Syndicate 7
Universal Pulp and Paper West Coast Division
Problem: Complaint from customers supplied by West Coast Division.
The complaints are inferior product quality & increasing late deliveries
Goal: Improve the overall operating efficiency & effectiveness of the plant
Sales order Head Office of Universal through network to appropriate plant
West Coast Division (WCD)
Processing of cut timber (wood)
Production of various paper product.
Determining the appropriate plant for the order:
Proximity to the customer decline transportation costs
Most plants were designed to produce only a small range of paper products type of product ordered.
Process:
Wood Wood processing pulp production paper production paper shipping customer plant process finished paper product
Supply:
95% newsprint daily newspaper:
Reasonable quality was expected
Price conscious
Very concerned about delivery schedules
98% WCD net profit after tax
5% special writing paper products:
High quality
Very costumer specification
Premium price
2% profit after tax
Plant & Equipment investment: $ 2,340 million
Capacity enhancement:
Wood processing $ 830,000 to add 100,000 tons wood chips/year
Pulp production $ 1,330,000 to add 100,000 tons wood fibre pulp/year
Paper production $ 49,500,000 to add 225,000 tons paper/year
Maximum existing capacity:
Wood processing 730 ton/hour = 6,394,800 tons wood chips/year
Pulp production = 3,197,400 tons from 4,000,000 tons pulp/year
Paper production = 3,197,400 tons from 4,500,000 tons paper/year
Newsprint paper $ 80/ton
Current situation:
Demand for newsprint expected to increase from 3,000,000 tons/paper to 3,680,000 tons next year.
Gap between demand and supply: -482.600
95% production is to fulfill the demand of newsprint paper, the remaining 5% to fulfill special writing paper.
About 50 of 75 technical measurement in the paper-making process were made automatically by computerized process controls. The remaining 25 measurements were made by a team of eight inspection employees. There was a team for each of the three shifts. Theses workers, all members of the Canadian Paperworkers Union, earned an average of $ 22.65 per hour.
Contribution per ton of newsprint = $ 80.
Newsprint = 95% x 3,200,000 tons = 3,040,000 ton. Revenue = 3.040.000 x $ 80 = $ 243,200,000
Revenue of special writing paper = $ 4,963,265
Root cause:
Poor quality caused by manual measurement of 25 parameters during paper production.
Late delivery caused by machine set up problem
No.
Alternatives
Cost
Revenue
Computerized all 75 measurements in paper-making process, enhance wood processing capacity and keep the special writing paper production
450,000 +( 14 x 830,000 x 5) = 58,550,000
992,070 + (80 x 3,680,000) + (310 x 193,684) = 1,773,202,270
Eliminate the writing paper production (maintaining the existing capacity process)
450,000 + (10 x 830,000) = 8,750,000
992,070 (80 x 3,680,000 x 5) = 1,472,992,070
Special writing paper contribution:
Wood processing = 730 ton/ hour = 6,394,800 tons wood chips/year 3,197,400 tons pulp/year 3,197,400 tons pulp/ year
Total existing production = 3,197,400 tons
Newsprint production = 95% x 3,197,400 = 3,037,530 tons
Net profit of newsprint = 3,037,530 x $ 80/tons = 243,002,400 (=98% from total net profit)
100% net profit = 247,961,632
Net profit of special writing paper = 2% x 247,961,632 = 49,592,326
Special writing paper = 5% x 3,197,400 tons = 159,870 tons
Net profit/ ton = 49,592,326/ 159,870 = $ 310
Conclusion: Alternative 1
