Mason Paper Company (MPC) manufactures large quantities of standard white 8 ½ × 11 inch paper for use in computer printers and photocopiers. MPC has reported operating losses for the last two years due to intense price pressure from much larger competitors. The MPC management team is contemplating a change in strategy to reverse the trend of losses experienced over the last several years. The VP Finance, Don Townsend, has made the following argument concerning the new strategy:
As we all know, the commodity paper manufacturing business is all about economies of scale. The largest competitors with the lowest cost per unit win. We have limited- capacity machines that keep us from producing high volumes of paper like our closest competitors. Therefore, I propose that we abandon cost reduction as a strategic goal and instead pursue manufacturing flexibility as the key to our future success.
Manufacturing flexibility means we have to abandon our “crank out as many tonnes of paper as possible” mentality. Instead, we need to look for customers interested in lower-volume, specialty papers for which we can charge a higher price. To succeed in this new market, we first need to improve our ability to switch our equipment to produce different paper grades. Right now, we require an average of four hours to change over to another paper grade. Timely customer deliveries are a function of changeover performance. Second, we need to expand the range of paper grades that we can manufacture. Currently, we can manufacture only one paper grade. Our customers must perceive that we are a one-stop shop that can meet all of their specialty-grade paper needs. Third, we will need to improve our yields (e.g., tonnes of acceptable output relative to total tonnes processed) in the non-standard paper grades. Our percentage of waste within these grades will be unacceptably high unless we do something to improve our processes. Our variable costs will go through the roof if we cannot increase our yields!
Why would a company that changes its strategic goals need to change its performance measurement system as well? What are some examples of measures that would have been appropriate for MPC prior to its change in strategy? Why would those measures fail to support MPC’s new strategy? What new measures would you suggest be adopted to support the new strategy at MPC?

  • CreatedJuly 08, 2015
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