Signode Industries Inc. - Providing Packaging Solutions Executive Summary SIGNODE INDUSTRY: DILEMMA AT HAND: Gary Reed, president of Signode Industries' packaging division, is in a dilemma about what should be its course of action to deal with the 6.8% increase in the price of cold-rolled steel, the raw material used in the production of Signode's primary product, steel strapping. Few options are provided in the case: Increase Signode strapping prices to offset the increase in the price of cold-rolled steel. Maintain the current prices of Signode books as increasing prices would affect the morale of the sales force. Introduce the price flexibility model proposed by Jack Davis, i.e. a sort of selective discount or premium pricing for personalized services. Recommendations Reason: (All data is as of 1983) According to Exhibit 1: Sales of the Company's Packaging Division = $285,950 According to Table A: Sales of Apex = 33.3% of $285,950 Sales of BBM = 26.8% of $285,950 HDM Sales = 33.4% of $285,950 Custom Product Sales = 6.5% of $285,950 According to Exhibit 4: Likewise, for Apex: Since it now has a capacity of 71%, let's say a sale is $100. Then the contribution is $39.15. Therefore the variable cost is $60.85. Now, if we increase capacity utilization to 100%, sales become $141 as production increases by [(100-71)/71] * 100 = 41% Variable cost = 141% of 60.85 = $85, 8 Fixed Cost = 69.38% * 12.3 = Total Cost $8.53 = 85.8+8.53 = $94.33 EBIT = Sales – Variable Cost – Fixed Cost = $46.67 % of EBIT = [(46.67/141) * 100] = 33.09% Suppose the company sells 100x units, the total cost will be 69.38. Therefore the unit cost was 0.6938. Now the company sells 141x units, the total cost… half the paper… Force Optimization. Outsourcing of products based on customized machinery. Import raw materials instead of using domestic steel. Promote plastic strapping as a way into the future. Adopt a pricing flexibility strategy to incorporate cost leadership and umbrella pricing. Strategically reduce the number of customized products to reduce costs. Leverage the service aspect of the strapping and packaging industry. Retain and win back lost customers by identifying their needs more effectively. Strengthening of the sales force thanks to the increase in contribution margins. Therefore, to achieve the company's goal of increasing profits, Signode should stimulate further volume growth by taking actions to convert non-users into users, to increase usage frequency among current users, or to expand into non-user markets. exploited or underdeveloped..