Velaco8

Bayonne Packaging, Inc.
Cold grey light came through the window of John Milliken's cubicle in the Production office of Bayonne Packaging at 6:30 AM on Monday, January 2, 2012. The new VP of Operations, Milliken had arrived a half-hour before the first shift started on his first day of work at Bayonne to review reports that had been prepared for him, and to begin his tour of the factory andinterviews with key Manufacturing and other personnel. When he had been hired mid-December, the president, Dave Rand, had asked him to analyze Bayonne's operations swiftly and present his recommendations by the end of the week.
Company and Industry Background
Bayonne Packaging, Inc., was a $43 million company located in Bayonne, N.J., a sub-chapter S corporation founded 48 years earlier by Rand’sfather. The board was composed of family members, a local banker, and outside counsel. Bayonne was a "specialty packaging" paper converter that produced customized, complex-design packaging that was used by industrial customers for promotional materials, software, luxury beverages, and gift food and candy. Except for a few low-volume operations such as laminating and gold- or silver-foilfinishing, Bayonne provided all the necessary services from design assistance through final delivery of the package. Bayonne's sales force worked closely with customers to develop the artwork and package design, culminating in a proof for customer approval. Bayonne then created the printing plates and die, sheeted the paper from roll stock, printed the artwork on 4- and 6-color presses, die-cut the printedsheets into "blanks,"1 and folded and glued the blanks into the final product, which was typically finished at this point and ready to be shipped to the customer or a contents fulfillment house. In some cases Bayonne provided additional finishing work if needed such as attaching string-and-button fasteners, Velcro dots, or other attachments.
1 "Blanks" are die-cut paper shapes ready to befolded and glued into the final product. To create blanks from printed sheets, the die-cutter sliced through the paper to cut out the shape, and made other, more shallow impressions to create the creases for folding.
The paper packaging industry grew rapidly in the 1980s and early 1990s as consumer goods companies sought to make a greater impact with their promotional materials or moved theirpromotional budget from print media and broadcast forms to the package itself at the point of purchase. In addition, the explosive growth of software packaging, which featured expensively printed large "boxes," provided additional customer market segments that were often willing to spend freely to make a quick impact in a crowded marketplace. Bayonne had grown from just over $10 million in sales in 1982to $32 million in 2001. The company then faced new challenges with the bursting of the dot-com bubble and the subsequent migration of software sales and distribution from CDs to the Internet. Bayonne survived by diversifying into new markets where the company could apply its great strength in innovative and difficult package design and the ability to fold and glue the complex blanks.
PresidentRand had asked Milliken to focus on three problem areas: cost, quality, and delivery. At the end of November 2011 Rand had fired the previous long-serving VP Operations. Rand told Milliken, "Our sales are up—we have to run two shifts now. But we ran a loss for the first time last year since 2001. [See Exhibit 1 for income statements.] We're getting more and more complaints about quality, and, whatmight be even worse for our customers, we're delivering late more often. I understand we're a job shop and there's usually a tradeoff between keeping your costs down, getting good quality, and hitting your delivery promises—but lately it seems we can't even hit two out of the three. What started to go so wrong for us? Your predecessor couldn't explain it to me, and his 'plan' of 'We'll just have...