What recommendation would you make to Mr. Kiefner? On what basis would you try to persuade him that your proposal is best for Stermon Mills?
From my analysis it emerged that the best option for Stermon Mills Inc. is the Option 2, which is moving machine #4 to a one week cycle and run through the existing grades every week instead of every two weeks.
The main reason that should convince Mr. Kiefner to look at reducing the cycle time is due to a customer requirement. Elly Ryesham, from the Sales Department, realized a straw poll of the sales force to understand what the most important things are for their customers. I have analyzed those results (see Exhibit 1) and converted the A,B,C… grades to numbers (A+= 4.33, A=4, A-=3.66 and so on …show more content…
We know that the Marketing department estimated that a 7% premium (before freight) could be charged for such a service on those tailored grades, though the machine would only produce such specialty jobs for 30% of the time. If we look at the calculations on Exhibit 4 we can see that machine #4 would still produce a 20$/Ton loss. It is true that demand would probably increase, but still I think that with these conditions the $3.1million investment required for this option is not justified. The last point supporting not adopting this approach is the fact that it would be incompatible with Option 2. It will be difficult to make new grades without trying to change them quickly and a combination of unfamiliar grades and process instability might cause paper breaks and quality problems.
Option 3, improving the yield on machine 4 on the less frequently produced grades, would satisfy those customers that value having a broad product line. Again, this is not the top priority for Stermon at the moment (See Exhibit 1). Marketing projections about the 20lb paper for the next two years simply reinforce my decision to proceed with Option 2. Having a one week cycle would allow machine 4 to focus on the 20lb paper, which would potentially reduce the 28% figure as a fraction of two-week cycle in which there will be no 20lb paper produced, as demand for the 20lb will increase. This option could potentially work along with option 2, but results would be