Birch Paper Case
Case 6-2 Birch Paper Company
1
Case 6-2
Birch Paper Company
"If I were to price these boxes any lower than $480 a thousand," said James Brunner, manager of Birch Paper Company'sThompsonDivision, "I'd becountermanding my order of last month for our salesmento stop shaving their bids and to bid full-cost quotations. I've been trying for weeksto improve the quality of our business,and if I turn around now and acceptthis job at $430or $450 or somethingless than $480,I'll be tearing down this program I've beenworking so hard to build up. The division can't very well show a profit by putting in bids that don't even cover a fair share of overheadcosts,let alone give us a profit." Birch Paper Company was a medium-sized,partly integrated paper company, producing white and kraft papers and paperboard.A portion of its paperboard output was converted into corrugated boxes by the Thompson Division, which also printed and colored the outside surface of the boxes.Including Thompson,the companyhad four producingdivisions and a timberland division, which supplied part of the company'spulp requirements. For severalyears, eachdivision had beenjudged independently on the basis of its profit and return on investment. Top managementhad been working to gain effectiveresults from a policy of decentralizing responsibility and authority for all decisionsexcept those relating to overall companypolicy.The company's top officials believed that in the past few years the concept of decentralization had been applied successfullyand that the company'sprofits and competitive position definitely had improved. The Northern Division had designeda special display box for one of its papers in conjunction with the ThompsonDivision, which was equippedto make the box. Thompson'sstaff for packagedesign and developmentspent several months perfecting the design, production methods,and materials to be used. Becauseof the unusual color and shape, these were far from standard. According to an agreement
1
Case 6-2
Birch Paper Company
"If I were to price these boxes any lower than $480 a thousand," said James Brunner, manager of Birch Paper Company'sThompsonDivision, "I'd becountermanding my order of last month for our salesmento stop shaving their bids and to bid full-cost quotations. I've been trying for weeksto improve the quality of our business,and if I turn around now and acceptthis job at $430or $450 or somethingless than $480,I'll be tearing down this program I've beenworking so hard to build up. The division can't very well show a profit by putting in bids that don't even cover a fair share of overheadcosts,let alone give us a profit." Birch Paper Company was a medium-sized,partly integrated paper company, producing white and kraft papers and paperboard.A portion of its paperboard output was converted into corrugated boxes by the Thompson Division, which also printed and colored the outside surface of the boxes.Including Thompson,the companyhad four producingdivisions and a timberland division, which supplied part of the company'spulp requirements. For severalyears, eachdivision had beenjudged independently on the basis of its profit and return on investment. Top managementhad been working to gain effectiveresults from a policy of decentralizing responsibility and authority for all decisionsexcept those relating to overall companypolicy.The company's top officials believed that in the past few years the concept of decentralization had been applied successfullyand that the company'sprofits and competitive position definitely had improved. The Northern Division had designeda special display box for one of its papers in conjunction with the ThompsonDivision, which was equippedto make the box. Thompson'sstaff for packagedesign and developmentspent several months perfecting the design, production methods,and materials to be used. Becauseof the unusual color and shape, these were far from standard. According to an agreement