Bayonne packaging inc pdf

HBS Professor Roy D. Shapiro and Boston University Professor Paul E. Morrison prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

R O Y D . S H A P I R O

P A U L E . M O R R I S O N

Bayonne Packaging, Inc.

Cold grey light came through the window of John Milliken's cubicle in the Production office of Bayonne Packaging at 6:30 AM on Monday, January 2, 2012. The new VP of Operations, Milliken had arrived a half-hour before the first shift started on his first day of work at Bayonne to review reports that had been prepared for him, and to begin his tour of the factory and interviews with key Manufacturing and other personnel. When he had been hired mid-December, the president, Dave Rand, had asked him to analyze Bayonne's operations swiftly and present his recommendations by the end of the week.

Company and Industry Background

Bayonne Packaging, Inc., was a $43 million company located in Bayonne, N.J., a sub-chapter S corporation founded 48 years earlier by Rand’s father. The board was composed of family members, a local banker, and outside counsel. Bayonne was a "specialty packaging" paper converter that produced customized, complex-design packaging that was used by industrial customers for promotional materials, software, luxury beverages, and gift food and candy. Except for a few low- volume operations such as laminating and gold- or silver-foil finishing, Bayonne provided all the necessary services from design assistance through final delivery of the package. Bayonne's sales force worked closely with customers to develop the artwork and package design, culminating in a proof for customer approval. Bayonne then created the printing plates and die, sheeted the paper from roll stock, printed the artwork on 4- and 6-color presses, die-cut the printed sheets into "blanks,"1 and folded and glued the blanks into the final product, which was typically finished at this point and ready to be shipped to the customer or a contents fulfillment house. In some cases Bayonne provided additional finishing work if needed such as attaching string-and-button fasteners, Velcro dots, or other attachments.

1 "Blanks" are die-cut paper shapes ready to be folded and glued into the final product. To create blanks from printed sheets, the die-cutter sliced through the paper to cut out the shape, and made other, more shallow impressions to create the creases for folding.

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4420 | Bayonne Packaging, Inc.

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The paper packaging industry grew rapidly in the 1980s and early 1990s as consumer goods companies sought to make a greater impact with their promotional materials or moved their promotional budget from print media and broadcast forms to the package itself at the point of purchase. In addition, the explosive growth of software packaging, which featured expensively printed large "boxes," provided additional customer market segments that were often willing to spend freely to make a quick impact in a crowded marketplace. Bayonne had grown from just over $10 million in sales in 1982 to $32 million in 2001. The company then faced new challenges with the bursting of the dot-com bubble and the subsequent migration of software sales and distribution from CDs to the Internet. Bayonne survived by diversifying into new markets where the company could apply its great strength in innovative and difficult package design and the ability to fold and glue the complex blanks.

President Rand had asked Milliken to focus on three problem areas: cost, quality, and delivery. At the end of November 2011 Rand had fired the previous long-serving VP Operations. Rand told Milliken, "Our sales are up—we have to run two shifts now. But we ran a loss for the first time last year since 2001. [See Exhibit 1 for income statements.] We're getting more and more complaints about quality, and, what might be even worse for our customers, we're delivering late more often. I understand we're a job shop and there's usually a tradeoff between keeping your costs down, getting good quality, and hitting your delivery promises—but lately it seems we can't even hit two out of the three. What started to go so wrong for us? Your predecessor couldn't explain it to me, and his 'plan' of 'We'll just have to try harder' told me he had no idea what to do. I hope you can do better."

Touring the Factory in January 2012

John Milliken graduated in 2001 from Rensselaer Polytechnic Institute with a BS in Mechanical Engineering. For the past five years he had been the Operations Manager of a small packaging firm serving the northern New Jersey pharmaceuticals industry, so he came to Bayonne familiar with the general manufacturing processes Bayonne used to design and deliver customized small-unit packaging. During the hiring process he met most of the management at Bayonne and also the factory supervisors on both shifts, and had asked for several reports to be prepared for him when he came to work in January. Digging into the pile, Milliken focused on October 2011 since that was Bayonne's highest-volume month and, as October 31 closes the fiscal year, it would show him complete and audited 12-month financial statements for the company. He reviewed the Income Statement, keeping in mind Bayonne's practice—a common one—of recognizing revenue when it billed the customer, and it billed when it shipped product. Milliken then turned to a production report that listed standard setup and run times, as well as scheduled production and standard hours for October in key work centers (Exhibit 2). A second report showed "good pieces in/out" for the month (Exhibit 3). The last report presented the daily and cumulative dollar volumes shipped in October, net of customer returns (Exhibit 4). He also had his own chart showing the usual flow of orders through the plant's departments (Exhibit 5).

Quality Control

Milliken left his office and crossed the factory floor to the Quality Control office to find QC Manager Fran Schuler inside. They chatted about the procedures for the start of each shift, then Milliken asked where the main problems arose.

Schuler told him that quality problems were concentrated in Fold & Glue with either missing glued lines or excess glue. Schuler showed him a report from October, their worst month of fiscal 2011, indicating that 6% of products were found defective due to glue problems and were scrapped, with a further 1% of shipped product rejected by the customer due to glue problems. There were also