International Paper: Longwood Woodyard Plant

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International Paper: Longwood Woodyard Plant

Lecturer: Dr. Ismail Abd Rahman

Prepared by: Hamed Arjmandi MR111051

17/03/2012

This case was about International Paper’s Ridding Mill which was the largest paper- and forest – Products Company in the world in 1995. This company produces different type of products in 31 countries. The Redding Mill produced paper pulp from wood chips. So, to supply all wood needed for this process they produced about half of its wood on-site and purchased another half from open market. To produce wood chips from wood logs they used chipper to shred. For doing this process there were two way: 1. Using modern chipping machinery that called longwood 2. Using old style chipping process, used at Redding, which called shortwood. Most of Redding’s shortwood was produced at the Regefield woodyard that located one mile from Redding. . In 1996, controller Bob Pescod and analyst expert Ray Buckley check some troubling trends taking place at Redding Mill. 1. The cost of shortwood & open market chips were rising faster than the cost of long wood Buckley’s analysis showed: 2. Ridgefield facilities were outdated & less efficient 3. The cost of shipping shortwood was becoming increasingly volatile and difficult to manage

1. Considerable cost savings could be realized by replacing Pescod & Buckley concluded: Shortwood process system with longwood process 2. The cost of shutting down Ridgefield would be offset by: the proceeds from selling the replaced shortwood equipment + recovery of the on-site wood inventories at Ridgefield According to Exhibit 1: Net sale: (1994) $ 14.96 billion 32%

(1995) $19.79 billion (1995) $2.52 billion

Operating profit: (1994) $ 1.06 billion 136% Net income: (1994) $ 0.35 billion 223% Total asset: (1995) $ 24 billion

(1995) $1.15 billion

Security analyst asked from industry, by increased dividend or through stock- buyback programs return cash flow to investors and cut capital spending. In 1995: IP’s...
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