Executive Summary

Stermon Mills is small, independent fine-paper

producer. The company is nearly one hundred
years old and operates with some machinery that
is nearly 50 years old. At present, Stermons
machines are very costly to operate based on the
amount of output they produce. Faced with some
of these issues, Stermon Mills must decide on
the best course of action to take to improve the
overall business of its uncoated paper
production.
Some of the options that Stan Kiefner may
choose include: (1) upgrade machine #4 which is
the largest and newest machine producing nearly
50% of the output at Stermon Mills; (2) adopt
new ways of working at the plant which would
include the changing of the run cycles on
machine #4 which would reduce changeover
times; (3) improve the yield on machine #4 on
the less frequently produces grades of paper
which is currently more strongly focused on 20
lb. Xerox paper; or (4) accelerate the flexibility
program which was being worked out with the
Union. This program would improve the
effectiveness of the labor at the plant and was
already underway. Also, creating an effective
workforce that had an effective use of time
would increase production and lower overall
labor costs. It is important to note that the best

course of action may be a combination of two or

three of the best choices that are offered. Also,
some of the choices may conflict directly so it is
important to choose the combination that will
offer the best combined effort.
Market Analysis
The North American market is the worlds largest
producer as well as consumer of uncoated fine
paper. Using 1989 estimates, this North
American market accounted for nearly 45% of the
uncoated fine paper capacity and 44% of the
worlds uncoated paper consumption. Production
in US and Canada met nearly all the demand for
uncoated paper in North America. Imports and
exports of paper accounted for only 5%,
however, there has been growth recently in the
high quality coated or top-end and commodity
uncoated low-end fine paper.
Growth in demand for uncoated fine paper
increased in the late 1970s due to a growth in
the information processing area of the
office/business segment. Also, US uncoated fine
paper shipments had increased significantly
when compared to the other classes of paper.
This strong growth in demand for uncoated
paper in the 1980s along with capacity

expansions to meet long-term demand hurt the

industry during the 1989-1992 recession.
The recession had left excess capacity in the
industry along with depressed prices.
International Paper was the worlds largest paper
company with sales of $ 12.96 billion in 1990.
Uncoated fine paper accounted for 18% of its
total sales. It also produced a full line of
uncoated paper with such well known brands as
Hammermill and Springhill.
Various types of papers were offered such as
printing, envelope, tablet and reprographic.
Consumers also showed a strong preference for
Hammermill laser paper.
Georgia Pacific (GP) was the worlds second
largest paper company after acquiring Great
Northern Nekoosa (GNN) in March of 1990 for $
3.7 billion.