Forrest Hill Case Analysis
The Forest Hill Paper Company (FHPC) is a small, closely held paperboard manufacturer that produces “parent rolls” which are then distributed to converters for further processing. Due to their small size in comparison to many of their competitors in the industry, FHPC would be classified as a niche company as stated in the case. Part of FHPCs strategy, which will be looked at further below, is to create a niche based on service and rapid customer response that the larger manufacturing companies are too large to be able to do successfully.
The environment in which Forest Hill Paper Company operates in is a cyclical environment with upswings every three to four years. Due to the cyclical nature …show more content…
Another problem that is highlighted is the importance of Reels per batch when trying distributing the Grade change. Grade D incurred much less of a cost per batch than others because of its larger average number of reels per batch. When more appropriately allocated, it became clear that Grade D was being over allocated and was in fact taking on expenses that should have been placed on the other Grades. This will have surely allowed Forest Hill took incorrectly misjudge the importance of the four Grades. Taking a look at the profit margin per batch before and after, the change becomes clearer. Before, all of the margins were at 60%, but after, only Grade D increased. Due to the size differential between the grades, Grade D was propping the other three grades considerably.
Product (Grade) Revenue per Batch Revenue per Batch Profit Margin per Batch (After)
A $ 630,000.00 $284,896.80 45%
B $ 27,000.00 $5,775.29 21%
C $ 497,000.00 $226,393.92 46%
D $ 3,412,500.00 $2,220,966.15 65%
Product (Grade) Revenue per Batch Revenue per Batch Profit Margin per Batch (Before)
A $ 630,000.00 $378,000.00 60%
B $ 27,000.00 $16,080.00 60%
C $ 497,000.00 $291,200.00 59%
D $ 3,412,500.00 $2,052,750.00 60%
This new information has led us to recommend that Grade