Snow White Paper Company Case Study

1044 Words Dec 3rd, 2010 5 Pages
Snow White Paper Company

"If I were to price these boxes any lower than $480 a gross," said James Brunner, manager of Snow White Paper Company's Thompson Division, "I'd be countermanding my order of last month for our sales force to stop shaving their bids and to bid full cost quotations. I've been trying for weeks to improve the quality of our business. If I turn around now and accept this job at $430 or anything less than $480, I'll be tearing down this program I've been working so hard to build up. The division can't show a profit by putting in bids that don't even cover a fair share of overhead costs, let alone give us a profit." Snow White Paper Company was a medium-sized, vertically integrated paper company, producing white
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When the specifications were all prepared, the Northern Division asked for bids on the box from the Thompson Division and from two outside companies, West Paper Company and Erie Papers, Inc. Snow White's division managers normally were free to buy from whichever supplier they wished, and even on sales within the company, divisions were expected to meet the going market price if they wanted the business.

At this time the profit margins of converters such as the Thompson Division were being squeezed. Thompson, like many other similar converters, bought its board, liner, or paper and printed, cut, and shaped it into boxes. Though it bought most of its materials from other Snow White divisions, most of Thompson's sales were to outside customers. If Thompson got the order from Northern, it probably would buy its linerboard and corrugating medium from the Southern Division of Snow White. The walls of a corrugated box consist of outside and inside sheets of linerboard sandwiching the corrugating medium.
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About 70 percent of Thompson's out-of-pocket cost of $400 a gross for the order represented the cost of linerboard and corrugating medium. Though Southern had been running below capacity and had excess inventory, it quoted the market price, which had not weakened as a result of the oversupply. Its out-of-pocket costs on liner and corrugating medium were about 60 percent of selling price.

The Northern Division received bids on the boxes of $480 a
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