Dairypak Division of Champion International

Executive Summary

DairyPak Division of Champion International began operations in 1947 as one of the original licensees of the Pure-Pak Technology, a process focused on producing polyethylene coated paper carton for milk and orange juice. Due to growing demand, it expanded its operations and built converting plants in different states.

During the early 1960's through 1988 Champion steadily produced 250,000 tons of polyethylene coated boards annually. During this period, the paper board industry was threatened by the intrusion of plastic containers but Champion did not falter and continued with its existing operations without changes in strategy or equipment. At this point, the company decided to have the "harvest strategy" which is just to wait and see what would happen next. Incidentally, the paper carton did not die, and since there were no major changes in Champion its infrastructure got old and technologically outdated.

In the early 1980's the sudden increase of the juice market created opportunities which Champion did not expect. In 1988 however, Champion successfully managed to retain its share in the declining US Dairies market while losing almost half of its share in the fastest-growing segment, the branded juices.

With the challenges of declining market share in the branded-juices segment, technologically outmoded manufacturing system, very limited output capability and dramatically expanding international market filled with problems, VP Earle Bensing had to make tough decisions for Champion International that would shape the future of DairyPak division and remain true to its primary goal of being a low cost producer in a commodity market. In other words, he must decide in which segment must Champion compete and how much to invest for process improvement to gain profitability for the long run.

In the value chain of producing domestic milk and orange juice and branded juices, three processes are covered by Champion, the milling, extruding and converting. Looking at the combined margins of these stages of the value chain, Champion gets higher profits in selling to domestic dairies compared to branded juice companies.

Given Champion's strength of being a reliable producer of paper carton locally and the higher margins, Champion should focus on producing for the domestic dairies. Its higher profit margin in this segment is better for the company. Though the market is declining, Champion's share is still a remarkable size at 40%.

To improve the quality of its products, we recommend that Champion choose the first and third proposals. Selecting these two will result to better products. And since the domestic dairy segment is declining, Champion may resort to exporting its products in the future. When that time comes, Champion will need the renovated paperboard machine for better printability