Schultz Waxed Containers

CASE ANALYSIS: SCHULTZ WAXED CONTAINERS, INC.

The elements of this analysis are (1) the firm's existing strategy, (2) the firm's new cost system, (3) the firm's new strategy, and (4) recommended changes to the both firm's cost system and the firm's strategy. The firm's existing strategy is a somewhat confusing term in that one would expect that the existing strategy is the one in force. For the purpose of this case analysis, however, it is assumed that existing strategy refers to the strategy in place prior to the adoption of the strategy currently in force, which is further assumed to be the firm's new strategy.

Evaluation of the Firm's Existing Strategy

The three major market segments targeted by Schulze Was Containers were (1) highvolume, custom print products, (2) lowvolume, custom print products, and (3) stockprint products. Traditionally, (1) highvolume, custom print products accounted for 50.5 percent of unitbased output, (2) lowvolume, custom print products accounted for 29.6 percent of unitbased output, and (3) stockprint products accounted for 19.9 percent of unitbased output. The firm's longheld strategy was one based on customer service. The relationship between the industry players dictated against attempts by Schulze Wax Containers to compete on either price or massive production levels. The customer servicebased strategy adopted by the firm required (1) relatively high inventory levels to assure that customers never received an

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ast performance) been attained, the firm's 1987 profit would have been $2,274,000 on sales of $28 million, or a net profit on sales of 8.12 percent. While the firm's management would undoubtedly have preferred a higher return on sales, the profit percentage was quite reasonable considering Schulze's competitive position. The changing competitive structure of the industry did hold threats to the firm's strategy related to the use of distributors, as larger producers demanded greater market shares at the expense of smaller firms such as Schulze. When distributors did not accede to such demands, the larger producers always had the option of bypassing distributors and marketing directly to end users. Evaluation of the Firm's New Cost System The major difference between the firm's new cost system and its prior cost system is the accounting for excess capacity. The cost of excess capacity is recognized in both system. While the prior system included the cost of excess capacity as a part of manufacturing overhead, however, the new cost system moves the cost of excess capacity out of the cost of goods sold and into operating expenses. As long as the firm's pricing policy is based on a markup applied to the cost of goods sold, t

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