Southern Pulp Ad Paper

Southern Pulp & Paper (pursuing flexibility)

Case Summary

This case focuses on the Toccoa mill from Southern Pulp and Paper. The mill manufactures paper and pulp. This is a product-focused operation with high capital equipment cost. The mill itself has a pulping section, which supplies two paper machines #5 and #6. Paper machine #5 produces market pulp for further processing in other mills. The product range for market pulp on machine #5 is very limited (only 3 products) and product switches are quite uncommon (one product =96% of production. Machine # 6 on the other hand produces a wide variety of bleached board paper. On this machine changeovers are quite common.

Key Issues:

Ð'* Southern Pulp and Paper executives are expecting improvements in output, profitability and quality at the Toccoa location. Shelton does not know which improvement project to support in order to achieve these goals.

Ð'* The Toccoa plants paper machines are of an advanced age. They are no longer capable of competing on cost against competitors with much larger machines and greater capacity. Toccoa needs to start competing on flexibility.

Root Cause:

Toccoa uses the wrong measurement of success. The measurement used is capacity utilization. This measurement does not promote flexibility. It rewards long runs of one product and ignores the potential benefits of flexibility.

Options:

1. Purchase the CIM upgrade for the Toccoa plant in order to increase the productivity.

2. Change the measurement for success and introduce a new scheduling system.

Assumptions:

1. SPAP uses capacity utilization as a measurement of success.

2. Currently SPAP's schedules according to product first then grade.

i. The cost of a grade change is proportional to the net pulp weight change.

ii. The selected job sequence is representative of the current changeover process.

3. The cost of grade change is linearly proportional to difference of the two grades.

4. To deactivate the CIM would cost $10 million

Recommendations:

Short Term:

For the short term Shelton must go with option #2 "changing the measurement for success and introduce a new scheduling system." He must do this because option 2 has an EMV of $9.38 million, whereas option one has an EMV of $3.13 million. In order to achieve flexibility for the future he needs to:

I. Change the measurements of success for the Toccoa operation from capacity utilization to reduction of changeover times. Set a goal of 40% changeover time reduction for the first year. However, Shelton must buy the order processing/scheduling software necessary to assist the operators.

II. Shelton needs to alter the scheduling process by:

 He must schedule changeovers according to the changeover matrix.

 Purchase order-processing software, which schedules the production according to the setup matrix.

 Alter the order-processing procedure, so that new sales are automatically supplied to the order processing software. Daily order updates instead of monthly. The production at Toccoa will have to changeover less.

III. These measures will reach the corporate goals of

a. Output is raised by reducing the changeover times

b. Profitability is increased by reducing waste

c. Quality is increased by keeping the operator in charge of the process.

d. Through the emphasis on changeover times Toccoa will be able to compete on flexibility.

Long Term:

Shelton must consider another CIM improvement. Instead of automation, this improvement has the following guidelines:

 The system needs to assist the operators in making better decisions and not take the operator out of the decision process.

 The system needs to provide the operator with data, which will allow him to make the best decision possible.

 The operators need to be involved in the development of the system.

Analysis of Options:

1. Analysis of the CIM upgrade:

A net present value analysis was done on the CIM upgrade. It shows a cumulative cashflow of $42 million after 10 years.

Table 1: Portrays the NPV for the CIM improvement. (NPV 10 years; 15%)

2. Analysis of option 2: Change of measurement of success and scheduling upgrade:

I. Change of measurement

Currently the measurement of success is based on capacity utilization. However, this is a poor measurement for enhancing the flexibility of the organization. Instead, Toccoa needs to change the measurement of success to the reduction of changeover times. By setting a reduced changeover time as a goal allows the worker to be actively engaged in cost saving measures.

II. Analysis of the current process:

basis weight change in weight per changeover

Liner 99# 99

Liner 126# 126 27

Liner 207# 207 81

Poly Cup 145# 145 62

Poly Cup 155# 155 10

Poly Cup 165# 165 10

Poly Cup 175# 175 10

Poly cup 201# 201 26

Plate l00# 100 101

Plate 110# 110 10

Plate 120# 120 10

Average