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Dairy Pak

Dairy Pak. A “Value Chain” Perspective on Product Line Strategy. Dairy Pak. The year is 1988, and the Vice President of the Dairy-Pak Division of Champion International has to make some tough choices. This is what he is facing:

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Dairy Pak

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  1. Dairy Pak A “Value Chain” Perspective on Product Line Strategy

  2. Dairy Pak • The year is 1988, and the Vice President of the Dairy-Pak Division of Champion International has to make some tough choices. This is what he is facing: • The fastest growing segment of the carton market is where their business is declining • Their manufacturing system is old • Limited production capacity; no growth • Rapidly expanding international market offers opportunities, but could bring more problems than opportunities

  3. Dairy Pak • Champion International is one of the top domestic producers of Pure-Pak polyethylene coated paper cartons. • As the name might imply, the original use for these cartons was for dairy products like milk and cream.

  4. Dairy Pak • Competition came early from the plastic carton manufacturers • The market for poly-paper cartons shrank, but stabilized. Champion DairyPak survived and is #2 in the industry

  5. Dairy Pak • As customers demanded more convenience and variety, the market for prepared ready-to-drink fruit juice grew quickly. • This segment of the carton market is growing rapidly as more beverage companies are entering the juice market.

  6. Dairy Pak • International Paper is the market leader and also has superior technology. • IP is also rapidly expanding into foreign markets, sometimes sacrificing their domestic market to competitors like Champion

  7. Dairy Pak OK.. So let’s take a look at the company. Champion has not expanded capacity since the 1960s. They can produce 250,000 tons of poly coated paperboard annually. The machines that coat, wrap, and print the board for use have not been updated for decades.

  8. Dairy Pak When the juice market exploded in the 1980s, Champion was not prepared to meet the needs of these customers. They chose to compete on price alone rather than quality and diversity.

  9. Dairy Pak Looking at the market, we can learn the following facts: • Champion, as well as other manufacturers, have no growth in the dairy product carton market • Non Dairy & specialty juices are the leading growth area • The export market is growing rapidly

  10. Dairy Pak

  11. Champion’s Paperboard Production

  12. U.S. Folding Carton Stock Export for Liquid Packaging by Destination (000 tons)

  13. U.S. Folding Carton Stock Export for Liquid Packaging by Destination (000 tons)

  14. 1988 Domestic Share of Market for Ready to Serve Orange Juice

  15. Orange Juice Manufacturer’s Use of Paperboard Cartons

  16. Q1: Dairy Pak Value Chain Paper mill Extruder Conversion OJ Manufacturers Regional Dairies Supermarkets & Distributors customers

  17. Value ChainRegional Dairy & OJ –vs- Branded Orange Juice

  18. Value Chain mill – extruder – processor

  19. Q2 – What can we learn from the value chain?

  20. Q2

  21. Q4: Analysis of Value Chain • What do we do now with this data? • Champion has the opportunity to expand or maintain status quo • What areas can be exploited for more profit? • Should Champion invest in new equipment to produce higher quality product?

  22. Q4Buyer Power Analysis

  23. Results • What should Champion do based on this value chain analysis? • Invest in new equipment to produce cartons for the branded OJ companies? • Focus on leveraging their existing products for their existing customers? • Focus on the export market?

  24. Our Opinion We feel that Champion should leverage their relationships with dairies, as this is where their greatest margins are. To invest in new equipment to service the OJ companies, they would need to invest over $65 million. Focusing on the dairy customer could lead to a stronger relationship and potentially the development of new carton designs for new milk products. These new premium products could produce higher margins and more profits.

  25. Q&A

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