Stermon Mills Case

Stermon Mills was a very small fine-paper producer founded by Tom Brasker in 1910. It was located in the town of Fond du Lac, in the Northern part of Minnesota. Stermon’s paper mill housed one pulping plant and four paper machines within a collection of twenty building. Machine #1 was the original machine installed when the plant first opened. In the 1950s, machine #2 and #3 were installed. By 1976 the last (#4) machine was installed at the mill and was by far the largest and fast machine on site. The company historically produced only uncoated fine papers because coated papers required addition equipment. The Paper would vary in area density from 15 lbs per unit area to 100 lbs per unit. Uncoated paper was in strong demand for an extended time period, but in 1989-1992 had led to low prices and excess capacity. In 1992, Stan Kiefner, CEO of Stermon Mills, faced a difficult problem that need to be solved immediately. The lower cost of competitors had become a big problem for Stermon Mills, now they were trying to figure out where to go next.

Current Problem:

Stermon Mills faced a difficult problem in 1992 when Mr. Kiefner came to realize that competitor’s costs were lower then the Mill. The four machines that are being ran cost too much with the amount of small output that they produce. Due to the machines costing so much, they could not even compete with competitor’s low costs. Stermon could not afford the new machines and were determined to find an alternative. Flexibility was something that their competitors could not offer and Sherman could do just that. It is difficult to measure competitor’s performance and determine if they were making improvements.