Executive Summary Stermon Mills is small, independent fine-paper producer.

The
company is nearly one hundred years old and operates with some machinery that is
nearly 50 years old. At present, Stermons machines are very costly to operate based on
the amount of output they produce. Faced with some of these issues, Stermon Mills must
decide on the best course of action to take to improve the overall business of its
uncoated paper production. Some of the options that Stan Kiefner may choose include:
(1) upgrade machine #4 which is the largest and newest machine producing nearly 50%
of the output at Stermon Mills; (2) adopt new ways of working at the plant which would
include the changing of the run cycles on machine #4 which would reduce changeover
times; (3) improve the yield on machine #4 on the less frequently produces grades of
paper which is currently more strongly focused on 20 lb. Xerox paper; or (4) accelerate
the flexibility program which was being worked out with the Union. This program would
improve the effectiveness of the labor at the plant and was already underway. Also,
creating an effective workforce that had an effective use of time would increase
production and lower overall labor costs. It is important to note that the best
2. course of action may be a combination of two or three of the best choices that are
offered. Also, some of the choices may conflict directly so it is important to choose the
combination that will offer the best combined effort. Market Analysis The North American
market is the worlds largest producer as well as consumer of uncoated fine paper. Using
1989 estimates, this North American market accounted for nearly 45% of the uncoated
fine paper capacity and 44% of the worlds uncoated paper consumption. Production in
US and Canada met nearly all the demand for uncoated paper in North America. Imports
and exports of paper accounted for only 5%, however, there has been growth recently in
the high quality coated or top-end and commodity uncoated low-end fine paper. Growth
in demand for uncoated fine paper increased in the late 1970s due to a growth in the
information processing area of the office/business segment. Also, US uncoated fine
paper shipments had increased significantly when compared to the other classes of
paper. This strong growth in demand for uncoated paper in the 1980s along with
capacity
3. expansions to meet long-term demand hurt the industry during the 1989-1992
recession. The recession had left excess capacity in the industry along with depressed
prices. International Paper was the worlds largest paper company with sales of $ 12.96
billion in 1990. Uncoated fine paper accounted for 18% of its total sales. It also produced
a full line of uncoated paper with such well known brands as Hammermill and Springhill.
Various types of papers were offered such as printing, envelope, tablet and reprographic.
Consumers also showed a strong preference for Hammermill laser paper. Georgia
Pacific (GP) was the worlds second largest paper company after acquiring Great
Northern Nekoosa (GNN) in March of 1990 for $ 3.7 billion.

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