This study focuses on the evaluation of the different types of policies. It also makes a proposal as to what policy would be best employed by Birch Paper Co. Harlan; William Rotch Publisher: Not the questions you were looking for? Get an answer by submitting your own questions. Case analysis for Birch Paper Co. Synopsis Birch Paper Company is a medium-sized, partly integrated paper company that is comprised of four production divisions and a timberland division. Key Issues No evidence of goal congruence amongst divisions.
Transfer pricing policy of company is lacking. Upper management would show contradictory behavior by decentralizing the company, while trying to influence and favor business interactions between divisions. This behavior sends conflicting messages to the divisions and could lead to disruptions and confusion. Thompson Division has put a bid price that is higher than the bids from the 2 competitors.
The Northern division produces the paper box, while the Southern division supplies the corrugating medium and inner and outer liners. It has been the company policy of decentralization to allow the divisions to act independently in all the affairs of their divisions except for the broader company policy, each division is judged on the basis of its profit generation and return on investment figures.
Each division is free to buy from any supplier he wished, and even for dealings within the company, divisions were expected to match the market price if they wanted the business.
If Thompson gets the order, it would buy linerboard and corrugating medium from the Southern division.
If Eire Papers win the bid, they have agreed to buy outside liner from the Southern division and print their boxes from the Thompson division. The manager of the Thompson division is adamant on its bidding price, it includes the full 20 percent overhead and profit charge and its manager feel that his division is entitled to the profit having done the development work on the box and having received no profit.
The Thompson and Southern divisions are not operating at their full capacity, their under utilization is of concern to the Vice President. This transaction, although less than the 5 percent of the volume of any of the divisions involved, might affect the future transactions of the divisions.
In Birch Paper Company, each division is judged by the profit it generates and the return on investment to the capital invested in. This model has delivered results in line with the expectations from the top management. Except for the overall company policy each division is authorized to take all the decisions independently including the purchase and sales within the company divisions.
Accepting this bid will mean no business for the Thompson and Southern divisions at all, which already are not in a good financial state. It is competing in a highly competing market and buying at this price will mean compromising heavily on its profits. But this deal will be a boost to the fortunes of the sick Thompson division, it will make some profit and will add some positive to its balance sheet. Also it will give business to the Southern division.
Deal will be in benefits of the Birch company but that will come at a cost paid by the Northern division. Also this might create problems in the future, divisions might be tempted to go for higher bids when bidding for the internal divisions order. The deal will bring some business to both the Thompson and Southern divisions of the Birch company. There is one major issue concerned with the operations of the Thompson division, whether it is operating efficiently.
The Vice President finds it odd that the manager of the Thompson division has added the full overhead cost and the profit margins to the bid price, which could have been more competitive. Also, the Southern division is operating at the market price although it is also facing the similar problem of under utilization of its full capacity. He has also to see that the deal is fair to the other divisions as well, the Thompson and Southern divisions are in dire need of the business and it is in the interests of the company that they keep running profitably.
The total cost to the company should be low. The commercial vice president is facing this unusual situation, where he has to decide whether to intervene into, and if yes what should he do and how? He has a lot of options with him as to what to do, and to decide which is the best option is the problem faced by the Vice President.
But at the same time the Thompson division is struggling to make profits, acceptance of the Thompson bid will make the Northern division lose out to the competitors. To decide as to what action to take keeping in mind the best interests of the divisions and the company is the decision problem faced by the Vice President of the Birch Paper Company.
Below mentioned points should serve as the criteria to the decision to be made by the Vice President. Divisions remain competitive in the market.
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Birch Paper Company is a medium-sized, vertically integrated paper company, producing white and kraft papers and paperboard. It has four producing divisions and a timberland division which supplied part of the companyâ€™s pulp requirement; each division is operating independently headed by its respective division managers.
Birch Paper Company is a medium sized, partly-integrated paper company. It produces white and craft papers and paperboard. It has four producing divisions and a timberland division – The Thompson division converts the paperboard output into corrugated box and prints and colors the outside surface of . Careers A Career At White Birch – Learn about our culture.. We are a family-owned and operated company and it this aspect that distinguishes us. Although we operate four of the top 10 newsprint machines in the world, machines don’t make paper—people make paper.