Team X-Treme Road Rage
Ms. Lauren Killion
July 14, 2009
Evaluation of Sonoco Products Company’s Human Resources Company Since its inception in 1899, Sonoco Products was a company that could be described as constantly growing and thriving. Throughout most of the twentieth century, the company enjoyed uninterrupted growth and financial success. Most of its success could be attributed to the company’s ability to adapt to new packaging materials and technologies as they were developed. However, during the late 1990s, like many other manufacturing and packaging companies, Sonoco’s profitability was threatened by the fact that its operating costs were significantly higher than those of companies overseas, particularly Asian companies. Because of this decline in income, Sonoco knew that it had to make sweeping changes to help lower costs, improve employee productivity, and make provisions for future success. One of the ways that new CEO Harris DeLoach knew he could cut costs was by restructuring the human resources department. He then instructed Cindy Hartley, his senior vice president of human resources, to create a new, restructured HR organization that would not only cut costs but would also accomplish three objectives. Her three objectives were to create a system of consistent HR policies and procedures, increase general managers’ accountability for employee development and retention, and to provide customized support for each branch of the business. Additionally, it was clear that Sonoco had communication issues that the revised setup would improve. As previously mentioned, during the mid to late 1990s, the biggest issue facing Sonoco Products was the need to reduce its operating costs in order to maintain its desired profit margin. The majority of this report will be on Sonoco’s efforts to restructure their human resources systems as a means of cost-cutting. However, that restructuring was only a small component in the cost-lowering process. At noted in Exhibit 1-A of “Sonoco Products Company (A): Building a World-Class HR Organization,” Sonoco was able to reduce the cost of the goods sold in 1998 and 1999, which allowed them to keep the same profit margin. How was the company able to accomplish this task? The biggest way that Sonoco was able to lower its costs was to consolidate or close many of its plants. Sonoco had to modernize the way that it did business. Simply put, the company had to keep up with an industry whose clients expected it to become more centralized and more able to handle all of its needs. Groysberg, Reavis and Thomas note that Hershey used to have hundreds of companies handle its packaging needs, but, by the end of the 1990s, just twenty companies handled 80% of its needs1. In order to keep up with foreign companies with lower costs, packaging companies could no longer have hundreds of specialty plants; they had to consolidate and become “one-stop shops.” As noted in the trade publication Pulp & Paper in June 2000, Sonoco shut down a wood yard in South Carolina. That plant’s sole purpose was to deliver a product to Georgia Power. Just a year and a half earlier, in October 1998, Sonoco shut down two paper mills, one in Amsterdam, N.Y. and another in Terreborne, Quebec. In August of 1999, they consolidated two Orlando, FL area plants that both manufactured what was essentially the same product. By reducing the number of plants it was running, Sonoco was able to lower its costs and still not sacrifice many jobs. As noted in the articles mentioned above, many of the plant closings simply meant that employees were relocated and not terminated. The results of all of these changes were higher dividends for stockholders in 1998 and 1999, lower operating costs, and a steady level of revenue. It is hard to find much fault in Sonoco’s decision-making processes, as the end result was that it did indeed cut costs and simultaneously modernized its business to complete with...
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