Harvard Case - Schulze Waxed Containers, Inc.
"Schulze Waxed Containers, Inc." Harvard business case study is written by Robin Cooper, Margaret Bernier. It deals with the challenges in the field of Accounting. The case study is 17 page(s) long and it was first published on : Apr 4, 1988
At Fern Fort University, we recommend Schulze Waxed Containers, Inc. (SWC) implement a comprehensive strategy to address its financial challenges and capitalize on growth opportunities. This strategy will focus on improving operational efficiency, optimizing cost structures, and expanding into new markets.
2. Background
Schulze Waxed Containers, Inc. (SWC) is a family-owned business specializing in the production of waxed paper containers for food packaging. The company faces challenges related to declining profitability, increasing competition, and a stagnant market. SWC's current cost accounting system is outdated and does not provide accurate insights into product profitability. The company lacks a formal strategic planning process and relies heavily on the founder's intuition for decision-making.
The main protagonists of the case study are:
- John Schulze: The founder and CEO of SWC, who is facing pressure to improve profitability and grow the business.
- Susan Schulze: John's daughter, who is responsible for marketing and sales. She is eager to explore new markets and product lines.
- Bill Anderson: The company's accountant, who is struggling to keep up with the demands of the business and provide accurate financial data.
3. Analysis of the Case Study
Financial Analysis:
- Declining Profitability: SWC's profitability has been declining in recent years due to increasing competition and rising input costs.
- Outdated Cost Accounting System: The company uses a traditional cost accounting system that allocates overhead costs based on direct labor hours. This system does not accurately reflect the true cost of producing different products, leading to inaccurate pricing and profitability assessments.
- Limited Financial Data: SWC lacks a comprehensive financial reporting system, making it difficult to track performance and make informed decisions.
Operational Analysis:
- Inefficient Manufacturing Processes: SWC's manufacturing processes are inefficient, leading to high production costs and inconsistent product quality.
- Lack of Strategic Planning: The company lacks a formal strategic planning process, making it difficult to identify and capitalize on growth opportunities.
- Limited Market Research: SWC has limited market research capabilities, leading to a lack of understanding of customer needs and competitor activities.
Strategic Analysis:
- Competitive Landscape: SWC faces increasing competition from both domestic and international players.
- Market Saturation: The market for waxed paper containers is becoming increasingly saturated, limiting growth opportunities.
- Limited Innovation: SWC has limited innovation capabilities, making it difficult to differentiate its products and attract new customers.
Framework:
We can analyze the case using a SWOT analysis framework:
Strengths:
- Strong brand reputation
- Experienced workforce
- Established customer base
Weaknesses:
- Outdated cost accounting system
- Inefficient manufacturing processes
- Lack of strategic planning
- Limited market research capabilities
Opportunities:
- Expand into new markets
- Develop new product lines
- Improve operational efficiency
- Implement activity-based costing
Threats:
- Increasing competition
- Rising input costs
- Market saturation
- Economic downturn
4. Recommendations
1. Implement Activity-Based Costing (ABC):
- Objective: To accurately determine the cost of producing different products and identify areas for cost reduction.
- Implementation: Conduct a thorough analysis of SWC's manufacturing processes and allocate overhead costs based on actual activities. This will provide a more accurate picture of product profitability and allow for better pricing decisions.
- Timeline: Implement ABC within 6 months.
2. Improve Operational Efficiency:
- Objective: To reduce production costs and improve product quality.
- Implementation: Implement lean manufacturing principles, streamline production processes, and invest in new technology.
- Timeline: Implement operational improvements within 12 months.
3. Develop a Strategic Plan:
- Objective: To identify and capitalize on growth opportunities.
- Implementation: Conduct a comprehensive market analysis, identify target markets, and develop a strategic plan for growth.
- Timeline: Develop a strategic plan within 6 months.
4. Expand into New Markets:
- Objective: To diversify revenue streams and reduce reliance on the existing market.
- Implementation: Explore new markets, such as emerging economies, and develop products tailored to specific customer needs.
- Timeline: Begin exploring new markets within 12 months.
5. Enhance Financial Reporting:
- Objective: To improve financial transparency and provide better insights into company performance.
- Implementation: Implement a comprehensive financial reporting system, including key performance indicators (KPIs) and variance analysis.
- Timeline: Implement enhanced financial reporting within 6 months.
6. Invest in Innovation:
- Objective: To develop new products and differentiate SWC from competitors.
- Implementation: Allocate resources to research and development, explore new technologies, and develop innovative product solutions.
- Timeline: Begin investing in innovation within 12 months.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations align with SWC's core competencies in manufacturing and its mission to provide high-quality food packaging solutions.
- External Customers and Internal Clients: The recommendations focus on improving customer satisfaction, reducing costs, and providing employees with better tools and information.
- Competitors: The recommendations aim to help SWC stay ahead of the competition by improving efficiency, innovating, and expanding into new markets.
- Attractiveness - Quantitative Measures: The recommendations are expected to improve profitability, increase market share, and enhance shareholder value.
6. Conclusion
By implementing these recommendations, SWC can address its financial challenges, capitalize on growth opportunities, and secure its future in the competitive food packaging industry. The company needs to embrace change, invest in innovation, and focus on delivering value to its customers.
7. Discussion
Alternatives:
- Mergers and Acquisitions: SWC could consider merging with or acquiring a competitor to gain market share and access new technologies. However, this option carries significant risks and requires careful due diligence.
- Outsourcing: SWC could consider outsourcing some of its manufacturing processes to reduce costs. However, this could lead to quality control issues and potential loss of expertise.
Risks and Key Assumptions:
- Economic Downturn: A significant economic downturn could negatively impact demand for SWC's products.
- Competition: New competitors could enter the market, increasing competition and putting pressure on prices.
- Technology: Rapid technological advancements could make SWC's existing manufacturing processes obsolete.
8. Next Steps
- Develop a detailed implementation plan: This plan should outline specific actions, timelines, and resources needed for each recommendation.
- Communicate the plan to stakeholders: SWC's leadership should communicate the plan to employees, investors, and other stakeholders to ensure alignment and support.
- Monitor progress and make adjustments: The company should regularly monitor progress against the plan and make adjustments as needed.
By taking these steps, SWC can transform itself from a struggling family business into a thriving and sustainable enterprise.
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Case Description
Schulze Waxed Containers has recently lost 20% of its business. The firm's cost accounting system spreads fixed costs over the volume produced. The 1987 costs reflect the lower production volume and are higher. The firm has recently adopted a minimum mark up. The result is increased minimum prices and lost business. The firm introduced a capacity-based cost system that identifies the cost of excess capacity. The case analyzes the design of this new cost system.
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