Mason Paper Company (MPC) manufactures large quantities of standard white 8 ½ × 11 inch paper for use in computer printers and photocopiers. MPC has reported operating losses for the last two years due to intense price pressure from much larger competitors. The MPC management team is contemplating a change in strategy to reverse the trend of losses experienced over the last several years. The VP Finance, Don Townsend, has made the following argument concerning the new strategy:
As we all know, the commodity paper manufacturing business is all about economies of scale. The largest competitors with the lowest cost per unit win. We have limited- capacity machines that keep us from producing high volumes of paper like our closest competitors. Therefore, I propose that we abandon cost reduction as a strategic goal and instead pursue manufacturing flexibility as the key to our future success.