Montgomery Industry Inc.

BUSINESS PLAN
NICOLAS RODRIGUEZ, BRIAN HOAN, MIKE LAMBROU, ZUBER
AHMED, BILAAL ZAIDI, ALLAN WU`

Montgomery Industry Inc.

Contents
Executive Summary............................................................................................. 2
Market Research.................................................................................................. 3
Product................................................................................................................. 3
Economics............................................................................................................ 3
Change in technology:.......................................................................................... 4
Change in government regulations:.....................................................................4
Change in economy:............................................................................................. 4
Change in industry:.............................................................................................. 4
Customers............................................................................................................ 4
Competition.......................................................................................................... 5
Niche.................................................................................................................... 6
Strategy............................................................................................................... 6
Location of company............................................................................................ 6
Product Development......................................................................................... 7
Preliminary Comparison....................................................................................... 7
Wood Burning Furnaces........................................................................................ 7
Natural Gas Furnaces........................................................................................... 7
Renewable Product Development........................................................................8
Electric Furnaces.................................................................................................. 8
Manufacturing and Facility Maintenance.......................................................10
Lean Manufacturing........................................................................................... 10
Flexible Manufacturing Systems (FMS)...............................................................10
Facility Maintenance........................................................................................... 11
Financial and Human Resources.....................................................................13
Finance............................................................................................................... 13
Human Resources.............................................................................................. 14
Economic and Political Environment..............................................................15
Political Environment.......................................................................................... 15
Economic Environment...................................................................................... 15
References.......................................................................................................... 17

Montgomery Industry Inc.

Executive Summary

Montgomery Industry Inc. is a company who manufactures quality domestic made

residential grade furnaces. The types of furnaces that Montgomery Industry Inc. produces
belong in to main categories from wood burned boilers and natural gas furnaces. Emphasis
is placed on high-efficient products driven by current public opinions about environmental
concerns and government incentives to produce energy efficient appliances.
Montgomery Industry Inc. is a reputable manufacture of residential furnaces who has a
respectable history of worker and employer relations. The majority of revenue generation,
60%, would be from the sales of wood burned boiler furnaces but with a narrow profit margin
on these furnaces and a dying segment in North America due to the EPA regulation wood
burning boilers furnaces. A smaller revenue generation channel is from the sales of natural
gas furnaces. However, the chance for growth for natural gas furnaces is much larger due to
plentiful reverses of natural gas and efficiently of natural gas furnaces due to their ability to
have ability to be automatically adjusted depending on the heating need of the house. But
due to s strong competition from big brand-name companies and Asian based competitors it
would require Montgomery Industry to improve natural gas furnaces efficient to meet and
exceed current standards. Montgomery Industry will aim to target these markets:

The market for wood burned boilers targets rural areas.

The market for upgrading to natural gas furnaces for rural areas.
Market for natural gas furnaces target spreading into major metro cities in such as
the GTA

Montgomery Industry Inc. competes in a highly competitive market from a varying range of
competitors ranging from low to high end. A strong understanding of a customers needs
and wants combined with a variety of promotional strategies, such as door salesmen, and
advertisement about unique traits about our product will help widen our market scope.
The purpose of this business plan is to help grow Montgomery industry in the nest 5 to 10
years. In doing so we will analysis the aspects of the current market, possibilities for product
development, re-evaluation of manufacturing and facility maintenance, analyzing financial
and human resources and understanding the economic and political environment that the
company will be function in.

Montgomery Industry Inc.

Market Research

Product
Montgomery Industry Inc. is mainly a supplier of residential furnaces. These furnaces come
one of two types; wood burned boilers and natural gas furnaces. The wood burned boilers
account for 60% of the sales for the company.

Wood burned boilers:

Cheaper way to produce heat in residential areas.

Uses wood as main source of heat.
Old school style of keeping houses warm.
Better for rural areas due to further out places where gas lines are not built.
Can manually control the amount of heat in house without electricity.

Natural gas furnaces:

Uses natural gas from the gas line as a source of heat.

Abundance in natural gas.
In urban and suburban areas, natural gas lines are typically already instilled in the
housing frame.
Automatic heating of house without needing to continuously monitor

Economics
Size of the market:

The market for wood burned boilers targets rural areas mostly.
Locations for wood burned boilers.
o Northern Ontario
o Manitoba
o Saskatchewan
o Minnesota
o Michigan
o Wisconsin
Market for natural gas furnaces target spreads to major metro cities in North America
Natural gas furnaces have 80% of sales generated from GTA.

Demand in target market:

The demand in the market is relatively high considering new houses and industries
are always being built. The main function of a furnace is to generate heat inside the
house, building, factory, etc. With the housing market on a rise in Ontario and
especially in GTA and surrounding suburban cities, the demand for furnaces will
continue to grow.
Customers and consumers will always have a need for furnaces for their working
facilities.

Trends in market:

The trends in the market are relative to the growth of residential, institutional and
industrial.
These places all need working furnaces in order to have stable facilities.
Furnaces have potential to be developed for cheaper and more efficient ways of
producing heat in the future.

Montgomery Industry Inc.

Growth potential:
This company has a lot of grown potential because the demand is always going to be
there as the demand for the housing market is constant.
As technology develops, new ways to implement boilers and furnaces into facilities
for heating will allow for more growth.

Barriers to face in this market:

Capital costs are high.

Production costs are high.
Training and skills required to operate, manufacture and produce is high.
Marketing costs are high.
Consumer and brand recognition compared with big-brand companies and low-end
quality products.
Shipping costs.

Change in technology:

If technology advances, then the wood burned boilers will start to lose profit
because that is older technology.
Natural gas furnaces will need to adjust for the newer technology.
Reformation of the manufacturing aspect will need to take place.

Change in government regulations:

Regulations in terms of furnaces will most likely be due to global warming. In which
case both wood burned boilers and the natural gas furnaces will be in jeopardy.
Wood burned boilers cause local pollution which is not as severe but still an issue.
Natural gas furnaces cause problems to the environment on a national level so they
will be heavily restricted.
If not global warming, then some kind of fire hazard and smoke regulations will be
implemented which will cause losses and recall of products.
Regulations will cause the products to be redesigned and adjusted which will cost
more for the company.

Change in economy:

If the economy starts to change and the housing markets crash again, a loss in
furnaces will occur due to the decrease on the demand of houses.
The Canadian dollar value changing in terms of U.S.A will have an effect on the
market which will cause a problem in this company for their demand.

Change in industry:

The change in industry is relative to the change in technology.

As technology changes, the industry and companies in general will need to find
different ways of producing the furnaces or boilers.

Customers
The major products of the company are directed towards residential customers and
consumers. The main market is in the rural areas of Norther Ontario, Manitoba,
Saskatchewan, Minnesota, Michigan and Wisconsin. The urban areas are major metro areas
in North America, mostly from the GTA.
Rural customers:

Montgomery Industry Inc.

Farm houses
Apartment buildings
Suburban areas
Industrial (if applicable)

Urban customers

Apartment buildings
Condos
Urban cities
Suburban areas
Institutional

Competition
The main competition for this company will be the low-end products, and the big brandname companies. The low-end products are Asian based competitors, most likely through
offshoring in a different country and being shipped to North America. The big brand-name
companies, such as Carriers, having strong high-end natural gas furnaces

Asian based competitors:

There are disadvantages of products from Asian based competitors as they are known
produce a lower grade, cheaper, product which will be more prone to break downs more
easily. This will usual offer poor customer relations from being over sea and unable to
service the furnaces onsite. As a result, in a lower likely hood of returning customers due to
their poor reputation. They will have will have every little brand recognition and spend very
little very little advertisement in attempt to improve it. But the result is that there is they
provide a low end product that is accessible to a lower end customer where the high end
companies are out of reach for them.
Advantages

Having low-end products will attract customers that dont have enough money to
afford higher-end brands.
Will have customers that are not looking for something fancy, but just to get the job
done.
Products probably for smaller residencies and not anything large scale.
Cheaper costs and labor for higher profit margin.
Repair costs will be cheap

Disadvantages

Cheaper products meaning it will break down more easily.

Less likely will have repeating customers.
Very little advertisement so very little reliability and name recognition.
Bad customer service relations.

Big brand-name companies (Ex. Carriers):

There are also many advantages and disadvantage towards big brand-name companies such
as Carriers as they do provide high end products ranging from apartments to houses. They
also have the ability to reach a wider range of customers with their strong marketing and
excellent customer relation they can provide. This will result in a high retention rate of

Montgomery Industry Inc.

current customer. But also due to their reputation they will charge you a premium for their
products and services. This will result in them targeting a more upscale custom base.
Advantages

High-end furnaces to provide heat for larger residences, as well as smaller

(Apartments and houses).
Better marketing strategies.
More reliable customers.
Products will be more reliable.
Repeating customers.
Good customer service relations

Disadvantages

Higher costs for product.

Will target higher class customers rather than middle class so they dont have the
variety throughout the entire market.
Repair and replace costs will be high

Niche
The place that this company will mainly tackle is the residential and middle class customers.
The focus of this companys products will be towards the housing markets throughout North
America and mainly Ontario. Every house or residence needs heating to keep the facilities in
proper functioning order, so the demand will always be on a constant level.

Strategy
Promotion:
There are multiple ways of promoting this product. Though it is a unique product and is
required in every housing residence, it can be promoted through media, newspapers, and
door-to-door sales reps.

Media:

Commercials on television.
Promote during the colder season because it will be a time period that customers
will need a furnace.
Online internet ads on various websites.

Newspapers:

In news articles relating to seasonal changes.

In industrial news.

Door-to-door sales reps.

Can be done by seasonal employees to promote the furnace or boilers.

In urban and suburban areas where a lot of residence live, a group of workers can
tackle neighborhoods at a time.

Montgomery Industry Inc.

Location of company
Montgomery Industry is located in southeastern Ontario which is in our target market. Being
located in Canada and an exporter to the United states means that our product is subjected
to the up and coming 2020 EPA regulations. A good way to promote the company further
would be to open up a branch further westward and eastward. The demographic we should
be directed at are urban residential customers in the GTA who desire high efficient natural
gas furnaces. This will help in our growth and transition from wood burning water boiler
toward natural gas furnaces.

Montgomery Industry Inc.

Product Development
Through thorough market analysis, product development processes and plans can be altered
to change the focus of the company and increase revenue. Product development plans will
change depending on the type of furnace production being considered. Montgomery
Industries currently produces two furnace types; natural gas and wood burning. Product
development of each are considered below.

Preliminary Comparison
Wood Burning Furnaces account for sixty percent of the companys revenue and produce a
gross profit margin of five percent. With an overall gross profit margin of eight percent, we
can determine that natural gas furnaces account for forty percent of the companys revenue
with a profit margin of twelve and half percent per unit sold. From this we can see that
natural gas furnaces are more two and a half times more profitable than the wood burning
furnaces. Average profit margins of a company this size are twelve and a half percent in
accordance to figures published by the Government of Canada. [1] This necessitates an
increase in profitability of the wood burning furnaces especially which can be achieved by a
redesign. Although focus will be on increasing the wood burning furnace profitability, efforts
to improve the natural gas product will be made to maximize potential profitability.

Wood Burning Furnaces

Wood Burning boilers are popular for those who live off grid and have a steady supply of
firewood as a fuel source. The main components of the furnace are as follow:

Firebox Large chamber where firewood is placed and burned

Heat Exchanger A large chamber surrounding the firebox where water is stored and
then circulated to the house where the heat can be transferred to the existing
heating system through radiators or existing heat exchanger systems.
Exhaust heat reclaiming system The smoke produced from the burning wood is
passed through the water jacket to reclaim heat lost during combustion.

In order to increase the profitability of the product, we must look at ways to produce a less
expensive product or increase the selling price of the wood burned boiler without incurring a
substantial cost. This is difficult as wood burned boilers are already fairly simple machines.
Any strategies that can be employed to improve the profitability of wood burning boilers can
also be employed to natural gas furnaces. These will be explored later in the report.

Natural Gas Furnaces

Natural Gas furnaces are of great value to the company as they account for the majority of
profit despite the lower sales volume. As of now the market for furnaces is trending towards
renewable energy sources, although the natural gas furnace still accounts for the majority of
new furnace sales in Canada, and as such must provide the company with enough profit to
sustain the production of a new furnace type should it be in the companys best interest. As
coal produced power is becoming less attractive to other industries, the price of natural gas
is projected to drop even further as it takes over more of coals market share. Form this we
can gauge how important natural gas furnaces will be to the companys profitability as the
operating prices drop over time.
A Natural Gas Furnace consists of the following components.

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Thermostat Temperature sensing device which sends an electrical signal to a relay

in the furnace when room temperature drops below the desired level.
Gas Burner The Burner consists of an ignition device that begins the burning of the
natural gas when the furnace is activated.
Heat Exchanger A chamber filled with moving air that surrounds the burner. When
the natural gas is combusting it heats the air in the exchanger.
Blower The blower moves the heated air from the heat exchanger through the duct
work and out into the rooms of the house.

The profitability of natural gas furnaces can be improved through strategic usage of
materials to reduce the production costs. These strategies also applicable to wood burning
boilers to the same degree. They are as follows.

Use of Composite Materials

By using different less expensive materials we can negate the effect of rising material costs
(specifically metal) and ensure the profitability does not drop. Plastic composites are
typically cheaper than metal and can be used in areas where temperatures are not of critical
concern. This primarily refers to the outer shell of the furnace or boiler.

Decreased Range of Products

Having a large range of products of the same type is not feasible for a company of this size,
and so the production energy and focus must be on the most profitable platforms. This
would include two natural gas heating systems and one wood boiler system. The natural gas
furnaces appeal to a large portion of home owners in metropolitan areas, where the majority
of the population in North America live. Having two options, one for smaller homes and one
for larger homes, ensures that the company has two competitive high quality products that
can place themselves in between the more expensive higher end models and cheaper Asian
competitors. The wood burning boiler is really only applicable to rural areas as firewood is
not a viable source of fuel in developed areas. As the market for wood boilers is continually
shrinking it is important to not allocate too many productive resources into a dying market.
Having one boiler ensures we do not alienate this source of profit all while decreasing
company spending.

Renewable Product Development

Renewable energy sources have become more realistic and affordable for consumers
throughout the past decade and so the company must be prepared with a product that takes
advantage of the government incentives to shift to clean electrical energy sources. Electric
furnaces are less expensive to develop than comparative natural gas furnaces and can be
powered through clean energy as opposed to natural gas. This appeals to home owners
looking to move from a dependence on natural gas due to safety concerns.

Electric Furnaces
Electric furnaces operate in a similar manner to natural gas furnaces. The components are
as outlined below:

Thermostat Temperature sensing device which sends an electrical signal to the

furnace when room temperature drops below the desired level.
Heating Elements Large amounts of electrical resistance are produced in these
elements, which causes large amounts of thermal energy build up.
Heat Exchanger A chamber filled with moving air that surrounds heating elements.
The activated heating elements work to warm the surrounding air.

Montgomery Industry Inc.

Blower The blower moves the heated air from the heat exchanger through the duct
work and out into the rooms of the house.

Heating elements are less complex to produce than natural gas burners, as well as more
efficient and less dangerous. Overall unit size can be smaller and less piping and component
numbers mean development costs are less than a natural gas furnace. If the company were
to decide to produce a completely new unit, the development costs incurred would be
relatively small.
A different solution would be to find an Asian competitor that already produces an electric
furnace range and remarket their products under the Montgomery name. This would
eliminate a large part of the production costs for the new unit while still expanding the range
of different products that the company offers.

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Manufacturing and Facility Maintenance

To help reduce cost and to increase the efficiency of manufacturing furnaces in the plant,
two manufacturing systems can be utilized.

Lean Manufacturing
Lean manufacturing can be defined as being able to get the right things to the right place
at the right time in the right quantity, while minimizing waste and being flexible and open to
change [4] (textbook page 274). Lean manufacturing must follow the following principles to
be effective:

It must have nearly zero defects and with any arising problems being solved at the
source
It must remove any activity which does not add to value and safety
It must improve quality, reduce costs, and increase productivity
It must have products pulled from the customers end, as opposed to the production
end
It must have flexibility allowing it to produce various different products quickly and
efficiently
It must build and maintain relationships with suppliers through cost-sharing,
collaborative sharing and information sharing arrangements.

By implementing the lean manufacturing strategy, the following advantages and

disadvantages are present:
Advantages
Provide improved quality
Allow for improved visual management (it will be easier to spot any abnormalities)
Bring increased efficiency through standardization of work
Reduce the amount of people required to do a task
Work will be easier to manage
There is total company involvement
Problem elimination
Reduces space used in production
Allows for a safer work environment
Improves employee morale
Disadvantages
Initial resistance from employees to adopt the lean manufacturing strategy
Increased cost
Consistent upkeep will be required
Initial labour increase

Flexible Manufacturing Systems (FMS) [3]

Flexible Manufacturing Systems involves adapting to the current environment a company
operates in, for more flexibility in their operations as well as to satisfy various market
segments. In this instance, flexibility means to produce products of high quality for a
reasonable price, which are delivered to customers quickly. Flexibility consists of three core
levels which are basic, system and aggregate flexibilities.

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Basic Flexibility

Machine flexibility: how easily a machine can do various operations

Material handling flexibility: how easily different part types can be moved and
correctly positioned at various machine tools
Operation flexibility: how easily processing a part type is with alternate operation
sequences

System Flexibility

Volume flexibility: a systems capability to operate profitable with varying volumes of

part types
Expansion flexibility: the capability to create a system and expand upon it
incrementally
Routing flexibility: the measure of alternate paths a part can proceed through
efficiently in a system for a process plan
Process flexibly: the measure of the volume of part types that a system can make
with no change in setup
Product flexibility: the amount of part types that can be produced in a system with
minor setup

Aggregate Flexibility

Program flexibility: the ability for a system to run for long periods of time without any
intervention
Production flexibility: the volume of part types that a system can create without any
large investment in equipment
Market flexibility: the ability for a system to effectively adapt to a change in market
conditions

By implementing FMS strategy, the following advantages and disadvantages are present:
Advantages
A faster, and lower cost when changing between parts
Lower labour cost
Less inventory
Better quality due to automation
Low cost per unit of output
Savings from reduced labour, errors, and repairs
Disadvantages
Not always able to adapt to any changes in product
High amount preplanning activities required
Very expensive
Requires very complex manufacturing systems
For Montgomery Industry Inc., when deciding between FMS and lean manufacturing for
which manufacturing system to use, it would be a better choice to implement lean
manufacturing. The reason for this is due to the higher cost in FMS required for preplanning
activities, and complex manufacturing systems which is not present lean manufacturing.
With the 20.2% drop in net income over the years (as seen on the income statement), it
would be reasonable for Montgomery Industry Inc. to invest in a lean manufacturing system.

Facility Maintenance [4]

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In order to have effective functioning of the manufacturing plant, proper maintenance is also
required. The Maintenance Engineering Handbook recognizes the following as the main
functions for proper maintenance:
Maintenance of current plant equipment
Maintenance of current plant buildings
Inspection of equipment and lubrication
Utilities generation and distribution.
Changes to any plant equipment or buildings
Installing new equipment and/or buildings
Maintenance for different activities can be broken up into corrective, preventative, and
predictive maintenance. Corrective maintenance is any repair work that must be done when
something breaks down. Effective maintenance fixes the problem at hand as while allowing
for sufficient inventory of any needed replacement part. Preventative maintenance on the
other hand is periodic maintenance which is done to prevent any failure in mechanical
systems. Effective preventative maintenance requires all equipment to be documented so
that they can be periodically inspected. Predictive maintenance is maintenance that uses
sensitive instruments (Eg. pressure and temperature gages) to discern if there is any
problem. For maximum effectiveness these sensitive instruments are usually built in to
diagnostic systems so that production workers can observe if there are any issues before it
is too late.
To help keep their facilities maintained properly, Montgomery Industry Inc. should try to
apply more of preventative and predictive maintenance while trying to reduce as much
corrective maintenance as possible.

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Financial and Human Resources

Finance
Revenue
Year

2015

2014

2012

16,234,000

14,567,000

14,156,500

11.4

2.9

N/A

Net Income
Year

2015

2014

2012

431,400

1,282,800

540,700

-66.4

127.2

N/A

Change in Cash and Cash Equivalents

Year

2015

2014

2012

246,500

352,100

100,200

-30.0

251.4

N/A

From the end year of 2015 we can deduce the progress and growth we have made at
Montgomery Inc. Revenue has grown 2.9% from 2012-2014 and 11.4% from 2014-2015
which is a good indicator of growth of the company. Receiving the tax rebate in 2014 skewed
the net income but comparing 2015 to 2012 we are down 20.2% in net income due to a
higher tax expense. Change in Cash and Cash Equivalents has greatly varied due to the net
borrowings made in 2015. What we are observing is diminishing returns so possible changes
can be made.
Our wood burning boilers account for 60% of the revenue of the company but only account
for 20% of the sales happening in the GTA. It is clear that rural areas are the key customers
for sales of wood burning boilers. Expanding further into the provinces and territories as well
as the northern states could prove financially beneficial for sales of wood burning stoves.
Following trends in the GTA, it is clear that there is a growth in the housing market with
these new homes requiring a natural gas furnace. With 80% of natural gas furnaces being in
the GTA and a growth in housing, our growth of natural gas furnaces should also grow.
Increasing revenue by way of sales requires greater number of units to be manufactured and
requires more employees. This can be financially troubling as well as beneficial.
A production increase in either natural gas or wood burning furnaces will require a greater
workforce, mainly in manufacturing and warehouse. Staff should be hired until the increase
of wood burning boilers is worth less than the amount of staff invested due to the law of
diminishing returns which states that as marginal product increases the marginal cost
decreases and vice versa. With wood burning furnaces being 60% of the revenue and 5%
profit margin, revenue will significantly increase. Same goes for increased production of
natural gas furnaces being produced for the increased housing in the GTA.

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Cost of training, insuring and general costs associated with new employees have not been
taken into consideration as well as rising costs of materials and labor so in the next 5-10
year plan it may be best to do smaller growth in markets that will safely increase revenue
such as sales of natural gas furnaces in the expanding GTA.

Human Resources
To keep Montgomery Industry Inc. competitive in the next 5 to 10 years it must keep up with
the growing demands and trends the need for wood and natural gas furnaces. To
accommodate the greater demand of natural gas furnaces due to growth in the housing
market, more staff will need to be hired to increase production.
Currently 80% of our natural gas furnaces are being sold in the GTA with a manufacturing
staff of 150. If we wish to ramp up production the manufacturing department will need to
employ more staff to assist with the increased production. An alternative would be to have
the one third of the manufacturing staff be full time. This would save on training new
employees and benefits, insurance and such. Hiring new employees would be vastly more
expensive initially with training costs but if demand was to drastically increase, we would be
able to keep up with production of the natural gas furnaces.
It may also be beneficial to strength the engineering team in terms of number to develop
new renewable furnaces to keep up with regulations and demand. With newer houses being
built they have the foundation to sustain newer technology and implementation, also
making us relevant in the future. Initial costs will be expensive due to development costs
and without proper exposure or validation it may not sell very well, although the government
benefits for using renewable and cleaner furnaces we may receive incentives and tax
breaks. Overall, developing better, more efficient furnaces may keep us relevant in the years
to come but the initial cost (not including manufacturing reworking for new parts) as well as
market validity may not make it the safest choice for us.
Our sales team is very small, with only 6 people on the team. If we wish to push out further
into the provinces, territories and northern states a stronger sales team would benefit sales
of the wood burning furnaces. With wood burning furnaces being 60% of our revenue it may
be beneficial to push sales further out into the country. A larger sales team could also help
with sales of natural gas furnaces, with newer homes being equipped with our furnaces. A
larger sales team could help push for contracts, deals and agreements with contractors. This
would greatly benefit our sales in the GTA as it is a growing housing market. Increasing the
sales team would also be required if we plan on developing new furnaces with a larger
engineering team to market and validate the product as well as get it out into the market. As
of right now the sales team is lacking and it would be highly beneficial to increase the
human capital of the sales team.
It is difficult to gauge whether or not Office/HR/Financial needs to be changed, their payroll is
quite high as it is and it is difficult to predict if size of the staff will need to be changed or
not.
Montgomery Industry Inc. will most likely need to hire more employees and have a greater
human capital to sustain growth and still be competitive in the next 5 to 10 years. If a
strategy is to increase production, then manufacturing staff will need to be increased. If the
plan is to develop new furnaces, then the engineering department will need to be
strengthened. Any plans require a stronger sales force because as it is, the team is very
small and for the growing housing market, we need a larger sales team.

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Economic and Political Environment

In order for a business to survive and thrive, the political and economic environments must
be constantly analyzed to ensure the company follows economics trends and complies with
government regulations and policies. Analyzing the political and economic environments are
important for ensuring the well-being of companys future. Company policy and regulations
may change according to the state of the environment. The political and economic
environment refers to all political and economic factors which have a bearing on the
functionality of a business

Political Environment
The political environment includes many factors that can affect the functioning of the
business, important political factors that should be considered for this company are:
Government policies
Tax Laws
Legislations
Environmental Laws
Employment Laws
The smoke of wood burning furnaces contain fine particle pollution, along with other
pollutants including carbon monoxide and other air toxics. These pollutants are harmful to
the environment and can cause serious health issues if inhaled, thus wood burning heaters
can pose a serious health threat to the users and the community around them. Therefore,
bans on wood burning furnaces are already becoming commonplace in the United States
and Canada is beginning to follow suit with new emission regulations that will be
implemented by 2018 starting in Montreal [1].
The natural gas furnaces will also begin to see a decline in usage as the governments begin
to shift away from fossil fuel sources while shifting towards clean renewable energy. In order
to keep the company competitive for the next 5-10 years, Montgomery Industry must be
prepared with a product that uses an electrical energy source. The development of an
electric furnace is less expensive in comparison to the natural gas furnaces and can be
powered with renewable energy to help the environment. As the government shifts towards
clean electric energy, new environmental policy and regulations will be put in place to
prevent the use of natural gases and wood-burning. In the future, those who refuse to
comply to new regulations and policies will be subjected to fines [1].
The tax rebate received in 2014 for high efficiency furnaces was a solid reminder that the
company was heading in the right direction in terms of engineer design. Although this
government tax cut was not beneficial for the companys survival, the money received was
useful in helping the company progress. Now more than ever the fear of climate change is
strong and the demands for clean energy products are on the rise. If Montgomery Industry
wants to stay relevant in the market, they must begin to adapt to the new demands.
Constantly developing and improving furnace designs and efficiencies can help the company
receive more tax cuts while also progressing the company.

Economic Environment
A business depends on the economic environment for all their needed goods. They also
depend on the economic environment to sell their finished goods. Analyzing and
understanding the economic environment is essential to the future success of Montgomery
Industry. Understanding the current and future economic environment can help the company
make current decisions that can benefit in the future. An economic environment is split into

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two categories, the macroeconomic and microeconomic factors. Macroeconomic influences
include but are not limited to:
Interest Rates
Taxes
Inflation
Currency Exchange Rates
Consumer discretionary income
Macroeconomic factors affect not only the business at hand but also the entire economy. For
the purpose of keeping the company competitive in the next 5-10 years, the macroeconomic
environment will only be analyzed briefly to ensure that the company scales correctly with
any inflation or tax increase. Currency exchange rates would not affect the company unless
Montgomery Industry decides to outsource certain jobs. Currently there are no plans to
outsource jobs, this is so that the Canadian economy and citizens can continue to grow and
thrive. The most significant macroeconomic factor is the consumer discretionary income. If
Montgomery Industry plans to open up more stores across Canada, they would have to pick
a location where the home owners have an average discretionary income. Otherwise they
would not make good sales at that location because home owners would opt for a cheaper
source of heat.
Microeconomic factors such as:
Market Size
Demand
Supply
Competitors
Distribution Chain
mainly affect how decisions will be made within the company, it has little to no effect on the
entire economy. Therefore, maintaining and analyzing the microeconomic environment is the
key to keeping the company successful. The market size for residential furnaces will only
continue to increase as the population grows. As the population grows so do the number of
houses and they all require a heat source for the cold winters. So the demand and market
size for residential furnaces will continue to rise in the future. The company must ensure it
can keep up with the market size and demands as well as continually improving their
products to attract new customers. In order to keep up with the growing demands,
Montgomery Industry must employ more staff in all their departments to ensure the output
of the company scales up with the demand of the market and the growth of the company.
The competitors in the furnace industry will also ramp up their productions and company
size to ensure they keep up with the demands. Therefore, the only deciding factors between
the furnace companies are its furnace design and prices. The report has more details on how
this can be done. For Montgomery Industry to truly grow as a company they need to think
about distribution chains for the company. A good method for promoting the company and
making more sales is to open more retail stores throughout Canada. There is one store
location currently in southeastern Ontario so it would be smart to open up branches further
westward and eastward. The main target locations to open up stores are in the rural areas of
Canada, as they are more inclined to purchase wood-burning furnaces which are the
companys main source of revenue. As long as the company continues to analyze the
economic and political environments routinely to follow trends, there is great potential in the
growth of this company.

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Montgomery Industry Inc.

References
[1] Barker, Daniel. (January 26 2016). Canadian government orders residents to get rid of
their old wood-burning stoves or pay thousands of dollars in fines.
http://www.naturalnews.com/052752_woodburning_stoves_Agenda_21_Canadian_government.html
[2] LMJ. (2008-2014). Benefits of lean manufacturing short/long term benefits and
challenges explained [Online]. Available: http://www.lean-manufacturingjunction.com/benefits-of-lean.html
[3] Unknown. (Unknown). Flexible Manufacturing Systems (FMS) [Online] Available:
https://www.uky.edu/~dsianita/611/fms.html
[4] Managing Engineering and Technology, 6/E by Lucy C. Morse and Dan L. Babcock,
Prentice hall (2014)

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