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This report will provide an analysis of Bayonne Packaging, Inc and its involvement in the paper packaging industry. The three most important issues facing this company are analyzed which include (i) how can Bayonne strengthen communication among departments and improve overall company culture, (ii) how will Bayonne be able to develop or improve their computerized scheduling system (iii) given Bayonne’s poor delivery performance, how can operational efficiencies be improved in terms of capacity utilization of the machines.
In addition to analysis of these current issues, alternative solutions have been developed for each.
The alternative that holds the strongest presence is for Bayonne to instill a strong corporate culture and ultimately strengthen communication that will allow for the company to excel in its key performance measures of cost, quality, dependability and speed.
Bayonne Packaging, Inc. is currently involved in the paper packaging industry. Currently a 43 million dollar company, Bayonne has grown from 1982 when sales were just 10 million. Bayonne differentiates themselves in being a “specialty packaging” paper converter that produces customized, complex-design packaging that is used by industrial customers for promotional materials, software, luxury beverages, and gift food and candy.
By diversifying into new markets Bayonne applied its strength in innovative and difficult packaging design and their ability to fold and glue complex blanks. The main issues facing the company are the following: (i) how can Bayonne strengthen communication among departments and improve overall company culture, (ii) how will Bayonne be able to develop or improve their computerized scheduling system (iii) given Bayonne’s poor delivery performance, how can operational efficiencies be improved in terms of capacity utilization of the machines. It is thus crucial to fully analyze these issues more fully and examine the factors that have contributed to each in order for Bayonne to gain competitive advantage.
Bayonne’s most stressful month of October has caused delivery, cost, and quality to tank. Consequently, Bayonne has not been able to execute their strategy well and excel in key performance measures. This is due to lack of communication and coordination between the quality control, sales management, Fold and Glue, and composition departments. There are several factors that contribute to the communication issue at Bayonne. Among other weaknesses of the company such as building a reputation for late delivery and complaints from customers about quality of products, communication is one of the strongest. Bayonne seems to be failing in the ten essential managerial tasks of the strategy execution process. Moreover, the lack of communication is reflected in their inability to staff the organization as no proper training is realized and departments are working as silos rather than one unified organization.
In addition, lack of communication is also causing for Bayonne to build on their organizational capabilities in specialized packaging and scheduling. Bayonne has not been able to develop a strong management team that can assess which value chain activities, for example, should be performed internally and which ones should be outsourced. The fact that orders were late more than 20% of the time in October is reflective of poor communication in the company and lack of delivery in key performance indicators . Bayonne is losing customers because of communication problems and lack of internal leadership. The work climate has become bitter and there is no sign of a strong corporate culture, cohesiveness or collaboration, which is ultimately causing for a large misunderstanding and negative assumptions between departments.
system is viewed as useless as it reflects inaccurate information and assumptions about orders. This is causing for company personnel to not do their strategic roles as proficiently as possible and instead the individual departments are making their own decisions. Employees are questioning whether or not the scheduling system presents to be practical. The schedule that is generated twice a week by the computerized scheduling system may be a leading cause for Bayonne not being able to live up to their vision, mission, and objectives. The composition department is particularly concerned because as manager, Sean Quinn explains; between rush orders and ganging the orders to keep the machines running, he cannot afford time-wise to do what the printout says.
Essentially, the schedule indicates to employees that they have an order that they have never seen or still have an order that is finished and got shipped. Inaccuracy may be the leading cause of Bayonne not being able to sustain a competitive approach in terms of their business and functional strategies. For example, one of Bayonne’s business strategies is the importance of determining priority of orders by computing critical ratios. In addition, this system has become a weakness to the company and is also leading to customer value proposition and the company’s cost structure to weaken, especially in secondary activities of the Bayonne’s value chain (see section -Product R&D, Technology and Systems Development) Not only is the this system causing workers to ignore printouts and raise frustration, it is causing for a lot of time wasted that could be used toward producing higher volumes of products at a level of good quality for customers.
Since Bayonne’s highest volume month is October, the company has not been able to match capacity to its demand requirements also leading for insufficient allocation of resource that contribute to strategy execution. Evidence from the computation of machine effectiveness (see financial analysis page) indicates that the Heidelberg presses are operating at 100.29% capacity, essentially making Bayonne’s printing activity the bottleneck of the process. Consequently, this does not give the ability for Bayonne to focus on its core capability of specialized packaging nor deliver on their key performance measures. In addition, poor use of capacity utilization is also reflected in Bayonne’s decrease in producing good quality products.
Producing quality products is essential in keeping customers loyal to the company and is a key success factor in this industry. The Heidelberg press is slowing down subsequent activities since it can only produce a limited amount of pieces per month, which causes for limiting the inputs that are available for the Die-cut centre. Bayonne’s main resource is their wide range of machines that are supposed to be operating at efficient levels . These machines are valuable because they contribute to the effectiveness of the company’s strategy. However, with the use of adequate capacity being questioned may be the leading cause of poor delivery performance, which is ultimately the reason that Bayonne occurred a loss in their most stressful month. Discussion of alternative solutions to the issues
A solution to this issue would be for Bayonne to reassess their current strategy and instill a strong corporate culture that will bring employees together. Bayonne can build on what they already have in place such as the daily production meetings. This is the only chance where employees across all departments come together face-to-face to discuss issues. Instilling a strong corporate culture has its pro’s and cons. The main advantage is that it can create a strategy supportive organizational structure that Bayonne is currently lacking off. Another advantage is that it will also allow for internal leadership to be strengthened. Having a strong leader will set the tone and ensure everyone is working as a team. When communication is improved, Bayonne will be able to delivery on time because the departments will be working collaboratively rather than separately. The only negative to instilling a strong corporate culture is that it wont work unless employees embody the culture and take it seriously and understand that it contributes to Bayonne’s key performance indicators of cost, quality, speed and dependability.
An alternative solution to this issue would be for Bayonne to gain adherence to the computerized system by fixing the data that is leading to inaccuracies and introduce a pre-work order jacket. Currently, the work order jacket lists the routing, standard setup and run times, special instructions and ship-to information (see section – Distribution). If management at Bayonne work toward gaining employee loyalty to this system and introducing a pre-work order jacket based on prioritization where a report would be sent to each department before they begin working on orders and when the prior departments finishes the order, the next department would be aware of what orders are on the way within the next few days –would contribute to proper strategy execution.
However, there are some pros and cons to this issue. An advantage of introducing a pre-work order jacket and gaining loyalty of the computerized system would lead to more efficient operating levels at the facility. This will lead to decreased delays, increased quality and better time management. It would enable company personnel to do their strategic roles more proficiently as well; something that Bayonne is not currently acting upon. A con with this alternative would be the possibility of initial confusion of how exactly the new system would work. Also, some employees may simply be resistant to adhering to the computerized scheduling system even if it were to be fixed or question whether or not it would be practical enough to sustain high volumes.
A solution in improving capacity utilization would be to make more use of the International Royal and Queen machines. Currently these machines are operating at nearly 50% capacity utilization. Since these are the fastest machines, placing important orders to them would generate higher volumes. Advantages in making these machines the main use would contribute to Bayonne excelling in their key performance indicator of speed and improvement in functional and business strategies. The machines are only operating at 44.49% capacity utilization, which means that Bayonne is lacking in improving operational efficiencies that could drive down costs. These machines produce the most pieces at the highest speed so making use of them would be highly beneficial. The main disadvantage of this proposed alternative is that the volume may affect profit margins of the company –a concern of president Dave Rand. In addition, these machines are complex and difficult to set up which could interfere with allocation of proper time management. This may result to poorer quality – causing for Bayonne main strength in innovative package design to be diminished.
According to my analysis, Bayonne must focus on strengthening communication within the company. Bayonne has to instill a strong corporate culture and develop on internal leadership within the company. This will lead to happier more productive employees and will allow for Bayonne to build upon their organizational capabilities. In turn, strong communication will lead synchronization among the departments and employees will work as a team rather than as silos. A strong corporate culture and excellent communication will eliminate misunderstanding and frustration among departments that has been causing for Bayonne to develop a track record for late deliveries and poor quality. Ultimately, communication will be the key in Bayonne’s ability to execute their strategy and excel in key performance measures that are crucial to the profitability in the company.
Overall, Net profit margin has been declining which indicates that the company has depleting cash reserves and may have difficulty paying liabilities. Gross profit margin for Bayonne is declining which may indicate that fewer funds may be available for operating expenses. Due to limited financial data in the case, other profitability ratios (i.e. operating profit margin, net profit margin, return on equity, liquidity ratios (current ratio, working capital), and leverage ratios (total debt-to-asset, debt-to-equity) have not been able to be computed.
It is apparent that the Heidelberg press machine is operating at full capacity and is the bottleneck of the process. This is causing for scheduled hours to go overtime. High-speed machines such as the international royal and the international queen (only being used 44.96%) are not being fully utilized to an efficient manner, which may be the cause in late delivery and poor quality.
Environmental: severe weather conditions may have a substantial effect on this industry if these conditions were to cause a delay in the transportation process of the package Something like a power outage or blackout could interrupt the flow of the packaging process, which in turn will have an effect on sales and the customer.
Sociocultural: Customers to the paper packaging industry seeking to make a greater impact with promotional materials reflects the rapid growth of this industry. Fast-paced society – want things delivered on time with no delays.(not being able to keep up rush-orders may affect sales).
Technological: advanced technology may cause industry profits to decline or no longer be needed (e.g. migration of software sales and distribution from CDs to the internet)
Economic: if cost of materials (such as glue or paint) used to do the packaging were to rise; orders from customers may decline (important to stay strategically priced).
Legal: not complying with FDA requirements (about coatings, adhesives, and liners) could have an effect of business within this industry.
Overall, the macroeconomic environment of the paper packaging industry presents a few challenges. Despite limited information given in the case on external knowledge of this industry – it seems that this industry has experienced booming growth. This industry may be challenged when it comes to diversifying into new markets if the dot-come bubble continues to burst and migration of software sales and distribution form CDs to internet were to increase. In order to survive, companies within the paper packaging company have to diversify into emerging markets and constantly innovate in design of the package or product.
Porter’s 5F Analysis: there is no sufficient information about rivals within this industry in the case that can be applied to this framework.
Requirements set by the food and drug administration (FDA) can have an impact on costs, operational efficiencies and health and safety concerns if companies within the industry do not comply with the regulations. Product and marketing innovation
Additional customer market segments have become available to this industry because of the explosive growth of software packaging and promotional material.
Both these driving forces have strategic implications for competing companies in the paper packaging industry. For example, if companies within this industry do not comply with specific industry requirements then they will not be able to run their business or go into financial debt. Also, it is important that this industry to diversify into emerging markets in order to compete competitively.
Strategic Group Map: no sufficient data in the case to cover this framework since the case does not talk about competitors.
Developing collaborative relationships with customers, who are closer to the end consumer Working closely with industrial customers for companies in this industry is crucial as it has an impact on sales for the company and eventually for the industrial customer. Excelling in global supply chain management
It is important to keep track of costs going in and out of the company. For example, if cost of goods sold (COGS) takes up a high percentage of the company’s sales may indicate that the company is not performing efficiently or not earning enough revenue to comfortably run the business. Effectively managing the delivery of products while keeping costs minimized It is important for companies in this industry to develop a track record for constant on-time delivery as this will reflect in the customer being loyal to the company which will drive sales.
Overall this industry is conductive of good profitability since many industrial customers need their products to be packaged properly in order to be sellable. It is therefore important to excel in cost, quality, speed, and dependability at a competitive level for companies within this industry.
The present strategy at Bayonne is to out-compete rivals and prioritize in four key performance measures, which are quality, cost, speed, and dependability. This is mainly more of an operations strategy seeing as this company is the producer of the product that the customer sells. It is important for Bayonne to deliver on quality packaging, constantly innovate all while minimizing costs and producing high volume to remain competitive.
A) Vision mission and objectives:
Vision: although there is not enough sufficient data that states Bayonne’s vision; it can be assumed that based on what is given in the case, Bayonne’s vision might be along the lines of becoming the number one industry leader in specialty packaging by providing the best customer satisfaction, quality and product innovation.
Mission: based on what is given in the case, Bayonne’s mission could be being committed to providing innovative solutions to difficult package design while excelling in cost, quality, and delivery.
Objectives: financial objectives at Bayonne are to keep costs down as much as possible, while still delivering on quality. Strategically, Bayonne aims to excel in their key performance measure of dependability, cost, quality and speed that’s embedded in their strategy. Overall, they strive in being operationally efficient.
B) Bayonne’s Competitive Approach
Working closely with customers to ensure satisfaction and approval in the design on the package Building on competitive advantage by providing additional finishing to the package as a courtesy to the customer. Also tapping into new markets and products such as promotional material Importance of determining priority of orders by computing critical ratios (e.g. lower than 2 indicates concern for the job) Expediting the most important orders in hopes of sustaining customer’s loyalty to the company.
Ensuring quality is met by checking two pieces every hour and conducting a final inspection Ensuring that the work-order jacket travels with the job at each department Ensuring that if a full delivery cannot be made then at least getting partials out is important When orders need to be completed quickly, then this is done by “ganging” them up whenever possible. Sales management department is focused on pricing aggressively to the market in order to sustain volumes.
C) Key Performance Indicators
Strategic: how Bayonne is doing in terms of their key performance measures Financial/Machine Effectiveness
Quality: quality control reports indicate that 6% of products were found defective due to glue problems, leading to an increase in customer rejects of shipped products. Finishing department has problems in including all pieces of the product.
Cost: cost of goods sold has increased, net sales have decreased from previous years, which has caused Bayonne incurring a loss in 2011.
Speed: there is a lower overall speed of delivery to customers. Machines are not being fully utilized since employees are not given the opportunity to assess which orders to run on what machine. A lot of orders that are expedited causes for a breakup to occur in production leading to extra set up time for the machines.
Dependability: Not doing well. Customers are aware of Bayonne’s inconsistency of delivering packages on time.
This is reflective in the company’s worst month; October – where 20% orders were late. – Financially, Bayonne understands that there is a tradeoff in keeping costs down, getting good quality and hitting delivery promises. The ultimate goal is to perform financially well in all three. – Bayonne’s declining net profit margin may be indicative that cash reserves are depleting and they may have difficulty paying liabilities. – Gross profit margins have also declined possibly indicating that raw material costs have increased and manufacturing costs have gone up. – In calculating machine effectiveness, it is indicative that in the print department the Heidelberg press is the slowest of machines, which is creating a bottleneck in the process where capacity utilization is 100.29%.
Resource: Wide Range of Machines operating at efficient levels.
Capability: Specialized Packaging (includes innovative, difficult packaging design, and finishing touches) Is it Valuable?
The machines pass the valuable test because they contribute to the effectiveness of Bayonne’s strategy. The International Royal and International Queen are Bayonne’s most important machines that contribute to gaining operational efficiencies and added value to the customers because they operate at a high speed. Bayonne’s specialized packaging capability is very valuable and highly contributes to the effectiveness of their strategy (especially in the quality area). Since this capability is competitively valuable, Bayonne passes this test.
Since these are generic machines, this resource is not rare. It therefore does not pass the test since other packaging companies can invest in the same machines as long as they have the financial stability to do so. Not a lot of companies may take the time to closely work with customers in special and complex packaging design. Also adding personal finishing touches is not something a lot of other paper packaging companies take the time to do. Bayonne therefore passes the rare test.
The machines are imitable; therefore this resource does not pass the inimitable test since other companies can purchase the same machines to produce the same quality packaging. There is no uniqueness to them. Capabilities in specialized packaging design is something that other companies can copy as it is not competitively superior to potential rival companies. Bayonne does not pass the inimitable test.
Although Bayonne may have an efficiency advantage with their machines, it does not pass this test since potential rivals can copy the same machines and produce equally good products at lower costs by locating their plants in countries where wage rates are relatively low. Potential paper packaging industry rivals may also offer specialized packaging capabilities. This means industrial customers can pick and choose with which paper packager to partner with. Therefore, Bayonne does not pass this test.
Overall, this framework presents strategic implications to Bayonne indicating that their resources and capabilities are not ones that contribute to Bayonne having a competitive advantage that is sustainable. The company’s resources of machines and specialized packaging capabilities present to be competitive assets to the company and are central to Bayonne’s strategy. However, by not passing the last two tests of this analysis is indicative that Bayonne may be prone to imitative attempts and efforts from potential rivals.
Are the company’s cost structure and customer value proposition competitive?
Supply chain management: from the limited information provided in the case, there is not much that can be said about Bayonne’s supply chain management. The most relevant fact is that Bayonne’s supplier is International Paper that helps keep the composition department stocked with the necessary materials that are used to make the products. In terms of costs in this area, according to Bayonne’s income statement – the Cost of Goods Sold (COGS) significantly increased from 83.2% in September 2011 to 90.7% in October 2011. Since October is also the month in which Bayonne occurred a loss of $365,694 is indicative that the company is not performing well on the cost performing measure.
Operations: Bayonne places high value in executing their operations strategy since they are responsible for producing the product itself at their facilities. The goal is to keep margins low while getting the volume.
The flow of order through the production department is a system relevant to Bayonne executing their strategy. Quality assurance activities are performed at Bayonne where there are two inspectors on each shift covering the Composition, sheet, print and Die-cut, Fold&Glue, and Finishing departments as well as inspecting the shipping dock. The inspectors check the machines every hour during the production run and a final inspection is performed before the product gets shipped out.
Distribution: In order to keep track of the products that Bayonne produces, heavy reliance is held in their “Work Order Jacket.” For example, before shipping the finished product to the industrial customer, quality control managers check the product against proof in the work order jacket. The jacket lists routing, standard setup and run times, special instructions, and ship-to-information. It also held the customers signed proof along with samples signed by operators, supervisors, and QC at each level. Distributing finished products to customers on time is highly important to Bayonne not losing customers; however data shows that in the month of October 2011, they were late more than 20% of the time causing customers to lose trust and expedite orders.
Sales and Marketing: although there is not enough information to indicate what Bayonne’s costs, activities, and assets related to sales force efforts are – the products that Bayonne produces directly impact the end customer. For example, industrial customers who place large orders with Bayonne and pay a high price per piece; place high expectations that Bayonne deliver the product on time in correspondence to say, a promotional campaign that they are launching on a specific date. Its seems that sales management at Bayonne is not developing a good track record for on time delivery because of miscommunication going on between the departments. Also, sales management places high relevance on pricing aggressively to the market, which may conflict with profit margins of the company.
Service: Bayonne provides all necessary services such as design assistance and final delivery of the package. It is important for the company to gain customer approval when developing artwork and package design as it directly affects profitability. This is why the sales force at Bayonne works closely with the customers showing that the company respects the important decisions that they make since these customers are the ones that make the product sell to end consumers.
Profit Margin: President Dave Rand complains about margins, but not about volume.
Product R&D, Technology, and Systems Development: Bayonne’s strength is in innovative and difficult package design and their ability to fold and glue complex blanks. In order to remain innovative and keep volumes high; the company uses high-speed machines such as the International Royal and International Queen. Bayonne also uses a computerized scheduling system, which add up the standard set up and run hours for every order released to the plant and schedules order by priority. However, the use of the computerized scheduling system is having a negative effect in terms of order processing.
Human Resources Management: Since Bayonne is mainly a family run business, there are no real HR practices in place. Employees essentially work on a “do what it takes” system and there are no training procedures. General administration: n/a
a) Staffing the Organization
Bayonne Packaging began as family business and later grew into a larger organization. However, the lack of cross-functional communication may be indicative that no proper training is realized as the departments work as silos rather than one unified organization. Bayonne recognizes the importance of good upper management seeing as the old VP of operations was fired and replaced by John Milliken who has a background in general manufacturing and seems to exhibit traits of a valuable and talented employee. Since Bayonne incurred a loss in 2011; this may reflect on the fact that management is weak, and employees may not be valued as important assets that tie directly to strategy execution and gaining of competitive advantage.
b) Building on Organizational Capabilities
Bayonne’s ability to manage people to gain competitive advantage is lacking. Through internal development, Bayonne can build on their scheduling capability. Since each department works in a separate manner, there is no synchronization, which interferes with orders being successfully completed. Second, Bayonne’s capabilities in specialized packaging can also be improved through internal development by having managers at the company set an objective to develop this capability and organize activity around it. Bayonne is able to differentiate themselves by possessing strength in innovation and difficult packaging design (i.e. working closely with customers in the design and adding personal touches in the finishing department) but lack of collaboration and communication in the company have resulted in operational deficiencies.
c) Creating a Strategy
Supportive Organizational Structure Bayonne is not properly organizing work efforts in a strategy supportive fashion. In order to excel in the key performance measures of cost, quality, speed and dependability embedded in their strategy – they may have to reassess operational activities. A strong management team has to be built within the company in order to assess which value chain activities, for example, should be performed internally and which ones should be outsourced. Currently at Bayonne their organizational structure is not aligning with their strategy; in part due to communication problems. Also, there seems to be no delegating of authority or facilitation of necessary collaboration and coordination with external partners and strategic allies.
d) Allocating Sufficient Resources to Strategic Execution
Bayonne is not operating as cost-effectively as possible. Although sales management may be pricing aggressively to customers by offering a high price per piece – this indirectly affects profit margins at the company. Bayonne is not using their resources (i.e. their machines) in an efficient manner.
e) Instituting policies and procedures that drive strategy execution activities There are currently no policies in place at Bayonne, which may hinder good strategy execution. The work climate is not one that facilitates good strategy execution; employees are unnecessarily being yelled at, and pressured to run orders in short notice of receiving them. Bayonne’s procedure for preventing or finding defects is signing off the first good piece the operator runs and then recording it in the Work Order Jacket. However, this shows a degree of carelessness in ensuring good quality as often there is a possibility for more than only one piece being defective. Excelling in cost, quality, speed, and dependability is being compromised by lack of communication and coordination among employees when they disagree on acceptable partials and make up their own “rule of thumb” that is not in sync with the goals of other departments.
f) Adopting best practice and business processes that drive strategy execution activities Bayonne has not adopted any benchmarking methods that would help in implementing best practices. The only common practice at Bayonne is in recognizing revenue when its billed the customer, and billing when the product is shipped. In October 2011, Bayonne was late with their deliveries more than 20% of the time, compared to 2009 with only 5%. This is affecting Bayonne’s ability to excel in the dependability aspect of their strategy; also since customers are aware of this and consequently ‘move up’ their orders
g) Installing info and operating systems that enable company personnel to do their strategic roles proficiently The computerized scheduling system at Bayonne is weakening their organizational capabilities. Many employees find the scheduling system to be useless, as the printouts do not accurately reflect what has been finished and what needs to be started. Lack of accuracy and timely information about daily operations does not allow for managers to gauge how well the company is executing their strategy.
h) Tying rewards and incentives directly to the achievement of strategic and financial targets There is currently no reward system in place at Bayonne. This causes for lack of motivation and engagement among staff. Employees are neglected and not encouraged for their hard work as managers are only focusing on expediting orders by getting them authorized by Dave Rand.
i) Instilling a corporate culture that promotes good strategy and execution There is no corporate culture in place at Bayonne. The work environment is not strong or positive. Miscommunication leads to misunderstanding among employees and even screaming. Managers are not properly guiding employees in the right direction of how to do things right and doing the right thing – instead they are focused on their own goals in mind.
For example, Wascov only focused on pricing aggressively to the market and expediting orders causing for other departments to rush orders and compromise quality which leads to the upset customers) No commonly held convictions in place of how the company’s business is to be conducted – instead, departments make up their own separate rules leading to incisiveness across the board.
j) Exercising the internal leadership needed to propel strategy implementation forward There is no strong internal leadership in place at Bayonne resulting in lack of synergy between the departments. This is why new VP of Operations; Milliken has been put in place. He seems to be staying on top of what is happening by touring the factory and asking relevant questions to department managers in aim of propelling strategy implementation forward. Neil Rand (Dave Rand’s uncle) is not exhibiting traits of a proper executive for Bayonne. Although he does whatever it takes to eliminate work order delays, he does this by randomly showing up and neglecting other important orders. This leads to requests for earlier finishing dates and inevitably leading to an increase in late orders.
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