Birch Paper Company Case Solution
BIRCH PAPER COMPANY CASE ANALYSIS
Executive Summary
Birch Paper Company is a medium sized, partly-integrated paper company. It produces white and craft papers and paperboard. It has four producing divisions and a timberland division – The Thompson division converts the paperboard output into corrugated box and prints and colors the outside surface of the box. The Northern division produces the paper box, while the Southern division supplies the corrugating medium and inner and outer liners. Timberland division supplies part of the company’s pulp requirement. It has been the company policy of decentralization to allow the divisions to act independently in all the affairs of their divisions except for the broader company policy, each division is judged on the basis of its profit generation and return on investment figures. Each division is free to buy from any supplier he wished, and even for dealings within the company, divisions were expected to match the market price if they wanted the business. This policy according to the company’s top management has worked well and delivered the desired results. The Northern division had designed a special box in collaboration with the Southern division with Thompson’s staff perfecting the design and production methods over several months, the Thompson division was reimbursed for its effort according to the agreement between the two divisions. The Northern division has asked for bids for the development of the boxes from the Thompson and two outside companies, Thompson quoted a price of $480 a thousand, West Paper Company a price of $430 a thousand and Eire Papers Inc a price of $432 a thousand. If Thompson gets the order, it would buy linerboard and corrugating medium from the Southern division. If Eire Papers win the bid, they have agreed to buy outside liner from the Southern division and print their boxes from the Thompson division. The manager of the Thompson division is adamant on its bidding price, it includes the full
Executive Summary
Birch Paper Company is a medium sized, partly-integrated paper company. It produces white and craft papers and paperboard. It has four producing divisions and a timberland division – The Thompson division converts the paperboard output into corrugated box and prints and colors the outside surface of the box. The Northern division produces the paper box, while the Southern division supplies the corrugating medium and inner and outer liners. Timberland division supplies part of the company’s pulp requirement. It has been the company policy of decentralization to allow the divisions to act independently in all the affairs of their divisions except for the broader company policy, each division is judged on the basis of its profit generation and return on investment figures. Each division is free to buy from any supplier he wished, and even for dealings within the company, divisions were expected to match the market price if they wanted the business. This policy according to the company’s top management has worked well and delivered the desired results. The Northern division had designed a special box in collaboration with the Southern division with Thompson’s staff perfecting the design and production methods over several months, the Thompson division was reimbursed for its effort according to the agreement between the two divisions. The Northern division has asked for bids for the development of the boxes from the Thompson and two outside companies, Thompson quoted a price of $480 a thousand, West Paper Company a price of $430 a thousand and Eire Papers Inc a price of $432 a thousand. If Thompson gets the order, it would buy linerboard and corrugating medium from the Southern division. If Eire Papers win the bid, they have agreed to buy outside liner from the Southern division and print their boxes from the Thompson division. The manager of the Thompson division is adamant on its bidding price, it includes the full