The capital investment associated with the upgrade is $3.1 million and would allow for customization for about 30% of the time. One could also assume that the aforementioned changes would result in a reduction in the total costs associated with operating machine
The case hints to these costs when referring to the many production stops that seem to “curiously…occur much more often at the beginning of a shift than any other time” and suggests that at least some of the high cost of goods sold is attributable to the skills of the workers. By introducing computer control and training, many of these production stoppages can be mitigated, while experiencing corresponding increases to both yield and quality.
Perhaps of equal importance, was Stermon’s decision to keep machine #4 busy in recent history by making grades that were lighter and heavier than were usually made on the machine. This provides them with an advantage in terms of implementing this option with their workers and sales force, since they have already become familiar with its underlying needs and would only need to add additional machine upgrades and training to complement this strategies implementation.
While this option may appear to coincide well with the strategic needs of the product lifecycle as well as with the recommendations from the Renfield Consulting group to “be more flexible than the competition” as opposed to competing on price, it does not address the most popular results of the sales force survey to provide responsiveness in delivery/
The new equipment will allow more products to be run on machine #4 but will not increase the flexibility for changeover speed to meet customer demand requirements. It actually may cost more because changeover from 15lb to 24lb paper would require serious change over manipulation of the equipment which takes more time.
The second option to improve Stermon Mills is to concentrate on the workforce. This focus is on adopting new ways or adjusting the old ways that people performed their job. This would be a more radical approach in that it would break with long standing paper industry tradition. A break with traditional operations may bring the most resistance people may be more uncomfortable with new ideas and new routines. Also, there may be a certain threat to job security when new ideas are implemented. The case shows that paper machine #4 has nearly 50% of the output of the entire pulp mill. Its output of 280 tons per day centers around a production of 20 lb. paper which exceeds 50% of the normal production of paper on machine #4. It also shows that the yield percentage is best with 20 lb. paper at 95% (net of grade change). Yield for 24 lb. paper is second at 89%, 18 lb. paper is third at 86% and 15 lb. or less is fourth with 78%. The proposal for machine #4 is to take it to a one-week cycle from its two-week cycle operation presently. It is proposed that this change would save on inventory costs.