Signode Industries Inc (A) Essay

2090 words - 8 pages

Signode Industries Inc. - Providing Packaging Solutions Executive Summary SIGNODE INDUSTRY: DILEMMA AT HAND: Mr. Gary Reed, President of Signode Industries packaging division, is in a dilemma as what he should be his course of action to meet the 6.8% increase in price of cold rolled steel- the raw material used in manufacture of Signode’s primary product, steel strapping. There are few options given in the case: Increase Signode’s strapping prices to offset the increased price of cold – rolled steel. Maintain Signode’s current book prices as increasing prices would affect sales force morale. Introduce price-flex model as proposed by Jack Davis i.e. a kind of selective discounting or premium charging for customized services. Recommendations Reason: (All data in accordance to 1983) In accordance to Exhibit 1: Sales of Packaging Division of the company = $285,950 In accordance to Table A: Sales of Apex = 33.3% of $285,950 Sales of BBM = 26.8% of $285,950 Sales of HDM = 33.4% of $285,950 Sales of Customized Products = 6.5% of $285,950 In accordance to Exhibit 4: Similarly, For Apex: As it has a capacity utilization of 71% now, Suppose a sale is $100. Then contribution is $39.15 Therefore variable cost is $60.85. Now if we increase the capacity utilization to 100%, Sales becomes $ 141 since production increases by [(100-71)/71] * 100 = 41% Variable Cost = 141% of 60.85 = $85.8 Fixed Cost = 69.38% * 12.3 = $8.53 Total Cost = 85.8+8.53 = $94.33 EBIT = Sales – Variable cost – Fixed Cost = $46.67 % of EBIT = [(46.67/141) * 100] = 33.09% Suppose the company sales 100x units, the total cost was 69.38. Thus per unit cost was .6938. Now the company sells 141x units, the total cost is $94.33. Thus per unit cost is .669. Therefore for APEX, the cost of production can be reduced by $(.6938 - .669*)* = $0.024 % reduction in Unit cost for Apex = 3.46% Similarly for BBM: % reduction in Unit cost for BMM = 4.44% Similarly for HDM: % reduction in Unit cost for HDM = 4.04% Data is insufficient for customized products. A more significant revelation is obtained from Exhibit 4 which shows that Signode is losing market share drastically in small and mid-range which comprises 41%(19+22) of total market. Another interesting fact is that the Apex steel strapping consists of a major chunk (62% & 46% respectively) of this market. So, over the time Signode is becoming less competitive in Apex Steel pricing. Apex steel is manufactured by the following players: Alpha  95% of Signode quoted price (50% Apex Steel, 50% Magnus steel) Sanford  93% of Signode quoted price (32% Apex Steel, 68% Magnus steel) Bentley  95% of Signode quoted price (25% Apex Steel, 75% Magnus steel) Jersey  93% of Signode quoted price (39% Apex Steel, 61% Magnus steel) So, there is a 7% quoted price gap between Signode and the cost leader, Signode has to reduce its landing cost to regain its lost market share. One...

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