HBS case study 2: Arborite

Source: http://www.arborite.com/en

HPL Market in Canada

The sales of High- pressure laminates (HPL) in Canada went up 38.78 percent from 60 millions of square feet (mmSF) in 1982 to 98 mmSF in 1987 (Exhibit 2 in case). However, the percentage HPL made in Canada decreased 17 percent that is equal to the percentage HPL imported from US. Obviously, most customers start to buy HPL made from US even though the average price of US imports is 1.1 dollars per square foot, 0.13 dollar more than the price of Canadian-made.

Suggestion: Arborite can set up factories in US or transfer all the production to Toronto. The price of HPL made from US is higher than Canadian- made and the sales of HPL made from US raised 17 percent. Arborite can analyze the costs manufacturing HPL in US including shipping, manufacturing and a 4.8 percent tariff. Another alterative is transferring all the production to Toronto because the cost in Toronto is 23.3 percent lower than that in Montreal.

Transportation

Source: http://www.freeiconsweb.com/Vista_Style_Transport_Icon_Set.html

Profit

Arborite manufactured HPL at two Canadian factories and the average cost is 62.2 cents per square foot. In 1986, 96 millions of square feet sold in Canada and the average price is 97 cents. Moreover, Arborite dominated 34 percent Canadian HPL market. As a result, the profit of Arborite in 1986 is 11,3558,720 dollars. We can forecast the demand in Canada will increase because the sales increase in every year since 1982.

Suggestion: Arborite can reduce the cost or increase the market share. The demand usually comes from OEM and independent distributors. Arborite should build good relationship with OEM and independent distributors.

OEM Cooperation Process

Source: http://www.gootchrc.com/service/oem.html

Substitutes

The substitutes of HPL include LPL, Vinyl, Veneer, Paper and Foil. Architects and designers can choose different materials instead of HPL according to different function. 1175 millions of square feet paper was used in custom-designed interiors for offices but HPL only used 25 millions of square feet. Moreover, HPL only used 1300 millions of square feet, less than Paper, Vinyl and Veneer.

Suggestion: HPL was used less in custom-designed interiors for offices so company can develop and design HPL products using in this area. Furthermore, the price of LPL is only half of the price of HPL. Although LPL is more vulnerable to wear and not practical for countertops, LPL still will be used to reduce the cost. Arborite can also consider entering LPL market or not. 

Competitors

Buyers rank the leading HPL manufacturers including Arborite, Formica and WilsonArt in product performance, appearance, availability and service support, Arborite got the lowest ranking in all criteria. Moreover, distributors and dealers preferred to develop long-standing relationship  with manufacturers that provided extra service and support. OEM chose manufacturers with the speed of delivery.

Suggestion: Arborite should invest in a company-owned fleet of truck instead of contract carrier so the deliver time can be controlled in 2-3 days or 3-4 weeks. In addition, Arborite should reinforce the customer service to provide more support.

Costs

The cost of Arborite is 5 cents per square foot more than Formica and the cost of paper treating accounts for 3.3 cents. During the paper treating, cover paper purchasing costs more 2.6 cents than Formica.

Suggestion: Because volume discounts up to 50 percent on cover paper were available, Arbotite should try to negotiate the price to reduce the costs.