SCM case study: Cardboard mfg units


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The case study in SCM is based on the the work done by JOY M. FIELD and ROBERT P. SROUFE (2007). In the presentation the case is presented to undertand the nature of business & Basics of cardboard manufacturing process. Later, The methodology is expalined to solve the mentioned problem. In the end, Managerial Insights are drawn from this case to guide SCM proffesionals for better decision making.

Key reference:
JOY M. FIELD and ROBERT P. SROUFE, “The use of recycled materials in manufacturing: implications for supply chain management and operations strategy”, International Journal of Production Research,Vol. 45, Nos. 18–19, 15 September–1 October 2007, 4439–4463

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SCM case study: Cardboard mfg units

  1. 1. A study of supply chain practices corrugated cardboard industry Abhijeet Ghadge & Aravindan S. M.Tech Dept. of Industrial Engineering and Management IIT Kharagpur
  2. 2. Overviewof presentation Nature of corrugated cardboard manufacturing business Basics of cardboard manufacturing process The problem Data about the problem Methodology to solve them Key result Managerial Insight through this case References
  3. 3. corrugatedcardboard industry •35 million tons per annum (US) •4 million tons were made from recycled materials Types of organizations in business Integrated firms (integrateds) Non-integrated firms (independents)
  4. 4. Introduction to cardboardmanufacturing process Reference: JOY M. FIELD and ROBERT P. SROUFE, 2007
  5. 5. Nature of corrugatedcardboard manufacturingbusiness Reference: JOY M. FIELD and ROBERT P. SROUFE, 2007
  6. 6. Problemfacingtheindustry “Imbalances in market power can result from conditions that give suppliers more bargaining power than their customers.”  Suppliers(integrated’s ) are also competitors ( produce same final product) The virgin materials are often controlled by a few companies. Nonintegrated companies are relatively unimportant to their suppliers . The integrated’s product is critical to the independent’s business. Environmental concerns make it virtually impossible to get a permit to add containerboard capacity using virgin materials -Porter (1980) and Harrigan (1985),
  7. 7. Where is the source of problem? Non-integratedOutput Market Non-integrated Integrated firms Competitors for same market Supplier Input material
  8. 8. Source of problem… Suppliers of containerboard institute rationing, satisfying their internal demand first. Suppliers were not adequately meeting needs. Independents corporate and operations strategy is •Customer pull • Flexibility, •High value-added services •Customer intimacy in their operations. But The mode of operations in the industry is •high volume •low-cost As a result, independents needs in terms of product mix and delivery characteristics were not satisfied
  9. 9. Concept of mini-mill Unit which can extract fiber from used and old corrugated boxes. Usually produce only one type of containerboard (either linerboard or corrugating medium). Low capital and operating costs. Profitable at relatively small volumes, typically about 400 tons per day (tpd). Quick commissioning (<1year)
  10. 10. Critical proposition Lower capital costs of mini-mills Less dependency on integrateds for their raw materials The sources of OCC (e.g. municipalities, grocery store chains) are not influenced by integrateds
  11. 11. Independent corrugated cardboard manufacturers can increase their degree of vertical integration. Integrateds soon will follow as – Defensive response to maintain market share in the local area – Additional capacity. What happens if only mini-mill is added Designing of a reverse supply chain for OCC to leverage on ones size and efficiencies Then the Key difference??
  12. 12. RestructuredSupply chain Corrugated Inc Paper Co. Paper Co produces linerboard for internal demand. Trades linerboard with containerboard materials. Paper Co will also trade linerboard with linerboard producers in other parts of the country where Corrugated Inc has corrugated cardboard mfg. facilities. Fiber Co Fiber Co is involved in sourcing secondary materials such as OCC.
  13. 13. Features of OCC •OCC is a commodity with significant price fluctuations. •Requirement 200000 tons of OCC per year . •Availability :approximately 1 million tons. •Competitive market •Approximately 500 suppliers of OCC in target area •40–50 tons per month→ Good supplier for Independents. >200 tons per month→Acceptble supplier for Integrateds •Disposal of OCC is not an important issue for most small generators.
  14. 14. •Focuses on smaller generators. •Be ‘‘ a mouse in the corner’’ and take care of the generator’s OCC while involving the generator as little as possible. •Install collection and compressing equipment at the generators sites. •75% of the OCC shipped directly from the generators to the mini-mill. •Procure OCC from suppliers within a 150-mile radius of the mini-mill to reduce freight cost. •Work with small generators of OCC in a cost-effective manner. Procurement strategy..
  15. 15. Opening up of additional revenue stream Independents tend to compete less on cost (due to their smaller size and fewer economies of scale) and more on other competitive dimensions, the CEO saw an opportunity to supply containerboard to other independents in a manner consistent with their needs. Paper Co both sells and trades their linerboard with other independents (or corrugated medium manufacturers), and integrateds. Thus opening up a new revenue stream for the organization
  16. 16. The new supply chain Reference: JOY M. FIELD and ROBERT P. SROUFE, 2007
  17. 17. Implications for the supply chain structure, supplier relationships, and operations strategy --All firms in the industry can realize lower capital and operating costs from using recycled versus virgin materials. --Decreased bargaining power of the integrated firms. --Direct cost savings
  18. 18. Associatedrisks •Fluctuations in the cost of OCC while containerboard prices remain stable or even fall . Reference: JOY M. FIELD and ROBERT P. SROUFE, 2007
  19. 19. Main insights of the case •Steel industry experience the same lower capital costs by building mini-mills that use recycled materials. •Decoupled original producers and recyclers of cardboard products. •Supplier-customer relationship is unusual Generator of OCC do not consider itself a producer in the traditional sense and is, therefore, unconcerned with developing a marketing strategy for this product. Supplier of OCC is selling their by-products rather than their products.
  20. 20. Firm size will be negatively associated with the use of non price-related strategies for securing their supply of recycled material inputs. Main insights of the case… In contrast with the reverse supply chain literature that typically assumes that the existing supply chain is basically unaltered when the reverse supply chain is designed separately from the forward supply chain system, figures 1 and 2 show the supplier relationships before and after the adoption of containerboard paper mini-mills and how they change as a result of the availability and use of recycled material.
  21. 21. References •JOY M. FIELD and ROBERT P. SROUFE, “The use of recycled materials in manufacturing: implications for supply chain management and operations strategy”, International Journal of Production Research,Vol. 45, Nos. 18–19, 15 September–1 October 2007, 4439–4463