How Notebooks are MadeOperations Management Team Project

TEAM 4

Jungwoo Kim

Leeyoung Song

Donghun Oh

Sungjun Kim

Maggie Liu

I. Introduction

We will start by giving an overview of the factory. The dropbox video concerns a

specific Mead notebook manufacturing plant in Pennsylvania. Mead (previously known as

Mead Westvaco), is the leading brand of school and office supplies in the U.S. Mead also

caters to the European and Australian markets, but sales figures are much more modest

overseas. Due to recent financial distress, as of May 2012, Mead and its other subsidiary

brands were incorporated into ACCO Brands.1 ACCO Brands is an umbrella company whose

portfolio mainly consists of office and computer merchandise brands.

The dropbox video is a straightforward tour of the plant. Our guide, engineering

manager Christ Fowler, shows us how paper inserted at the start of the automated process

ends up turning into a finished notebook.

II. Analysis and Methodology

To analyze the challenges of the factory itself and its contextual settings, we relied on

three tiers of information. First, we relied on first-hand accounts from people in the paper and

pulp industry. Our team achieved this by sending out e-mails to manufacturers and retailers.

Of those who replied we were able to glean a significant amount of information. Second, we

1 The incorporation was not strictly an M&A. Only the brand was sold; Mead Westvaco still exists as a separate company.

analyzed the SEC financial statements of Mead and other companies in the industry. Last, our

team relied on third party materials such as scholarly papers, industry research done by

consulting firms, and the Westlaw database2.

We divided the current challenges of the factory into 6 categories, according to the

nature of the challenge. Suggestions for improvement and the pros and cons of the current

practice can be found in their respective categories.

III. Analysis of The Supply Chain

Nowadays, everyone knows that few companies make a complete product from start

to end. Some firm supplies the raw material, which is processed and provided to the final

assembly line, where the finished products are then made and sent all across the world. A

multi-tier organized process like this is the basis of the supply chain.

As a paper notebook ‘assembly’ firm, Mead School & Office Products also has a

highly globalized supply chain. Mead is essentially a middleman, which means that it turns

raw materials into products for wholesalers. It is comparable to firms such as Nintendo or

Apple rather than Morning Glory3, who not only manufactures products but also distributes

them.

While Mead also has an online store, more than 80% of its sales are to wholesalers.

More specifically, one thirds of its total sales are to its top 3 wholesalers. This means that it

heavily relies on close coordination with its customers. Also, Mead has overseas branches in

2 The Westlaw Database was used to search for recent legal problems in the industry.

3 Morning Glory is a leading stationary brand in South Korea, currently in the 1nd place in its industry in terms of brand recognition.

Australia and Europe while most of its manufacturing facilities are located in the U.S. We

can imply from this that Mead will incur considerable transportation and shipping costs.

Mead, while a supplier itself, also has 1nd and 2rd tier suppliers. It receives

manufacturing equipment from Lineomatic, a company based in India. Paper is mostly

supplied from firms inside the U.S., but the raw timber that is supplied to these firms are cut

down and shipped mostly from factories in India, China, or Brazil.

A good point to note is the changing atmosphere in

forest harvesting. While the U.S. has originally been the

leading producer of pulp, third world countries such as China

and Brazil are now emerging as powerful suppliers. It might

be wise for Mead as a whole to consider shifting their U.S.

based factories overseas, to facilitate pulp supply and lessen

transportation costs.

In addition to timber, other ingredients are also needed. For example, industrial glue,

binding equipment, thread, and ink are necessary, and necessary in differing quantities to

create different types of notebooks. Since the Mead factory produces products of different

designs such as Five Star, Trapper, Academie, Cambridge4 diverse materials are naturally

required.

4 These are differently themed varieties of the Mead brand.

While glue and ink are relatively easy to replace, the factory equipment that Mead

uses is extremely fixed while extremely expensive. Our team discovered after research that it

is extremely hard to replace old paper manufacturing machinery with new ones from firms

inside the U.S; a firm must rely on Indian and Chinese suppliers for this task. Thus

preparation for breakdowns and repairs should be made in advance with close coordination

with equipment suppliers.

In summary, what Mead conducts is just to assemble all components and transform

them into finished products. The roles of supplying materials and ingredients, providing

machineries, producing end products, and distributing notebooks are all departmentalized.

IV. The Lean System

As observed from the video clip, the entire conveyer belt production process is very

slow. As seen at 2:30 in the video, the inserted papers move as slow as escalators. According

to research, each set of notebook producing machinery has a capacity of producing a ballpark

figure of 125,000 notebooks per day. Since this is a large batch process, there is no excuse for

it to be slow. If Mead speeds up the process and reduces wasteful, slow production time, lead

time will be dramatically increased.

There were many comments to the original source of the dropbox video.5 The most

frequent comment was that a specific female worker6 looked extremely bored. Since the

process is highly automated, the remaining few people who work there may be forgotten.

However, less people inside a factory also means that more responsibility is on their

shoulders, thus employee satisfaction should not be neglected. Small improvements may be

made by turning on background music to try and liven up the working experience.7 Other

forms of entertainment during short breaks may also improve employee morale. These may

be minor developments for Mead but these small changes can bring great improvements in

5 In 2008, NAM(National Association of Manufacturers) uploaded the original video on YouTube.

6 The female worker is the only worker featured in the video.

7 It is important to be aware of music property rights, as factories have been sued for ignoring and not paying royalty fees.

efficiency.

V. Process Quality

Quality control is another major challenge for this manufacturing plant. As we

mentioned before, the entire process of producing the notebooks is very automated. Aside

from the spokesperson explaining the production process, we did not see any other workers at

the manufacturing plant. This entailed that if something was to go wrong at the production

plant, there would not be a sufficient amount of mechanics available on site to solve the

problem. Although the dropbox video explained that detectors were installed to detect any

problems on some of the machines in the factory, the number of such machines was

insignificant. Thus, if the detectors also failed to pick up errors, then the equipment would be

producing defective products, and the managers would have no way of knowing that until the

batch was completed. This goes against the whole notion of consistent quality management.

Failure to discover production errors can result in huge losses to the company. On

one hand, the factory will be wasting its raw materials in producing defective notebooks. On

the other hand, it will delay the original production schedule. This means that customers will

not be able to receive the products on time. Thus, the firm will experience increased customer

dissatisfaction and a loss of profit.

In order to produce quality products, or in this case, the notebooks, Mead should

introduce more quality inspectors at this plant. There should be workers on site to randomly

examine the current quality of the notebooks being produced. Moreover, since the plant

produces notebooks in large quantities, it will be efficient to examine them using a sampling

method.

Another option will be to have an emergency reporting system, similar to the Kanban

idea in Toyota. For example, if a machine malfunctions, the workers (or quality inspectors) at

the plant should be able to contact and report to the factor manager immediately. The

manager then could determine if the machines need to be shut down to prevent any waste. In

the case that the machines need to be turned off-line, the manager, in turn, should have direct

access to top management.

VI. Process Capacity, Inventory and Forecasting

The MD&A Section of ACCO’s financial statements acknowledges that Mead’s

demand fluctuates heavily according to the season. High demand seasons are the back-to-

school seasons in America, Europe and Australia.8 This seasonality raises Mead’s operating

costs. First, it is hard to consistently utilize the factory’s resources to full capacity, since

equipment will be underutilized in low seasons and over utilized during high seasons.9

Second, the financial statements also imply that Mead has a high level of inventory, which

pushes up inventory costs.10 For these reasons, accurate forecasting and planning is crucial for

Mead’s success.

8 For the Spring Semester (January-March), For the Fall Semester (July-September)

9 A good question is, “Why can’t Mead produce other kinds of notebooks for non-students during low seasons?” Our team researched this question and asked the supplier of the equipment, Lineomatics. The answer is that the machinery is extremely fixed, which means once you set the machinery to a specific size and paper, it is impossible to change the settings.

10 We were able to deduce this by the ‘Goodwill’ portion related to the acquisition of Mead by ACCO Brands. Since goodwill is at best a conservative assessment of Mead by ACCO Brands, we feel that the inventory level stated here, while still considerable, is actually less than the actual amount.

The first necessary improvement would be to stabilize demand. The ideal way to

stabilize demand would be to increased global expansions. This would help level fluctuating

demand since different parts of the world have different ‘back-to-school seasons’. We would

like to use the example of Moleskine, a company that operates in a different segment of the

same market. Moleskine SpA sells its products in 95 countries, which helps alleviate seasonal

demand.

Another option would be to implement improved ways of stocking inventory. Mead

could implement EDI technology to implement (in systemic steps) just-in-time practices to

reduce inventory costs and improve their profit margin. The above article about research and

technology is an excerpt from a financial analysis of the stationary industry.

VII. New Product Development

Mead’s product line includes school and office supplies that can be produced by any

other company. In other words, Mead does not have any breakthrough products, and they

have high market share in North America mostly because they were a first mover. It is

understandable that their existing products are for everyday use in schools and offices and

therefore not much innovation is expected by consumers; however, innovation includes

implementation of creative ideas within an organization, not just in products but also in

production processes and structures of an organization.

As a school supplies business, Mead’s average peak season is around March and

September. In other seasons sales are lower. There is a definite room for innovative product

development during off-peak seasons. First, according to a research done by the consulting

firm Accenture (results of the survey above), the paper industry is experiencing a greater

demand for high quality, eco-friendly products. Thus new products using eco-friendly paper

might help boost sales.

Second, focusing business journals rather than school-related notebooks could be

another form of product innovation. In relation to the ‘Inventory’ part we mentioned above,

since Mead’s main product—the composition notebook—is rather targeted to high school

students, Mead may focus on selling to businesses by developing new product lines.11

VIII. Legal Issues

The dropbox video shows a lack of safety measures, although the process utilizes

many sharp cutting equipment. For manufacturing plants, it is important to remember that

accidents can happen anywhere. Implementation of a safety program will not only reduce

defects but also increase employee satisfaction and morale. Any safety rules should meet

local regulations and ensure the reduction of work related injuries.

Also, after searching for recent litigation concerning stationary plants, we found a

number of cases where workers at paper plants were diagnosed with cancer, due to asbestos

(a dust-like fiber that may cause respiratory diseases). While the Mead factory, since it only

assembles the paper, is not directly concerned with this fact, the lawsuits may indirectly

decrease supplies of paper and pulp by pushing suppliers into bankruptcy.12 Mead may want

to have a backup plan of overseas suppliers to accommodate this risk.

IX. Conclusion

There may be other factors concerning the Mead factory in Pennsylvania, such as the

intra-firm politics that accompanies a recent acquisition. However, from a purely operations

perspective point of view, our team is confident that we have presented a fair and detailed

assessment of the industry, the firm, and its product market.

11 Of course, as mentioned in the ‘forecast/inventory’ section of our report, the manufacturing equipment is highly fixed, hence existing machinery will not be utilized in producing new products. This means that new machinery will have to be ordered to produce these different notebooks. But our group is sure that the demand will outweigh the fixed costs of such investment.

12 Case Name : Ernest and LeRose Coulter vs. AC & S Inc. et. al. 2005; awarded a quarter million dollars

X. References

1. ACCO Brands Q3 Income Statement. 2012

2. ACCO Brands Financial Statements. 2010

3. “The Stationary, Office and School Supplies Market in the EU”, CBI Market Survey. 2009

4. “Trends in Manufacturing Paper Products”, Accenture Research. 2008

5. “Brand Power Assessment”, KMAC. 2008

6. Lineomatic Graphic Industries Website

7. Westlaw Database