SCHIAVELLO A CASE STUDY IN FURNITURE DESIGN

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1 SCHIAVELLO A CASE STUDY IN FURNITURE DESIGN Schiavello is Australia s leading commercial furniture designer and manufacturer. The company was established in 1966 with two brothers making office partitions in the family garage. Now, Schiavello generates annual sales of $250 million and employs 1,100 people (primarily in Australia), including ten in-house designers who are employed on a full-time basis and are responsible for both concept development and transforming these concept designs into manufacturable products. The company has offices - or a presence - in all Australian States except Tasmania, and in eight countries (Japan, Singapore, New Zealand, South Africa, United Arab Emirates, Hong Kong, Bahrain and Kuwait). Although the business was founded on designing and manufacturing office furnishings, it has broadened its operations to include consulting and office technology solutions, as well as residential furniture design. Schiavello s revenues are generated locally (30% in Victoria and 50% across the other States) and overseas (20%). Moving forward, Schiavello has identified the export market, and domestic furniture in the local market, as its major growth opportunities. Like many manufacturers in Australia, Schiavello is unable to compete on price alone with overseas-based manufacturers and is using design as a key differentiator. Two factors are required to compete successfully using design as the core value-add. The first is to clearly identify and understand the needs of the target market and the second is to engage the best designers to create products that meet those needs. Schiavello has set the Australian standard in both areas, with 50% of revenue coming from repeat business and a stable of internationally recognised designers engaged for Schiavello projects. Since its inception, Schiavello has worked hard to satisfy individual customers unique requirements. The target clients are local and international companies that understand and appreciate the importance of a well-designed office. Its clients include Telstra, National Australia Bank, Centrelink and PriceWaterhouseCoopers, NTT and Hewlett Packard in Japan, and Microsoft in Seattle. Over the past 10 years, Schiavello has cemented itself as a key furniture supplier to the World Bank s headquarters in Washington. For these clients, Schiavello develops products for today's work environments, using designs that also anticipate and meet future requirements. 1 Schiavello s products are tailored to the clients workplace, industry, culture or project at hand. 2

2 Tailored Design Solutions A prime example is Schiavello s involvement in coming up with a tailored solution for Woodside, a leading Australian resources company. Woodside appointed a consortium comprising Schiavello and an interior design consulting practice to develop, design and manufacture office furniture for its Western Australia head office. The original specifications included the need for a furniture design that could be altered easily by the client, enabling it to change the office layout. To ensure delivery to the needs and expectations of the client, Schiavello developed a dedicated team of experts. The consortium had a dedicated project team of interior and industrial designers as well as engineers. Over a period of several months, this consortium worked with the client, their designers and the facilities management team to identify the specific requirements. The results of this collaboration between client and consortium have been praised by Woodside. The consortium successfully redesigned part of Schiavello s office furniture range to meet Woodside s requirement for easy adjustment and flexibility to redesign the office layout in the future. Schiavello is also recognised for its ability to tailor solutions to the needs of international clients. For example, the length of commercial leases makes a significant impact on the price point of the solution created. In London, as lease terms are often years, Schiavello s clients tend to spend generously on good quality fit-outs. In contrast, leases in Asia are rarely longer than three years, so the market is more oriented to disposability and lower pricing. Schiavello ensures its products meet these regionalised requirements. Collaborations in design In recent years, design innovations have been generated in partnership with specialist non-schiavello employed designers, engaged to design specific products for target markets. For example, a medium term objective for Schiavello is entry into the residential furniture market. As it has little experience in this area, Schiavello has undertaken a 50% joint venture with international designer Joseph Licciardi. The joint venture, Om Vivo, is developing Australian-designed products for the international residential market. Set up in September 2002, the company has five staff working from Schiavello s production facility at Tullamarine. Licciardi is charged with developing the brand and product direction, leveraging international contacts and engaging designers to develop the products. Complementing this design expertise, Schiavello provides the disciplined financial, management and manufacturing experience attained over 40 years. Other examples of work conducted with non-schiavello employed designers include partnering with Geyer Design on a new workstation system; Stephen Blaeass on a range of plastic moulded pieces; and Korban and Flaubert on a range of occasional meeting pieces. They have also engaged an international designer to create a new office chair. In all these instances, Schiavello was able to bring its understanding of client needs, business and manufacturing processes and combine these with the aesthetics and functionality developed by the design experts to create marketable products.

3 In an industry that is highly fragmented, with declining local market share, Schiavello is a symbol of the new breed of manufacturers one that invests heavily in superior design and customisation. The Australian Furniture Industry The Australian Furniture Industry represents 3.5% of Australia s manufacturing base, with annual turnover of $7.7 billion. 3 Domestic output is forecast to grow at 0.5% per year over the short- to medium-term. 4 Over recent years, imports have been steadily capturing a larger share of the furniture market. This increase in import activity has placed pressure on local furniture designers and manufacturers in the domestic and commercial segments. Exhibit 1: Estimated Australian Manufacturers Share of Retail Furniture Market 75 Estimated Australian Manufacturers Share of Retail Furniture Market 1 Market Share Financial Year 1 Source: Furnishing Industry Trends Statstrend Services, 2002 The Furniture Production Value Chain The supply side of the Australian furniture industry comprises: designers, manufacturers, and retailers/primary customers. The demand side comprises consumers. Exhibit 2: The Furniture Production Value Chain The Furniture Production Value Chain Concept Development Model and Craft Manufacture Marketing/ Distribution Sales Repair and Restoration Furniture Designers Value proposition Product architecture Attributes Functionality Look and feel Furniture Manufacturers Retailers / Primary Customers Build to Marketing and promotion specifications Sales Input sourcing After sales service Input transformation Rendering e.g. Peter Sands, Schiavello e.g. Steinhoff Group, Schiavello e.g. Freedom, Ikea, Schiavello, Lend Lease

4 1. Designers Designers are responsible for conceiving and crafting product architecture. While the design process is not consistent across all firms, furniture design is generally conducted as an iterative process: Definition of purpose Formulation and articulation of product architecture Who is the product for? Demographic Lifestyle Motivation and aspirations Needs and preferences (value parameters) Limitations What are the design constraints? Type, quantity, and availability of materials Expertise, quantity and availability of labour Production process complexity Delivery time Do some constraints need to be alleviated? How can the product best suit the target customer subject to any organisational constraints? Functionality Look and feel Value Product Design Australian furniture designers operate in a highly competitive and crowded market. Because set up costs for designers are small, the barriers to entry in this market are low. This domestic competition is intensified by the strong competition from international players. European designers, in particular, have forged a strong brand in the market, based on their reputation for style and quality. The source of greatest competition from overseas is Italy, which is the largest importer by volume. 5 More recently, Australian designers have also had to contend with the lower cost, lower priced products imported from Asia, in particular from Malaysia and China Manufacturers Manufacturing firms are responsible for sourcing and transforming material to produce furniture according to design specifications. 7 Historically, designers have dictated these specifications. However, increasingly retailers are having a greater influence in the product architecture. Manufacturing output is divided between domestic (residential furnishings) and commercial (office furnishings and hospitality). Domestic products represent almost two thirds of the total output. 8 In the past, manufacturers have sold products to consumers on the back of strong brands. However, retailers increasingly demand that products be white branded (where the brand of the manufacturer is hidden from the customer), relying on the retailer s own brand to move the stock and display brand virtues. For commercial manufacturers the issue is a different one. Rather than fighting for a share of the consumer s interest, commercial producers have to focus on price and costs to compete with cheaper imports.

5 Australian furniture manufacturers are typically small organisations employing fewer than 10 employees. The Australian Furnishing Industry Association estimates that there are 15,000 furniture design and manufacturing firms, employing 66,000 people. Australian manufacturers like their overseas counterparts - typically experience high levels of fixed cost (associated with plant and equipment) and low margins. Because the market is fragmented, plant and equipment is often under-utilised. In addition, the average lead-time (the length of time between order placement and fulfilment) is 6-8 weeks, well below the best performers in the market. 9 Best practice manufacturers have implemented work cells and constraint management techniques to optimise output and reduce lead-time. 3. Retailers/Primary Customers In the domestic and low volume commercial sectors, retailers are the primary marketing and sales vehicles. Post-sale, retailers offer customer service and are intermediaries in the repair and restoration process. For medium to large volume commercial projects, the primary customers are more typically building owners, rather than retailers. The Australian retail furniture market has become increasingly concentrated in recent years, with a number of large retailers and franchises (e.g. Ikea, Freedom, Harvey Norman) consolidating of the market. As a consequence, retailer power has increased, affording retailers more control over sourcing arrangements and product specifications. For large volume commercial projects, the primary customer is often the specifier (such as architects, builders or project managers) or building owners/lessees who are responsible for fitting out buildings and offices. Armed with the choice of local and imported products, these purchasers exert significant influence on the sector. Like retailers in the domestic market, the primary purchasers are able to exercise significant control over sourcing arrangements and product specifications. 4. Consumers On the demand side of the industry, market research suggests that customer value is made up of seven components: 10 Price Product Quality Critical Value Parameters Design (look and feel) Range Flexibility and customizability Service Secondary Value Parameters Brand Customer Value

6 Price, Product Quality and Design have been identified as consumers primary value drivers, helping to explain the increased market share captured by fashionably designed, affordable, high quality imports. Note: This case study is based on material provided by Booz Allen Hamilton and dandolopartners in October Whilst all reasonable care has been taken in the preparation of this material neither the Department of Innovation, Industry and Regional Development nor the State of Victoria warrants the accuracy of the information contained therein. Persons seeking to rely on this material should make their own enquiries. 1 Schiavello website 2 IBID 3 Source: PricewaterhouseCoopers The Australian Furnishing Industry, Source: CSIL Milano, Furniture Industry Research, Source: The Furniture Industry in Australia and New Zealand CSIL Milano Furniture Industry Research, IBID 7 The major inputs into furniture manufacture are timber, metals (e.g. steel, copper, aluminum) and fabrics PricewaterhouseCoopers, Source: Furniture Industry Association of Australia 9 Source: ISW Online internet portal for the U.S woodworking industry 10 Adapted from Furnishing Industry Trends Statstrend Services, 2002