Case

Smurfit Paper Company

Case Analysis:

Smurfit Paper Company is an international paper manufacturing company specializing in paper-based packaging. The sales manager, Juan Alfonso, is approached by Multilever Food and Beverage Company for a three year contract. The terms are 200 Euros per unit with a monthly purchase between 1000 and 1800 units per month.

Currently Smurfit is running at 80% capacity with its current customer base. The new order will max out Smurfit’s facility at 1500 units per month. The new order at 200 Euros is a 20% reduction compared to the pricing of its current customers. Acquisitions and mergers are common in the paper industry so the possibility of pricing disputes and contract agreements are likely to cause issues in the market.

There is a strong relationship between the capacity issues and the pricing decision by Juan. Maxing out the facilities capacity hinders any future potential clients unless they expand their facilities. The other issue lies in the profitability or lack thereof with the new venture

The relationship between accepting the project and the future growth of the company rely on acquiring a pricing strategy to maintain a positive bottom line.

New Problems:

With the new incurred costs from the potential deal, can Smurfit Paper Company sustain a reasonable rate of return with the 20% discount? Should the sales manager be responsible for handling the financial arrangements between SPC and MFBC? What are the financial consequences to the bottom line if SPC’s current customers receive the same prices MFCB lock in?

Objectives:

Whether to approve or reject MFCB’s order

Determine if the company can sustain positive growth at maximum capacity

Alternatives:

SPC could reject the deal and continue to grow its current client base at the price of 250 Euros. Performing at max capacity eliminates future prospects. The 6000 prior month order is merely an average. If their current clientele cannot order above their...