An average of 21% of household paper products were out of stock in U.S. stores this month, reports The Wall Street Journal (Aug. 22-23, 2020). Why? Because of lean manufacturing and the efficiency of the industry. The competitiveness of the paper industry is such that firms must run near capacity with extremely high effective capacity (see Table S7.1 in your Heizer/Render/Munson OM text). The result is very little slack in the system. And the situation isn’t likely to abate soon, because producers have no plans to build new manufacturing capacity. The central piece of the machinery needed to make paper towels takes years to assemble.
The paper product scarcity is rooted in a decadeslong quest (known as lean manufacturing or JIT inventory) by businesses to eke out more profit by operating with almost no slack. Make only what you can sell quickly. Order only enough materials to keep production lines going. Have only enough railcars for a day’s worth of output. Stock only enough items on a shelf to last till the next batch arrives.
But mammoth paper machines require substantial support facilities on both the incoming side– where expensive digesters grind and mix the pulp to the proper consistency and on the outgoing side where huge machinery is required to move the 6,000 lbs. rolls for further processing. We discuss the options for adjusting capacity in Figure S7.1 on page 308. The paper industry has increased capacity by 25% using the options noted in that figure for short range increases. But the industry is also obviously reluctant to move to the more expensive intermediate and long-term options for what we all hope is a short-term problem.
Classroom discussion questions:
1. As manager of a paper company would you be willing to invest your company’s money on the long-term increased in the demand for paper towels?
2. In addition to added capacity, what other option can you suggest?