant leadership, high standards, and opportunities for growth.

The manufacturing of the Chicago Lounge™ chair will be developed in three stages. In Stage I, JHR will be capable of manufacturing 100 chairs per month and will require a minimum capital investment. In Stage II, the facilities will expand to a capacity of 1000 per month and which requires the leasing of 3,000 square feet of factory and office space. Stage III involves the vertical integration of the millwork and upholstery operations into the final factory floor plan at a volume of 10,000 per month.

Manufacture of the Chicago Lounge™ chair can be divided into four major sections: 1) the milling of the wood frame component parts; 2) the fabrication of the foam cushion and lumbar support; 3) the cuffing and sewing of the cushion cover; and 4) the staining, finishing and final assembly of these components. By dividing the chair into sub-assemblies, the company will be able to source these chair components from existing wood furniture component shops, sewing contractors, and foam fabricators in Stages I and II, and then integrate the sub-assembly components into the plant during Stage III.

The Labor and materials used in the manufacturing of the chair are detailed in Attachment 1 along with the initial costs for each item. Material costs for each of the three stages will be different based on volume discounts and differences associated with outsourcing of the wood frame components in Stage II. In Stage III, insourcing of the frame components and the upholstery cover into the final plant will have a further impact on costs. For environmental considerations, we have selected water-based stains and lacquer finishes. Since all the raw materials used are commodity items, there is little supplier power that can be leveraged against our company.

Stage I

Initial development of the chair design and the manufacture of several prototypes were performed in a small shop at the designer’s home located in Chicago. This facility with another immediately usable building (that has been offered for use at no charge to JHR) is capable of manufacturing the frame component parts, frame assembly, staining and lacquering the frames, insertion of the foam into the upholstery covers, final assembly of the chairs, and packaging — at a volume of 100 units per month. JHR presently has all the equipment necessary to do this work. Some of the equipment, such as a sophisticated HVLP spray system is suitable for use at much higher volumes.

Due to the small size of this facility, the chairs will need to be manufactured in batch quantities. This method of operation reduces set up time and shop interference, but requires additional quality control methods to insure that the parts will assemble correctly during the subsequent operations. This method of manufacture also increases the need for component storage space for Work In Process inventories (WIP) since the sub-components of 20 chairs will accumulate before the first chair is assembled. A flow diagram is provided in Attachment 3 detailing the manufacturing process that will be utilized.

A key advantage of having this stage is the ability to get samples to stores, and meet some very early production needs with very little capital expenditure.

Stage II

During Stage II, milling of the wood frame pieces will be out-sourced to one or more milling companies specializing in wood components. There are a number of potential companies in the Midwest listed in trade publications such as Furniture Design and Manufacturing. Wood parts companies have the capacity to produce wood components quite inexpensively because they have computer driven (CNC) routers and shapers that can perform many operations on a wood component without moving it, and do it in a highly precision manner. This operations structure is in accordance with our initial strategy of minimizing capital investment, since Stage II volumes would require additional capital expenditures to manufacture frame components.

To minimize work in process (WIP) inventories, we have decided to purchase the wood frame as component parts, and then finish and assemble them at our plant. Purchasing unfinished component parts reduces the total frame inventories needed to meet the demand of the various models and wood types offered. This is because many parts are interchangeable between models. The same logic is also being applied to purchasing the cushions and the upholstery covers as separate items.

The plant facilities will consist of a manufacturing area, a warehouse facility, 4 small offices, and two truck dock wells. Based on a maximum capacity of 1000 chairs per month, it is estimated that a minimum 3,000 square feet of plant and office space will be required, as detailed in Attachment 3. The plant will consist of two assembly lines for chair frame assembly and staining, two assembly lines for installing cushions into the upholstery cover, a spray booth area for the application of lacquer, a drying area, and a final area for assembling the component parts and packaging the finished goods. In addition to the required manufacturing space, office space will be provided for the Plant Manager and the support staff as well as a meeting room which will double as a lunchroom.

We have identified potential plant locations in Harvey and Markham Illinois. These cities are South suburbs just outside of Chicago, and though not technically “inner city”, are certainly economically depressed, and offer the advantage of having a lot of available potential plant space which is fairly modern. The shopping mall destroyed in the chase scene of the Blues Brothers movie was in Harvey and near a currently preferred location. Though the mall has been vacant ever since the movie was made, the location is fairly safe and well traveled. The Mayor of Harvey has shown a desire to bring businesses into the community, and the building sought is in good shape. The Alderman of the particular part of Harvey that the property is in is known to Mr. Albecker, and would probably be quite supportive of an effort to set up a light industrial plant in the space. Additionally the Harvey Director of Planning has been contacted. It is expected that the building could be obtained for a very low dollar, and have Tax Incremental Financing as part of the deal. Other buildings nearby buildings. The proposed plant site is close to such major highways as I-57, I-294, and I-80, which is convenient for shipping and receiving purposes. The proposed sites are situated near the other businesses, a bus stop, and busy streets, but it is also close to where people need profitable employment — which supports our company mission to employ people from the inner city. It is also only a few blocks from where Mr. Albecker presently works.

The major costs for our product will be the materials supplied from our cushion supplier, our upholsterer, and our wood component suppliers. By subcontracting this work, we have traded a low cost material supply position for a low capital investment position. As stated earlier our basic strategy will be to utilize the higher cost material until market acceptance has been proven, then evaluate vertical integration of the component part manufacture based on economics of return.

Stage III

Stage III is predicated on the successful introduction and sales of the Chicago Lounge™ into the marketplace. Stage III integrates the wood frame components and the upholstery manufacture into the plant. In addition to this vertical integration the plan includes expanding the factory facilities and associated work force to grow to an ultimate volume of 120,000 chairs annually. Factory floor space will grow to 10,000 square feet with three distinct departments, millwork, upholstery cuffing and sewing, and the original assembly station expanded for volume requirements. Labor will increase to 60 hourly employees, and a salaried staff of 5 people. Further details of the Stage III plan is too speculative at this time to warrant further details. Cost estimates are provided in the financial plan for this potential expansion, should it occur.

J.H. Reid Corporation
Table of Contents Appendices
1. Executive Summary
2. Business Overview
3. Marketing Plan
4. Risks
5. Operations Plan
6. Management
7. Financial Plan
8. Offering
Cost of Manufacturing
United States Patent
Manufacturing Process
Income Statement
Cash Flow Statement
Balance Sheet
Break Even Point
All information herein is confidential and belongs to J.H. Reid Corporation

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