Smurfit Paper Company Case Study
Smurfit Paper Company case study
Every business owner in the actual economy knows that cost management is a key factor in determining the successful continuation of the business, or its inevitable extinction. The paper industry is struggling to say the least according to an article in The Economist, with no new clients firms have adopted a strategy of merging with one another to attain a larger market share. With growing pressures from shareholders unsatisfied with low returns, it’s clear something has to change so when new potential business is available careful analysis of all relevant issues are paramount.
In the case of Smurfit Paper Company there is no exception to the rule, as the sales manager is faced with the opportunity to accept a proposition of producing between 1,000-1,800 units per month, depending on market demand for an upcoming company titled MFBC. A simple yes or no answer is needed however the many factors that has to first be investigated in order to realize the finest decision are far from simple, requiring marginal cost analysis, pricing decisions, uncertainty about demand, production capacity constraints, industry trends, and competitive advantages. Marginal production costs are among the most powerful drivers of commodity prices, in an industry where demand is elastic with close substitutes in the packaging sector. These very important issues have definite relationships the most glaring is the potential inability to fulfill an order over 1,500 units the number that would account to 100% of the company’s overall production capacity. An additional relationship amongst the relevant issues are the industry trends developing into a mature or stagnated market and the pricing decisions to accept a contract whose price is 20% lower than the current company average rates. Smurfit mission statement is simple “seeks to provide paperboard and packaging solutions for any customer, large or small”. Accepting MFBC proposal does coincide with the
Every business owner in the actual economy knows that cost management is a key factor in determining the successful continuation of the business, or its inevitable extinction. The paper industry is struggling to say the least according to an article in The Economist, with no new clients firms have adopted a strategy of merging with one another to attain a larger market share. With growing pressures from shareholders unsatisfied with low returns, it’s clear something has to change so when new potential business is available careful analysis of all relevant issues are paramount.
In the case of Smurfit Paper Company there is no exception to the rule, as the sales manager is faced with the opportunity to accept a proposition of producing between 1,000-1,800 units per month, depending on market demand for an upcoming company titled MFBC. A simple yes or no answer is needed however the many factors that has to first be investigated in order to realize the finest decision are far from simple, requiring marginal cost analysis, pricing decisions, uncertainty about demand, production capacity constraints, industry trends, and competitive advantages. Marginal production costs are among the most powerful drivers of commodity prices, in an industry where demand is elastic with close substitutes in the packaging sector. These very important issues have definite relationships the most glaring is the potential inability to fulfill an order over 1,500 units the number that would account to 100% of the company’s overall production capacity. An additional relationship amongst the relevant issues are the industry trends developing into a mature or stagnated market and the pricing decisions to accept a contract whose price is 20% lower than the current company average rates. Smurfit mission statement is simple “seeks to provide paperboard and packaging solutions for any customer, large or small”. Accepting MFBC proposal does coincide with the