Case Study - American Greetings
yale case 08-010
American Greetings
An Automation versus Outsourcing Dilemma
Andrea R. Nagy1 Gene Lee 2 Arthur Swersey3
As part of an industry with generous profit margins and high barriers to entry, American th Greetings had spent decades in a comfortable position. Beginning at the turn of the 20 century, it had helped to create a mass market for the greeting card and had presided over its growth into a multi-billion-dollar industry. Because the manufacturing of cards—especially those with special designs or attachments—could be complex, and because customers were used to choosing from a large selection of cards, it was difficult for new players to offer the big, established card companies any serious competition. By the end of the 20 century, American Greetings was the second-largest greeting card company in the world, after Hallmark, and had bought out several of its lesser competitors. It had expanded its expertise to become a major manufacturer of gift wrap, party goods, stationery, calendars, and other “social expression” products. And it had also been successful as the creator of licensed characters such as Holly Hobbie, Strawberry Shortcake, and Care Bears. But the core of its business remained the profitable greeting card. As senior vice president and executive supply chain officer Michael Goulder put it, “The average card has 25 to 40 cents of variable cost in it, we wholesale it for a buck or so, and the retailer sells it for $3.00. What a wonderful industry!” However, by the late 1990s, the business had become more challenging. Growth in greeting card sales stagnated, and existing customers began to turn to online cards. At the same time, the company began to experience pressure from retailers who wanted an increasingly larger share of the healthy margins. Greeting cards were still a wonderful industry, but there were worries about the future. As executives began to look for cost-cutting strategies, it was clear that the manufacturing process
American Greetings
An Automation versus Outsourcing Dilemma
Andrea R. Nagy1 Gene Lee 2 Arthur Swersey3
As part of an industry with generous profit margins and high barriers to entry, American th Greetings had spent decades in a comfortable position. Beginning at the turn of the 20 century, it had helped to create a mass market for the greeting card and had presided over its growth into a multi-billion-dollar industry. Because the manufacturing of cards—especially those with special designs or attachments—could be complex, and because customers were used to choosing from a large selection of cards, it was difficult for new players to offer the big, established card companies any serious competition. By the end of the 20 century, American Greetings was the second-largest greeting card company in the world, after Hallmark, and had bought out several of its lesser competitors. It had expanded its expertise to become a major manufacturer of gift wrap, party goods, stationery, calendars, and other “social expression” products. And it had also been successful as the creator of licensed characters such as Holly Hobbie, Strawberry Shortcake, and Care Bears. But the core of its business remained the profitable greeting card. As senior vice president and executive supply chain officer Michael Goulder put it, “The average card has 25 to 40 cents of variable cost in it, we wholesale it for a buck or so, and the retailer sells it for $3.00. What a wonderful industry!” However, by the late 1990s, the business had become more challenging. Growth in greeting card sales stagnated, and existing customers began to turn to online cards. At the same time, the company began to experience pressure from retailers who wanted an increasingly larger share of the healthy margins. Greeting cards were still a wonderful industry, but there were worries about the future. As executives began to look for cost-cutting strategies, it was clear that the manufacturing process