Heartland Furniture Company: Adapting to Change: The Student Case Competition Is Sponsored Annually by IMA to Promote Sound Financial/ Accounting Analysis and Presentation Skills

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Heartland Furniture Company (1) has been headquartered in Heartland, Ind., for the past 100 years. The company was founded in 1900 by Joseph Muller, and since then it has expanded from a wood shop that produced household furniture for the local agricultural community to a publicly owned corporation with three U.S. manufacturing locations and 1,700 employees. The Muller family still controls a majority of the company's stock, and the company has been headed by a family member since it was founded. Craig Muller has been Heartland's chairman and chief executive officer since his uncle retired four years ago. (See Sidebar 1 for a summary of the key corporate personnel.)

Heartland prides itself on using only U.S. labor and materials in creating its high-quality case goods. The product lines focus on living room and dining room furniture and include a limited bedroom line. The company recently added home and executive office furniture to its product offerings. The products are manufactured in Heartland's three production facilities located in Dairy, Wis.; Treetop, N.C.; and Heartland, Ind. Each plant employs approximately 500 individuals. Wage rates range from $8.50 to $17.00 an hour plus benefits, including health and retirement contributions, with the highest at the Treetop plant and lowest at Heartland, reflecting differences in the skill levels of the employees. At each plant there's a high level of cooperation among the employees, many of whom are related to each other. The plants promote from within, and the employees are encouraged to improve their job skills by applying for open positions in different production areas. (See Sidebar 2 for additional information about the three production facilities.)

Each plant is headed by a plant manager. Other office personnel located at each plant include the managers of human resources, quality control, purchasing, shipping, and plant accounting. All sales, marketing, and financial accounting functions are consolidated at the corporate headquarters located in Heartland, Ind.

Dairy, Treetop, and Heartland are small communities, situated in rural locations, and each town has a population of approximately 15,000. In each town, Heartland Furniture is the largest employer; the second largest employer is the public school system. Heartland provides the major tax base in each of the three communities and pays approximately $150,000 annually in real-estate and personal-property taxes to each local government. Joseph Muller firmly believed that Heartland should have a positive impact on its communities. He instilled this in the corporate culture, and, over the past 100 years, Heartland has contributed to various charities in the three towns. During the past 10 years, Heartland has contributed $100,000 annually to each location's charities and schools.

During the past five years, Heartland's management team has become increasingly concerned about the company's profitability and about changes in the furniture industry. Heartland has never imported any part of its product line. Its sole reliance on U.S.-manufactured product (5) has resulted in higher average product costs than those incurred by competitors that now outsource and import at least part of their product lines. Heartland's management team recently went on a corporate retreat to Sun Place, U.S.A., to discuss the problems facing the company.

CONVERSATION AT THE CORPORATE RETREAT

James Unger, Heartland's vice president of manufacturing and design, noted that Furniture Today reported that during 2002 the $23.8 billion U.S. furniture industry imported $14.192 billion in furniture to the U.S. Of this total, $5.714 billion was imported from China. These numbers indicate that the U.S. furniture industry annually imports 60% of its sales.

John Michael, a great-grandson of founder Joseph Muller and Heartland's vice president of marketing and sales, noted that the increasing number of imports is significantly reducing the wholesale price of Heartland's major product lines. …