Universal Pulp and

Paper: West Coast

Division

Syndicate 3
Bayu Aji Prakoso
Dhaifina I.A.N.
Dina Rachma F.
Totok Kurniawan

EMBA59B
A. Key Issue
West coast divison got complaints from their customers. The main complaints are inferior product
quality and the increasing of late deliveries due to the increasing amount of sales from sales and
marketing department. Besides that the chief of production can’t understand why sales and
marketing department still accepting the small fancy orders that only contibute 2% of net profit after
tax companies. In meantime, sales and marketing department belived that any sales can contribute
more to company’s profit.

B. Goal
How to improve the overall efficiency and effectiveness of the plant due to increasing amount of
sales from three million tons of paper this year to 3,680,000 tons next year.

C. West Coast Division

a. Brief Explanation
West Coast Division was a manufacturing company. It involved the processing of cut timber
(wood) and the production of various paper product.

Sales order carried out from the head office by using shopisticated technology to the appropriate
plant. Two factors that determine the appropriate plant for order:

1. Proximity to the customer → decline transportation costs

2. Most plants were designed to produce only a small range of paper products → type of
product ordered.

The West Coast Division plant was a fully integrated operation, in that it produced and processed
all of the wood pulp (raw material) it required for its manufacture of paper products.

b. Customer Segmentation
There is two types of customer in West Coast Division. First type of customers is high volume
and one time deliveries. Second type of customers is infrequently, small volume and pay
premium price for the customized products.
 95% newsprint → daily newspaper 5% special writing paper products
Reasonable quality was expected High quality
Price conscious Premium price
Very concerned about delivery schedules Very costumer specification
98% net profit 2% net profit

c. Production Process

wood pulp paper

wood paper shipping customer
processing production production

Production
Plant Finished Good Delivery
Process

Plant and Equipment Investment $2,340 Million

Capacity Enhancement
Wood processing $830,000 to add 100,000 tons wood chips/ year
Pulp production $1,330,000 to add 100,000 tons wood fiber pulp / year
Paper production $49,500,000 to add 225,000 tons paper/ year

Maximum Existing Capacity

Wood processing 730 ton / hour 6,394,800 tons wood chips / year
Pulp production 3,197,400 tons from 4,000,000 tons pulp / year
Paper production 3,197,400 tons from 4,500,000 tons paper / year
Newsprint paper $ 80 / ton
 d. Current Condition
1. Demand for newsprint expected to increase from 3,000,000 tons/paper to 3,680,000 tons
next year.
2. Gap between demand and supply is -482.600
3. 95% production is to fulfill the demand of newsprint paper, the remaining 5% to fulfill
special writing paper.
4. About 50 of 75 technical measurement in the paper-making process were made
automatically by computerized process controls. The remaining 25 measurements were
made by a team of eight inspection employees. There was a team for each of the three
shifts. These workers, all members of the Canadian Paper Workers Union, earned an
average of $ 22.65 per hour.
5. Contribution per ton of newsprint is $ 80.
6. Newsprint calculation is 95% x 3,200,000 tons = 3,040,000 ton.
Revenue = 3.040.000 x $ 80 = $ 243,200,000
7. Revenue of special writing paper = $ 4,963,265

e. Root Cause
1. Poor quality caused by manual measurement of 25 parameters during paper production.
2. Late delivery caused by machine set up problem.

No. Alternatives Cost Revenue

1. Computerized all 75 measurements in 450,000 +( 14 x 992,070 + (80 x 3,680,000) +
paper-making process, enhance wood 830,000 x 5) = (310 x 193,684) =
processing capacity and keep the special 58,550,000 1,773,202,270
writing paper production
2. Eliminate the writing paper production 450,000 + (10 x 992,070 (80 x 3,680,000 x 5)
(maintaining the existing capacity 830,000) = 8,750,000 = 1,472,992,070
process)
D. Contribution
Wood processing = 730 ton/ hour = 6,394,800 tons wood chips/year ≈ 3,197,400 tons pulp/year ≈
3,197,400 tons pulp/ year

Total existing production 3,197,400 tons

Newsprint production 95% x 3,197,400 3,037,530 tons
Net profit of newsprint 3,037,530 x $ 80/tons 243,002,400 (98% from total net profit)
100% net profit 247,961,632
Net profit of special writing paper 2% x 247,961,632 49,592,326
Special writing paper 5% x 3,197,400 tons 159,870 tons
Net profit/ ton ; 49,592,326/ 159,870 $ 310

Conclusion: Alternative 1