Halden Zimmermnn – Stermon Mills Case Analysis Part 6

Option III

The third option focuses on the increasing machine #4’s yield for the less frequently

produced grades – less than 15 lbs., 18 lbs. and 24 lbs paper. Saugoe’s forecast that the

lack of demand for 20 lbs. paper would last for at least two more years leads him to think

of strategies to use machine #4 more effectively. With the increased cost of operating

Machine #4, designed mainly to manufacture 20lb Xerox paper; installed in 1976 and

produced 49% of the plant’s total output, Bill Saugoe thought that counter balancing the

20 lbs. paper’s soft demand with other grades would be beneficial to Stermon Mills.

In order to make machine #4 more flexible, an expert system for process control as well

as an actuator network needed to be installed at a cost of $5.05 million. This upgrade

will result in machine #4’s ability to produce the 15 lbs. to 24 lbs. grade papers at a

consistent quality while making the machine more flexible to set-up changes.

This strategy gives the firm the option to produce multiple grades of paper at high

volumes. However, this option does not improve the changeover costs. Batch sizes will

have to be large in order to operate efficiently. Moreover, raw material and finished

goods inventory may increase to support this flexibility.

This option does not allow machine #4 to meet the changing demands of the market

because of the nature of batch sizes. The company’s warehouse will have to absorb

variances in demand during batch runs. This strategy does not improve the changeover

time of machine #4 but only increases the number of products that can be produced on

the line.

Improving the yield on machine #4 addresses the sales force’s recommendation of having

customized paper that their customers can use for varying applications. The upgraded

machine’s ability to convert its production among the various grade ranges will allow

the company to meet its customers’ Just-in-Time requirement by producing for the high

demand product.

Recommendations

Based on the preceding analysis, we make the following recommendations:

• Invest in machine #4 to reduce changeover time and reduce maintenance cost.

• Need to match customer demand with JIT production schedule.

• Utilize machine #4 for high demand products.

• Coordinate help from machine #3 personnel during changeover times on

• Cross-train personnel so that they can be effectively utilized on a wide range

• Redesign jobs and job descriptions so that more personnel can fill in gaps and

• Improve efficiency of machines to decrease contractor and maintenance costs.

• Implement incentive plan to promote employee morale and improve output.

• Renegotiate with union for concessions to allow for multi-skilling and

• In order to be profitable in an industry which includes big name producers,

• Stermon should have the ability to customize its products according to

machine #4.

of jobs.

help out where there is a need for added help during high demand times.

classification overlap to mimic non-union shop labor efficiencies so that

management can easily assign jobs to available laborers.

Stermon would have to focus on a niche market and create a brand identity

that differentiates itself from its competition.

customer preferences and have its own distribution channels.

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