Consultancy Case:   Papyrus  

Papyrus sells nationally to domestic and commercial catering customers its full paper products range. Four big competitors vie to produce premium-priced designs, and all compete against aggressively marketed imports from Scandinavia.  As profitability fell, bankers and fund managers asked questions.

 The Managing Director said it was a sales-force problem; wrong people, wrong training and wrong incentives, which were ‘too generous’. The Sales Director said he knew ‘who were deadwood’, adding, ‘you can’t make eagles out of ducks’. 

The Production Director said he needed another production line because he ‘could not cope with current sales orders, forcing many products into regular stock outs’. The Financial Director was not happy about spending money because a new machine also required large stocks of paper 

What were their solutions?  The three options were to:

•           cut out the ‘deadwood’; recruit new staff and train everybody

•           invest in a sixth production line

•           undertake both options together

The Managing Director commissioned a Negotiate Strategic Negotiation Consultant. He visited the plant and its warehouse, talked to the operatives about their insights, met many of the sales team, and went on sales visits, including to Key Account customers. He also talked to ex-customers who bought rival brands.

Our consultant rejected all three strategies.  Existing production, sales and customer data revealed that: the 7 largest supermarket chains accounted for 48 per cent of total sales; 12 large regional wholesale distributors, who delivered to scores of small retail chains accounted for 24 per cent; 9 independent retail chains (over 50 shop units) accounted for 11 per cent, and the balance of 17 per cent went via parcel post to ‘corner shops’ with annual purchases of only £5 to £50, from telephone sales. 

He said Papyrus had plenty of production capacity.  Paper products, even in the cleanest warehouse, spoil easily from water contamination and air-blown dirt.  Stock was held in shrink-wrapped loads on pallets, covered by heavy-duty plastic sheeting.   Customers, anticipating contamination, would not accept opened pallet loads.

But product from the wrapped pallets was drawn to fulfil part orders, making the balance unsuitable for shipping.  The consultant estimated monthly unusable waste production was twenty per cent.  If this were eliminated, Papyrus would not need a new machine.

The Negotiate consultant pointed to the folly of servicing uneconomic customers, suggesting that sales commissions on any order size was the wrong incentive.  Our consultant said this caused losses because partly-opened pallets could not be used for bigger orders for large customers, who then had to wait or go elsewhere.

He recommended that a high minimum-order value be charged to discourage small orders, and the practice of opening fully-loaded pallets be ended.  If small orders went to rival firms they made losses, not Papyrus.

Our consultant advised Papyrus to become a profit-, not a sales-, maximizer.  Not buying a sixth production line would improve net profitability, and staff savings from dismissing the ‘Ducks’ and retraining the ‘Eagles’, would also boost net profits.

Functional managers see problems from their function’s perspectives.  Sales were ready to fire people and train the others; Production saw it as a production capacity problem; Finance favoured not spending money. Their original solutions would have meant large-scale expenditures without profitable results.  The remedy to Papyrus Paper’s problems awaited discovery by Strategic Negotiators asking the right questions.