Stermon Mills

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April 26, 2011

EXECUTIVE SUMMARY:

Stermon Mills (Stermon) is a small, independent paper producer that is being forced to compete more effectively against much bigger competitors in the uncoated fine paper market. President & CEO Stan Kiefner understands that the company needs to become more flexible in order to more efficiently use its workforce and equipment, differentiate its products and better serve its customer base. To become more flexible, Stermon needs to concentrate its efforts on its processes, machines and products. In the near term, it is critical for the company to address certain issues with machine #4 (#4) and its workforce. Focusing on upgrades and yield improvements for #4 on less frequently produced paper grades will improve net income by seeking better niche markets with improved pricing power. Stermon also needs to work with the Union to implement cross-training programs that will allow employees to become more flexible in their roles and better contributors to Stermon’s success. The company should also explore ways to tap into high grade de-inking waste paper generated by office and business waste, since demand for recycled fine papers was not being met by others in the industry.

BACKGROUND:

Stermon Mills was a small, independent paper producer that was founded in 1910. The company had one pulping plant and four paper machines housed in 20 buildings. Stermon historically focused on uncoated fine papers since coated papers required additional equipment and mechanical papers could not be produced in its pulping plant. Demand for uncoated paper had been quite strong for an extended period of time, but significant capacity expansion combined with softening demand in 1989-92 had led to excess capacity and low prices. According to exhibit 5, in 1991 the top 10 paper companies had 77% share of US market of uncoated fine paper. The result was that several larger producers had significant economies of scale and could provide...
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