Reference no: EM13511472 , Length: 1930 Words

Case Study

Stonewall Industries Limited

Read the following case study carefully.

Stonewall Industries Limited is a construction materials company with its Canadian head office located in Mississauga, Ontario. The firm is a wholly-owned subsidiary of British Wallboard. The company has been in existence in Canada since 1960 producing gypsum wallboard for the Canadian construction industry. The senior management team is located at corporate office in Mississauga directly in front of the Mississauga production facilities. These facilities provide product for the Ontario market. A plant in Montreal produces wallboard for Quebec and the Maritimes. A plant in Winnipeg produces for Manitoba and Saskatchewan. The Calgary plant manages the Alberta market and Vancouver's plant manages British Columbia. Two mines produce the gypsum for all of the plants in Canada. Each plant is headed by a plant manager and they in turn report to VP Manufacturing, George McBain. The mine managers report to VP Mining, Mohammed Khan. In addition to McBain and Khan, the senior management team include VPHR, Judy Byer; VP Finance, Fred Ho; VP Marketing, Sonya Krajevski; and President and CEO, Jim Pender.

Overall demand for gypsum wallboard in Canada tends to depend on two major environmental factors: the number of housing starts in a given year, and interest rates. As housing starts increase, Stonewall's demand increase. As interest rates increase, funds available for investment decrease and demand for Stonewall's products decreases. Stonewall tends to have a relatively stable 35 to 40% share of the Canadian market and this rarely fluctuates unless there is a price war between competitors. Gypsum wallboard is viewed by most of the industry as a 'commodity' in the sense that there is very little discernible difference among competitors' products. Only price seems to make any difference to the market, making gypsum wallboard an extremely elastic product from a price-to-demand point to view. A small change in price makes a huge difference in demand. This issue makes Stonewall, and its competitors for that matter, extremely public relations sensitive. All executives and managers have taken public relations training and have been counselled to insure that any decisions that they make are not to harm the 'brand name'.

Stonewall recognized this overall vulnerability in the marketplace in 1980 and created the Plastics Division under VP Bill Jones. The hope was that this division would be less vulnerable to the view of the product as a 'commodity'. This division produces vinyl siding for the Canadian construction industry and penetrated the market by offering a 40-year guarantee on its product line. The Plastics Division is located in Mississauga, across the road from the Mississauga gypsum plant. The plant manager, supervisors, and employees in the Plastics Division have a completely different set of competencies than those of their fellow employees in the gypsum operations. Unfortunately, other than offering the 40-year guarantee, the company did very little to support a marketing effort for the Plastics Division. This was probably due to the fact that the senior executives were concentrating on the wallboard business and paid little attention to the potential of the plastics industry.

All of the production employees below supervisory level at each plant and mine are represented by various locals of the United Gypsum and Allied Workers International Union (UGAWIU), which became affiliated with the United Steelworkers Union (USW). Except for one major work stoppage in 1980, there has been relative labour peace in most Stonewall plants throughout their history. The company tends to pay the highest rates in the industry and Judy Byer is an extremely effective labour relations executive. Wage rates tend to increase about 2 to 3 percent per year.

 In 1982, Stonewall employed 135 executives, management and staff at Corporate Office in Mississauga, 20 managers and 200 unionized employees at the Mississauga gypsum plant; 15 managers and 150 employees at the Plastics Division; 10 managers of 100 employees in Montreal; 10 managers and 110 employees in Winnipeg; 25 managers and 275 employees in Calgary; and 8 managers and 83 employees in Vancouver. 50 employees worked in the mines. The total workforce was 1191. The workforce remained stable from the early years of the company's operations until 1981.

The situation in 1981

In 1981, labour costs in the plants, which made up approximately 25% of total cost of production in each plant, with the exception of Vancouver, were as follows:

AWHR: Average Hourly Wage Rate

TBR Total Benefit Rate (Includes Benefit Costs, Vacation and Stat Holiday Pay)

TCR: Total Compensation Rate

Plastics

While the labour relations climate within the plants could be described as peaceful, the labour climate in many of the provinces in which Stonewall operated was not. In British Columbia, for example, the British Columbia Labour Relations Board was viewed as highly pro labour and anti business in its orientation. This attitude was reflected in the media as well as at the provincial political level through the New Democratic Party of British Columbia. In Quebec, an entire union movement, the Confederation of National Trade Unions (CNTU) was motivated politically to remove any English-owned companies from operating in that province.

Fortunately for Stonewall, their union, the United Chemical Workers (UCW), was affiliated with the less radical Quebec Federation of Labour (QFL). Nevertheless, any labour relations issues that arose in either Quebec or British Columbia were magnified significantly by the political and social dynamics in those provinces at the time.

Making matters worse, the Stonewall plant in Vancouver was the company's oldest and smallest plant and it could not be expanded in its present location. Most of the production employees in Vancouver had been with the company for over twenty five years. Layoff and termination provisions in the collective agreement in Vancouver were extremely generous.

In addition, the managers, from plant manager to first line supervisors, all had in excess of thirty years of service with the company and would be entitled to significant termination packages under common law precedent. From both a labour and capital cost point of view, it was by far Stonewall's highest cost production operation.

Labour costs were approximately 25% higher in Vancouver than in the other plants per unit of product and capital costs, including depreciation, were extremely high as well. Vancouver operations couldn't expand as the plant was situated on property next to the ocean. This property was highly desirable to real estate developers in the area. Calgary, on the other hand, had modern equipment, lots of land for expansion, and a favourable provincial business climate within which to operate and they could produce and ship product to the BC market if required.

The situation in 1982

In 1982, the construction materials industry in Canada was in shambles. Housing starts had stagnated and interest rates were too high to stimulate investment. Consumer demand was stalled because inflation levels had ballooned to unprecedented levels, peaking at above 12% that year. This had a devastating effect on real wages across the country.

Consumer demand was also adversely affected by extremely high unemployment levels across the country. Stonewall and its competitors found themselves in a position of severe over-capacity and were laying off workers at all of their operating plants. Unfortunately for Stonewall, this wasn't enough and they were forced to look at downsizing their operations.

They knew that normal business cycles in the industry would occur, and they tried to protect their business with the help of the Plastics Division, but unfortunately that division was also impacted by housing start slumps and high interest rates. The Senior Executive Team at Stonewall was put in the unhappy position of selecting a gypsum operation to close.

The situation in 2008

Stonewall had weathered the storm in 1982 and later in 1991, as housing starts and interest rates stabilized and Canada experienced a period of growth. Both inflation and unemployment levels decreased through the 1990s and into the early part of the twenty first century. Part of that growth was due to increases in immigration which impacted on demand for housing in major centres such as Toronto, Calgary, and Vancouver. In 2008, however, the bottom fell out.

Due to major issues in the banking sector in the US, North America fell into a deep recession and the housing market plummeted. Even though interest rates were at historically low levels and the government embarked on unprecedented stimulus spending, housing starts did not respond, unemployment skyrocketed, consumer demand decreased dramatically, and, as a consequence, the demand for gypsum wallboard in Canada was virtually non-existent. No one knew how long the recession/depression would last, but the expectation in 2008 was that it would be long and deep.

British Wallboard, the parent company of Stonewall, had seen enough of the Canadian construction materials market and decided to sell the company. They sold it to US Corp, an American company with a Canadian subsidiary, the Canadian Wallboard Company. The plan was that Stonewall and Canadian Wallboard Company would merge into one organization. The news of this plan terrified the senior team at Stonewall. They had enjoyed a significant sense of independence under British Wallboard and now they felt they would be micro managed by US Corp or turned into just another 'branch plant'.

Review the Case Study, then answer the following questions. Prepare your answers according to the "General Instructions for Written Assignments", and consult the Timeline for the due date for this assignment.

1. In 1982 it seems the company will have to downsize. What are the factors that are forcing the company to make that decision?

2. What alternatives should the company explore prior to making its downsizing decision?

3. Which plant should the company downsize? Why?

4. Explain, in detail, the implications of the downsize decision.

Please write your answers in 2000 +- word count.