International Paper employs 66,500 employees and of those employees, 47,100 are located in the United States. International Paper is ranked 93rd among Fortune 500 companies and No. 1 in the forest products sector for the Most Admired Company. The stock is traded internationally on the New York, Swiss and Amsterdam exchanges.
The customers of International Paper are distributors and chain and restaurant stores. International Paper produces bags, corrugated board and boxes. The Charlotte location produces bags. This will be the topic of this paper.
International Paper’s has a long-standing policy of using no wood from endangered forests. They are also committed to environment protection and have partnered with the U.S. Environmental Protection Agency, State agencies and non- governmental organizations to ensure the protection of endangered species and forests.
The vision of IP (International Paper) is to “be one and most respected companies in the world-as measured by our employees, our customers, our communities and our shareowners” (http://www.internationalpaper.com/Our%20Company/About). Their mission is based on why they exist, what they do and how they do it. IP upholds these by being dedicated to making people’s lives better. The employees use renewable resources. The customers succeed because of their innovative products and services. The communities welcome them because of their philosophies to protect the environment and still provide good products. The shareholders benefit from the superior financial performance. This is all done because International keeps their promises that deliver results.
The Charlotte bag plant has not been able to accomplish most external and internal goals with the exception of some plant operations. Externally, they are being competitively beaten to the point where they are unable to produce a profit in the current market. Internally, the company is relatively new, 18 months on the East coast and is trying to slim operations to be competitive on the outside. The issue is the sales personnel are giving extreme pricing and rebates to remain competitive with a long-standing company who’s under-pricing is working at the moment. International Paper has been dominant on the West coast as well as in the Central part of the United States and is trying to establish a presence in the Southeastern part now.
Operations have made improvement to help the overhead and the bottom line. Machine target rates have been over achieved. Waste has been practically eliminated. Two new supervisors have been brought in to help with training issues to ensure quality is top priority so re-work has been decreased by 80%. Shipments are at a 99.8% arrival rate with no shortages. The only two issues the operational overhead has had are buying roll stock and freight cost incurred. Roll shock prices have increased 20% and freight has gone up 38%. This has off set the savings described above.
Even with the improvements made these aren’t in line with the other plants. Machine speeds, roll stock costs and overhead determine costing which in turn is higher than what is being charged by our other plants and our competitors. We are selling our products below what we can produce them for. Our average ROS (return of sale) is -39.10% with the largest being –106.08% for Winn Dixie. This is also due to the credit terms and the amount of rebate we are given our customers. We only make a positive net profit on 2 customers, Corporate Express and I-Supply. This is because we give no rebates to them.
In the next 2 months, intensive research needs to be done on what our customers needs and wants are not what they think they can get out of us. We also need to do extensive marketing research on our competitor here on the East coast. This compile of information needs to be analyzed within 2 months of its existence so that we can compile an aggressive strategy to combat the pricing war that is going on between us and find a common ground for the plant to make a profit. The plant is losing anywhere from $300k to $800k a month so this is a time sensitive issue.
While the research is progressing, certain measures already in existence need to remain there but continuous improvements in the operational area need to remain focus to help keep monthly losses at a minimum. It will take everyone to ensure that overhead as minimal as possible.
The sales team needs to reconsider the pricing they have set forth. Once the research comes in and a plan of action has been established, pricing needs to reflect that plan. The sales team is going to have to “sell” this new approach to our customers. This is going to be a gradual thing. This is going to be in increments and should be completed by the end of the 3rd year of business. Monthly progress reports will have to be initiated in order to ensure that the team is on track to switching our customers over to the new sales terms and to also make any necessary adjustments needed to the plan.
We also need to reconsider the amount of rebates and credit that we are issuing. We have spent $65,000 last month in credits with no foundation and over $100,000 in rebates to customers that we make no net profit on. Revising the criteria set forth on which we give rebates will help immensely with losses we currently have. New policies need to implemented and relayed to our existing customer base as “incentives” for doing business with us not used as the only way to keep our customers happy.
The generic strategy that should be used is focused. The Charlotte based plant has only been open for 18 months so a pricing was is something that is not wanted but yet we need to stay competitive. The way to do this is to also differentiate the company from our competitors. This will allow for certain “higher” prices because of customer loyalty and our superior products (Pearce-Robinson, 2008). Our specialty bags will play a major role in this.
We will need to continue to improve our “lean” approach to our processes to help keep cost down. There are certain products that do not produce sufficient profit and may need to be reconsidered for future sales. For example, #2 bag isn’t in demand enough to warrant keeping the bag available. The downtime and change over alone makes the bag expensive to produce. The #8 bag is in high demand and we are having to buy this bag from the outside at $250k a month. If we considered another #8 machine at $600k, the machine would pay for itself in a little over 2 months.
Mean while, our sales personnel will have to revise their thinking and bring our product back to the forefront of innovation when selling it to our existing customers as well as to new customers. We need to remain competitive in the market without being edge out in a pricing war with our competitors for this will certainly put us out of business.
In conclusion, research is vital to the implementation and the success of the Charlotte bag plant at this moment. The plant is in a newborn state and needs to mature with the demand of the market relatively quickly. Certain measures can be taken to help with the competitive demands of the market but it is well advise to strategically place a plan into action, to have means to measure the success and way to improve any necessary adjustments as they come up. It is also advise that the actions involved every entity of the Charlotte plant so that the greatest success can be achieved.
1. Pearce-Robinson (2009). “Strategic Management” New York, NY: The McGraw-Hill Company
3. McFarren, Tracy: Finance/Planning Manager, International Paper