Gilsom Paper Inc. is a medium size supplier of specialty paper used in making traditional (paper) wallpaper. The company began operations in 1935 as a small two paper machine mill located in the town of Pisgah Forest, North Carolina.
With an abundant amount of labor, water and cheap pine wood available, Pisgah Forest was the ideal location for a paper mill.
This base paper produced at Gilsom was shipped to wallpaper manufacturers around the globe for coating and packaging. Since traditional wallpaper was ecological, demand was high for use in bedrooms and dining rooms of residential homes.
This type of wallpaper is very inexpensive, but does have some drawbacks. It has a tendency to fade over time and is not washable.
Despite this, business increased and 4 new paper machines were installed between 1945 and 1966 as sales grew annually. Sales demand continued to be satisfied and peaked in 1990 with over $2B in sales.
At the same time sales peaked, housing construction was accelerating and the need for pine lumber grew with it. In addition, traditional wallpaper fell out of favor as new types of wallpaper were being marketed heavily in the residential market by new competitors.
As sales declined, Gilsom CEO, Rob Pettry, decided that the current business structure of Gilsom was no longer able to respond to the fast paced and technological changes resulting from computer systems.
Rob noted that the processes developed in the early 1990’s wasn’t driving improvement and increased profit any more. Rob wasn’t sure exactly what the solution was because he really didn’t understand the problem.
He decided to create a new position, called Supply Chain Director, and hire an individual that was outside of the current organization to get a fresh perspective on SCM.
This person had to have the knowledge of the individual department functions in the paper industry to make the necessary recommendations.
He was specifically looking for someone who could review the processes in each department with an emphasis on integrating all the internal (Sales, Marketing, Operations, and Logistics) and external organizational functions (suppliers and customers).
He felt that a lack of communication, continuity, and cooperation could be the problem. In short, he needed someone to recommend and facilitate the improvement of Gilson’s organizational relationships in order to reduce cost and increase profits.
This person also had the arduous task of knocking down the “silos” and promoting cross functional teams for better communication and cooperation.
After numerous interviews, Rob hired Carla Stephenson. Carla was a veteran SCM professional with 25 years of experience in the pulp and paper industry.
After her onboarding with Gilsom, she immediately asked for a meeting with the accounting/finance group to review the corporate balance sheet, income statement, and Cash flow statements to determine what are is in the most need of change.
In her meeting, she found that operating and inventory costs were abnormally high. Running an inventory aging report, Carla found that 25% of the current finished goods inventory has not sold in over two years.
Many of the raw material inventory items had become obsolete due to expiration of “Use By” dates. Further analysis showed that many account receivables were over 60 days past due with several exceeding 90 days. Carla asked Carol, the Accounting/Finance Manager why so many invoices are over 60 days past due.
Carol stated that Mr. Pettry likes to extend favorable terms to his customers and does not want us to go beyond one phone call per month to ask for payment. He wants to maintain a good relationship with the customer.
She was also concerned about inventory levels. Both contributed to the decrease in cash flow needed to fund the daily operations of the mill.
Due to the high levels of late A/R receipts, cash flow barely covered the A/P expenses. Gilsom repeatedly had to borrow money from the bank to make both debt payments and payroll. Carol replied that Carla would have to speak to Sam Spade, the Operations Manager for the answer to the inventory issue.
Before talking to Sam, Carla spent the rest of the day reviewing the operations data for Gilsom. Carla found that operating expenses have increased over the past three years. In addition, the MRO (Maintenance, repair, and operating) supply account showed a very low expenditure for maintenance, repair, and operating supplies.
The equipment was not being maintained. This was evidenced by the increase in paper machine down time figures over the last couple of years.
When Carla asked about this downtime, she was told that they have experienced some low quality raw materials from suppliers that were causing the paper machines to run poorly with excessive amounts of non-conforming (reject) product. The combination of poor maintenance and poor materials was taking a toll on the operation.
It was now time to meet with the supervisors and managers to get a clear picture of what is actually happening. First, Carla met with Sam. Sam was a veteran paper maker for 30 years and highly regarded in the mill.
Carla asked Sam why inventory and operating costs were so high. Sam stated that when they get an order for paper, the order is prioritized by customer, not due date.
Sales would bypass the production control group and talk directly to Sam, asking him to put his/her customer ahead of everyone else.
Since some customers have been with Gilsom for over 50 years, their orders would take priority over other newer customers.
Sam also stated that it was common to “overrun” production as the Sales group wanted product in inventory “just in case” an order would be placed. Sales would always say “If we don’t have it, we can’t sell it”.
Because of this priority production, we have had to curtail the production of another customer’s product and change over to paper for the priority customer. Each change over to a new product is expensive, but is necessary to meet the demands of our top customers.
Carla was starting to put together a picture of what was happening here at Gilsom. Her next stop was to see Vickie Rivers, the Customer Service Manager. Vickie had been struggling lately with employee retention.
The high turnover and “rapid” training of new CSR’s was causing order cycle times to increase, which contributed to a reduction in On Time Delivery (OTD). Poor training was causing Vickie to pull her most experienced CSR’s away from their duties to train new CSR’s.
When Carla asked why people leaving the company, Vickie stated that new companies were opening in the area with updated ERP systems that perform many of the tasks performed manually by Gilsom CSR’s automatically.
Vickie acknowledged that the current IBM AS400 system used by Gilson was antiquated but there was not any money allocated to replacing the current system.
After Carla’s meeting with Vickie, she called Brad Johnson, IT Manager and asked to meet. In her meeting with Brad, Carla found that the IBM AS400 system was outdated, limited, and troublesome to maintain.
He was hoping to get approval for a new Microsoft Dynamics AX (ERP) system rather than the AS400 with several bolt-on programs.
Asked why there was not one ERP system that connected all functions of the organization for better communication and planning, he stated that he had proposed using a cloud based ERP system to Mr. Pettry several times.
He stated that given the decreasing profits and operational issues, Mr. Pettry would not approve any project that did not return an ROI of 30% in the first year with a payback of 3 years. Brad was hesitant to agree to that and the project was dropped.
- How should Carla proceed at this point?
- What proposals should Carla make to Mr. Pettry on process improvements and integrating both the internal and external organizations? Should she include cost projections in her proposals?
- Assuming Mr. Pettry decided to accept Carla’s proposals, how do you think Carla would go about implementing them within the organization? (i.e. Top down, bottom up, both ends of the organization at same time). Who must accept and champion these changes?
- Do you think you would meet with any resistance from the employees? If so, how would you handle this?
- In summation, what were your changes designed to accomplish?