..

.. NOTE: This is a fictitious case.

.. However, it is based upon a real

consulting project undertaken in
.. the UK.
..

Strategy Project: Woodlands Group

. . . . . . . . . .
Introduction:
The Woodlands Group consists of three semi-autonomous companies
which operate together to produce, cover and sell processed wooden
boards. The wooden boards are mainly used to manufacture household
and business furniture, such as kitchen cupboards and desks. Last year the
group, which had previously been owned and run by John Albion, fell into
financial difficulties. It was bought by Tyzacks Ltd. who have appointed a
new managing director, Harry Symons. Harry is your client.

Harry has been in the job for six months and has recently held a meeting
with the business managers of the three firms - Albion Mill (John Albion),
Bettafinish (Tony Thompson) and Surface Stockists (Daisy Elworthy). None
of the managers agree with each other as to the best way forward for the
group and each has their own management style. Each firm has made a
specific request for the future - Albion Mill and Bettafinish want new light
gauge machines and Surface Stockists wants a new warehouse.

At present Harry wants to get a good overall feel for what the group is
doing and what a good strategy might be. Harry has arranged for each of
the three managers to produce a summary report, which are included in
this document. He has asked you to perform a strategy project for the
Woodlands Group and write a report.

In terms of the focal business unit, Harry would like you to look at the
Woodlands Group as a whole, rather than as three separate business units.

 HUBS 1 of 7
 ..
..
..
..
..
Albion Mill Report
Written By: John Albion

The Albion Mill has been working on this site for over two hundred years. After
the Second World War, we (my family has always owned the company) changed
from dealing in raw timber to the production of processed wooden board. We
could see a large future demand in the furniture business. The business was
successful and we bought Bettafinish in 2002 (they place a vinyl cover on the
wooden boards) and then Surface Stockists in 2009 (they sell finished boards to
furniture manufacturers). We can therefore control the supply chain from board
production to sales of finished boards.

Albion Mill ‘sells’ most of its board production to Bettafinish. I say ‘sell’ because
(since Tyzacks took over) for some accounting reason we have to sell the boards
to Bettafinish even though we are part of the same group. It’s rather confusing.
Also, since Tyzacks took over the group, we have to pretend we are 3 autonomous
companies, even though we are really all part of the same company. Tyzacks
believes this will make each of us more competitive.

We manufacture 3 types of wooden board - light gauge (6 gram), medium gauge

(8 gram), and heavy gauge (9 gram). Each board is a different thickness and
strength. There have apparently been complaints about the strength of the light
gauge board in recent years, but I don’t believe this is a major problem. I spoke to
a contact who is a buyer at Elizabethan (one of Surface Stockists’ main customers)
recently who said the strength of the light gauge was fine. We have been reducing
the amount of fiberglass strengtheners in the boards as it is very expensive. Don’t
let Daisy Elworthy tell you the boards are too weak. She may have an MBA from
Hull University, but I’ve been working in this business all my life!

We limit the amount of heavy gauge board (9 gram) we produce, because it’s
pretty expensive to make and we’ve always felt we should concentrate on our
main customers who want light gauge board. I hear Tony Thompson has been
buying heavy board from outside the group. That seems crazy to me, giving
business to the competition!

Our overheads are allocated by weight because we require twice the volume of
pulp to produce each heavy gauge board when compared to each light gauge
board. Total overhead is £640,000 and is tightly managed by myself. Clearly, the
light gauge board is more profitable. We believe some of the competition are
selling heavy board at a loss in order to maintain their sales of the lighter board.
Most of our boards go to Bettafinish, although some 9g boards (40,000) are sold
to external companies at the same price. This makes us feel our prices are
justified, despite Tony’s constant demands to lower our prices. The production
process is as follows: Steam pulp the raw material wood. Add resin and pour into
moulds. Press the boards. Fire the boards in the oven. Perform final cure of the
boards.

 HUBS 2 of 7
 The Albion Mill factory runs efficiently. Efficiency is the key in a manufacturing
factory like this. The production of wood is a traditional business and most of our
staff have worked here for many years. A wood producer is a proud and simple
type of man. He feels connected to a traditional of wood production and takes
great care to do the best possible job. Our traditions are strong, not like the
heartless technicalities of Bettafinish. I am very proud to have been working in
this factory for my whole life. We have had a few problems with some of the
younger staff not taking the ethos of the wood producer seriously, but we have
tried to remove these workers from the factory.

Gauge heavy medium light (6g)

(9g) (8g)

Thickness (inches) 1 0.75 0.5

Weight per board (lb) 400 300 200

Cost to us (£ per ton) 132 130 129

Selling price (£ per ton) 140 141 146

Number produced 55,000 60,000 85,000

% profit 5.5 7.7 12.7

Table: Production details

Recently we have been considering buying a new oven at a cost of £50,000 and
allocating it specifically to the light gauge so we can have longer production runs.
The new machine would therefore help us increase our efficiency on the lighter
gauge boards and improve our profits. However, we haven’t been able to work
out how the factory would operate with such a new machine. It’s been 5 years
since we’ve had time to examine the production process as a whole.

We’ve also been thinking about developing a new way of purchasing our raw
material. There are new European regulations coming in about the sustainability
of timber production. There have also been new sources for wood opening up in
East Europe and we may be able to use business to business Internet methods
too. There is uncertainty regarding Brexit though and how these relationships
might be affected. However, I haven’t had the time to think about this recently
and I have long standing contacts with wood producers in Sweden, whom I trust.

Regarding the long-term future of the Albion Mill, I think it is clear the three firms
should operate as a single business again. My family has owned this company for
hundreds of years and I feel I am the person with the experience and the contacts
to run the group correctly in the future. Clearly, ownership of the Woodlands
Group is an important issue for me, but I am keen to see Woodlands become
successful again under Tyzacks’ ownership. Consumer confidence has been hit in
the last 10 years with the financial crises and then the Brexit fiasco, but I’m
confident the market with bounce back to normal once the situation settles down.

 HUBS 3 of 7
 ..
..
..
..
..
Bettafinish Report
By: Tony Thompson

Bettafinish coats untreated wooden board with six types of vinyl plastic surfaces.
The vinyl plastic sheeting is glued to the boards under pressure and the glue is
applied just before rolling. It’s a scientific and technically difficult process and our
workers are very highly skilled. That’s why other companies find it difficult to
compete with our expertise. We buy 75% of our untreated board from Albion Mill
– a high percent of it being lighter gauge. We sell all of our finished board to
Surface Stockists.

There have been problems with our relationship with Surface Stockists. We know
they need big quantities of light gauge boards and we propose to purchase a new
No.2 machine (we have five machines at present) at a cost of £70,000 so that we
can supply it more easily. It would increase our output without any increase in
labour and be ideal for high volume batches. We know we have the best machines
on the market. Lavers, our main competitor, has been experimenting for years
with other processes and materials without any success.

We have a contract with Lavers for 35,000 heavy gauge boards per year. This is
from outside the group, but it is in response to Tyzacks’ policy that each
organisation in the Woodlands Group should operate autonomously. We are also
starting to buy in lighter gauge from outside the group, but only in small amounts.
This is to put pressure on Albion Mill to lower their prices. Actually, it is only the
heavy gauge that we can buy cheaper from outside the group, but don’t tell John
Albion that, I’d like to keep it a secret. I want him to think that Lavers can undercut
them on all three gauges.

It makes less sense for us to sell heavy gauge boards to Surface Stockists and I
know Daisy understands this. As you can see from the profitability table, even
with the cheaper heavy gauge board from Lavers, we only make £13.24 per board
on the heavy gauge, compared to £13.76 for the medium and £14.28 on the light.
And we can’t actually get more heavy gauge board from Lavers as they already
have too many orders. The Albion Mill charge £1.12 per board more than Lavers.
Also Albion Mill insist on charging by weight which is confusing to us as we deal
in number of boards.

Another problem is that we have difficulties with the way Surface Stockists’ order
their boards. We are supposed to operate a three-week cycle where batch sizes
represent three weeks demand. But their orders are much smaller than that and
as soon as they place an order they are chasing the delivery. This gives us a
problem in organising longer production runs. The faster throughput rate of new
machines would give us more flexibility, but this wouldn’t be so much of a
problem if we were operating a three-week cycle as we are supposed to be doing.
Then we would only require 13 changeovers (one for each gauge/ finish
combination) in each three-week period. At present we have more than that.

 HUBS 4 of 7
 (£ per board) Heavy (9g) medium (8g) light (6g)

Income: sales 79.64 66.56 53.95

Costs: board 55.84* 42.24 29.12

Glue + surface 10.56 10.56 10.56

Total costs 66.40 52.80 39.68

Profit 13.24 13.76 14.28

Table. Profit details (*Lavers´ price).

Daisy, in fact, doesn’t have the warehouse space to operate a three-week cycle
across the whole product range. Her small orders for heavy gauge are an
indication of that. She does, however, place large orders for light gauge, which
we always run first as it is more profitable for us and we can achieve more efficient
longer runs. Daisy’s predecessor ran a two-week cycle which seemed to work
smoother. The truth is that Surface Stockists suit themselves concerning ordering
and it is only the skill of my operators in keeping quality on the shorter runs that
makes the system work. In fact it is the skill of my employees that is our greatest
asset, in my opinion.

Regarding the future of Bettafinish, I really don’t know. I am an expert in the

technical aspects of placing the vinyl plastic sheeting on the wooden boards. I
have been doing this all my working life. My technicians here really are the best
in the business and I just wish we could sort out the flow of boards from Albion
and the orders from Daisy so I could get on with my real job - covering boards
efficiently and experimenting with new vinyl compounds and finishes with my
technical teams.

I’m interested to explore the proposed new environmental regulations about a

circular economy. It’s possible we may need to change the materials we use in
the finishing of boards due to problems with waste disposal and recycling of
finished products. Also, Daisy keeps arguing we may need to offer much more
options to the customers in the future and therefore more responsive production
methods. I really don’t have the time to look at that at the moment, but the
developments of manufacturing 4.0 is interesting and I would like to do more
research into this. It’s possible we may need to be more modern in production
and this may give us some advantages in the market.

If my job is to make a profit, then I will continue to purchase heavy gauge boards
from Lavers, as they are cheaper, and concentrate on producing the light gauge
for the extra profit. However, I really don’t have a lot of market intelligence.

 HUBS 5 of 7
 ..
..
..
..
..
Surface Stockists Report
By: Daisy Elworthy

We stock finished board from Bettafinish and some untreated board from Albion
Mill and try to supply our manufacturing customers with a fast and reliable
delivery. We also have facilities for trimming and specialist packaging. 55% of our
boards go to 4 major customers and it is crucial we keep a reliable delivery to
these customers. The mean lead-time of orders to Bettafinish is 16 working days,
so we wish to increase our stock in the warehouse to 20 working days. This means
an increase of 30% in our stockholding volume. Hence my request to expand the
warehouse. When we have this 4-day safety stock, we can then offer to deliver
from stock and therefore start to place larger orders with Bettafinish. We have
tried to do this before, but it didn’t work. Bettafinish don’t understand that our
customers take a range of products and require reliable delivery on all of them,
not just the more popular ones.

There have been a growing number of complaints about the strength of the light
board, but not from our 4 major customers (they do not appear to require
strength in the boards). These boards appear not to be as strong as they used to
be, but Albion Mill are not interested in changing the boards or even talking about
it. We really don’t know for sure what is going on. We paid £40,000 in
compensation last year because of weak boards and £10,000 the year before that.
We are looking for alternative products to stock unfortunately.

We are keen to expand our business, even if this means stocking boards from
outside the group. A recent marketing survey predicts an increase in the demand
for heavy gauge board and this supports our experience talking to our customers.
Also, it seems likely some customers presently purchasing light gauge board will
change to a plastic based material being developed by Lavers. However, we are
not sure about this. It’s possible there may be environmental regulations which
could affect our boards and also the plastic ones I would think.

We predict we could sell an extra 15,000 heavy gauge boards next year. However,
at present we are unable to quote a delivery date on heavy gauge as delivery from
Bettafinish is particularly poor. We are getting ready for the reduced demand for
light gauge board by talking to Lavers about stocking their new plastic light gauge
boards. However, we do not have the technical expertise to assess how our
customers would use the plastic boards and which customers would make the
change to plastic. We need more information on this as soon as possible. I don’t
think anyone inside the group actually knows. It’s frustrating, as Tony Thompson
is a technically gifted manager, but appears not to be looking into the
development of Smart Manufacturing, also called Manufacturing 4.0. There are
clearly changes in the market coming and we don’t appear to be reacting as whole
group. Plastic may the future, but with environmental regulations becoming more
powerful all the time in Europe, it maybe that other materials are needed.

 HUBS 6 of 7
 11

8
light
medium
6 heavy

0
2018 2019 2020 2021 2022

Graph: Forecasts for boards in UK (x 1 million sq feet).

Heavy gauge is the most profitable for us to sell, but it is very important that we
are known to be reliable at delivery. Rivalry in the industry is medium and we
would be uncompetitive if we offered delivery in more than three weeks, yet it is
usually taking over three weeks to fulfil an order. We find this very frustrating!
Hence, we are presently trying to deliver from stock and placing specific orders
from Bettafinish and requesting immediate delivery. If we are to expand, we need
to make our supply chain much more efficient. Because we are stockists, we try
to control our costs and maximise the difference between our buying and selling
prices. We call this difference the “contribution”. Even though the heavy gauge
requires more warehouse space, we regard it as our most profitable line.

(£ per board) Heavy (9g) medium (8g) light (6g)

Purchase price 79.64 66.56 53.96

Selling price 92.86 75.56 61.75

Contribution 13.22 9.00 7.79

Table. Profit details.

Surface Stockists is a dynamic and expanding operation. Our whole strategy is

based around customer service and my staff are well trained to deliver this. We
would welcome a new and aggressive style of management from Tyzacks and feel
sure it will bring much needed changes to entrenched positions and outdated
practices within the Woodlands Group. I feel sure Surface Stockists will overcome
its supply problems soon and really start to delight our customers. I think there
are opportunities for us if we can embrace Smart Manufacturing and get ahead
of the new regulations coming to the UK. We think consumer confidence will
improve once Brexit has past and demand for flexible and quick supply of boards
will be strong. We think the market will focus on quick delivery of a wide range of
designs, so we need to at the forefront of analytics driven manufacturing. We are
looking forward to a prosperous future under Tyzack’s control and feel sure we
can continue to make money so long as we listen to our customers.

 HUBS 7 of 7