Home Décor Industry Overview

Textiles are primarily used for three industries: apparel, home furnishings, and industrial uses. Home
furnishings includes sheets, towels, carpets, curtains and related products (Abernathy, Volpe, and
Weil, 2004). It is around this specific market that this literature review focuses.

The U.S. home décor retail market (which includes furniture and appliances as well as textiles) is
currently worth an estimated $18 billion, with growth rates approaching 20% annually (DeGross,
2006). The industry is becoming increasing fragmented, with multi-channel retailers carrying home
décor and furniture. Even big box discount retailers such as WalMart and Target are getting in on the
trend by carrying home décor lines produced and designed by well-known designers like Christopher
Lowell and Cynthia Rowley (Heller, 2006).

The home décor textile industry is dominated by large suppliers who are currently undergoing a
major downward shift in sales. In 2006, the top 15 home fashions suppliers (Springs Global,
WestPointHome, Mohawk Home, Pacific Coast Feather, Sleep Innovations, Hollander Home
Fashions, Shaw Living, Welspun, Maples Rugs, Franco Manufacturing, Croscill, CHF Corporation,
American Pacific, Dan River, and Lousville Bedding,) saw a decrease of overall sales by 4.8% (to $6.9
billion), a drop of $351 million from 2005. This is an overall drop of 17.3% since the high-water mark
of $8.4 billion in 2000. These numbers are part of a steady six-year decline trend for the major
suppliers, and overall their sales have barely moved since 1996. Figure 2.1 below shows this steady
decline. Companies that are doing well are smaller mid-sized companies (like Hollander) (Hogsett,
2007).

Literature review

Krishnamurty’s study (1964) was aggregative and dealt with inventories in the private sector of the
Indian economy as a whole for the period 1948-61. This study used sales to represent demand for
the product and suggest the importance of accelerator. Short-term rate of interest had also been
found to be significant.

Sastry’s study (1996) was a cross-section analysis of total inventories of companies across several
heterogenous industries for the period 1955-60 using balance sheet data of public limited
companies in the private sector. The study brought out the importance of accelerator represented
by change in sales. It also showed negative influence of fixed investment on inventory investment.

Bansal G.D., in his study on Material Management, A Case Study of Bharat Heavy Electrical Limited,
Bhopal unit, (BHEL)’, has evaluated the existing systems of inventory management. He emphasized
the need for automatic replenishment system in the undertaking. He also studied the application of
ABC analysis and EOQ technique of inventory control. He also pointed out the accumulation of
surplus stores and non-moving items in the organization. He recommended that the surplus and
obsolete stores, which are no longer required, should be disposed off as early as possible at the best
available price. Further, he has suggested the preparation of monthly classwise statements on
inventories for effective control over them. And he suggested the introduction of reconciliation of
stores’ ledgers with account ledgers to avoid misappropriation of stores. The study also revealed
that raw material, components and stores, and spares for production and operation are above their
actual consumption level.

Rama Krishna Rao B., in his thesis ‘Materials Management in Heavy Engineering Industry’ pinpointed
the excess inventory in terms of number of months cost of production in all the engineering units.
He also highlighted some of the problems in the area of materials management such as delay on the
part of customers in supplying their own materials, existence and disposal of surplus and non-
moving items, excessive lead time and excessive dependence on imports. He also found that the
administrative and procurement lead times of the company are on the higher side due to the
peculiar nature of the industry. He suggested the liberalized purchase procedures, increasing
financial powers to the personnel, opening up of liaison offices in various countries to reduce the
lead-time.

As per the study on “E-commerce and Inventory Management” by Rell Snyder of National University
at Costa Mesa and Basel Hamdan of Argosy University in 2009, online retailers have to account for
stock outs and act accordingly to not to lose sales or customers. Large retailers with an online and
physical presence have the flexibility to serve customers better than smaller retailers.

As per the study carried out by Daewon Sun on Inventory Management in e-business he talks about
an EOQ approach with compensation policy to manage the inventory for e-commerce business to
find can the stockless policy be an optimal inventory policy for an online retailer.

As per the study conducted by Susan L. Golicic, Donna F. Davis, Teresa M. McCarthy and John T.
Mentzer of The University of Tennessee, Knoxville, Tennessee, USA in 2001 to understand “The
impact of e-commerce on supply chain relationships” - The e-commerce environment was perceived
as highly uncertain, stemming from increased information visibility and dynamic market structures.
A stronger emphasis on relationship management as part of business strategy enables managers to
manage uncertainty better.

The objective of virtually all inventory control models is to minimize costs (Rinnooy Kan & Zipkin
1993). The earliest models can be traced to Harris (1915) who studied the basic tradeoffs that need
to be made when making inventory control decisions. In this work, he derived the first economic
order quantity (EOQ) model. Beginning in the 1950s, important scholars undertook more advanced
analyses of various inventory problems and developed simple mathematical inventory models.
Bellman, Glicksberg and Gross (1955) discussed how methods of dynamic programming could be
used to obtain structural results for a simple version of the periodic review stochastic demand
problem of a single product. Single product models dominate the literature and are most frequently
used in practice (Rinnooy Kan & Zipkin 1993)

Eppen (1979) analytically demonstrated that centralization can reduce both inventory holding and
penalty costs in a system. Without sophisticated systems, implementing aggregation methods was
complicated. Ballou (1981) provided a simple regression technique to estimate aggregate inventory
levels at multiple locations, balancing complex costs and service level requirements.

Choosing the most adequate inventory management model is essentially an empirically-based

decision that may involve the use of simulation, scenario analysis, incremental cost analyses (Silva
2009; Rosa et al. 2010; Rego and Mesquita, 2011; Wanke 2011b) or qualitative conceptual schemes
also known as classification approaches (Huiskonen 2001). The latter usually considers that the
impact of product, operation and demand characteristics constitute intervening variables in this
choice (see, for example, Williams 1984; Hax and Candea 1984; Dekker, Kleijn, and De Rooij 1998;
Botter and Fortuin 2000; Braglia, Grassi, and Montanari 2004; Eaves and Kingsman 2004; Wanke
2011b). An analysis of the literature dealing with inventory management model selection shows that
it originally focused on production and distribution environments in which demand and lead time
tend to be more predictable or, in other words, in which it is easier to answer the questions of
“what” and “how much” to order (Wanke and Saliby, 2009; Wanke 2011b; Rosa et al. 2010).
However, there is a growing literature related to the specific problems raised by low and very low
consumption items such as spare parts (Botter and Fortuin 2000; Silva, 2009; Rego and Mesquita
2011; Syntetos et al. 2012).

The intrinsic characteristics of spare parts, which are typically low and very low consumption items,
make the choice of inventory management models particularly critical under the following
circumstances (Cohen and Lee 1990; Cohen, Zheng, and Agrawal 1997; Muckstadt 2004; Kumar
2005; Rego 2006): low stock turnover, difficult predictability, longer replenishment times, greater
service level demands and higher acquisition costs.

Therefore, these special features of spare parts determine the selection of appropriate inventory
management models. According to Botter and Fortuin (2000), there is a consensus that spare parts
cannot be managed using traditional models (see, for example, those presented in Rosa et al. 2010).
Basically, spare parts do not fit these models’ main premises such as, for example, the adherence of
demand to symmetric and continuous probability density functions (Silva 2009).