Paper Print

i

• Economies of scope
• Economies of scale
• Downsizing of overhead
• Reduction of labor headcount
• Better utilization of production resources
• Planning Higher negotiation power

• Higher risk for customers if there is only 1 production site (major natural impacts, etc.)
• Bad image due to closing of one production site
• Risk of transaction
• Risk of post-transaction integration

• Sale of production assets
• Real assets incl. land
• Sale of licenses and patents

• Payments for social plans for layoffs
• Shut-down costs of the production site
• Legal and tax advisory costs
• Supplier payments if fixed contracts are terminated preliminarily

To speed the calculation up, the resulting free capacity can be shared. It is 5.76 billion pages.

Two steps are required:

1. The utilized capacity of Tyrolia Print has to be calculated. The utilized capacity is 5.31 billion pages.

2. The free capacity of Paper Print has to be calculated

As there is more free capacity in the Paper Print production site than needed, full integration is possible.

Assumption:
The specific types of machines are irrelevant, so the prints done with MAN machines can also be printed with Harris machines.

Mention the following:

• In the integrated production process, all machines except Harris Sunday Press run at fully capacity.
• The hourly machine rates reflect only the actual costs per production hour for any amount of productive machine hours.

Two steps are required:

1. The utilization costs of the old Tyrolia Print production site.

The utilization costs are €6.035m

2. The additional utilization cost of the integrated production

As the full capacity of Harris Sunday is 8.4b pages the machine has a utilization rate of about 95 %

Assuming that no other effects (like economies of scale) are coming into effect, the costs are reduced by €6.035m – €3.67m = €2.365m

The Paper Print machines are able to print more pages per hour and need less time to print the amount of former Tyrolia Print. This has a higher effect on the production costs than the increasing hourly rates.

Economies of scale will reduce the average hourly rates. Due to higher utilization, fixed costs will be spread over a longer running time.

An overall recommendation is difficult, as most production topics are discussed. However, based on future production costs, synergies are possible and a merger can be recommended.

Typical discussion points:

• Prioritization of issues and definition of time frame
• Definition and concentration of new strategy
• Clear definition and careful implementation of new organization structure
• Ensuring communication flow within the new entity
• Standardization of reporting
• Enabling technological integration

More questions to be added by you, interviewer!

At the end of the case, you will have the opportunity to suggest challenging questions about this case (to be asked for instance if the next interviewees solve the case very fast).