final paper revision

The dynamic nature of the modern business world has made the management of large corporate organizations difficult. Given the current circumstances, the future does not look different, as a matter of fact, the business world will grow even more complex. Issues affecting managerial inefficiency, quality improvement, risk management and other minor factors are more prevalent today than they were before. This calls for the need to not only analyses the current position but also provide plausible solutions for better management. This paper presents the case of Owen Illinois, a leading glass manufacturing company in the world. Statistics indicate that the company was doing so well prior to 2015 when its Chief Executive Officer downed his tools. With its over 78 plants in more than 23 countries, the company has been struck with product quality problems, broken partnership deals and failed business acquisitions besides having a huge debt to settle. Asbestos, its key ingredient for glass manufacturing has become a huge source of liabilities due to physical and health complications it causes to its employees.

After presenting a clear analysis of the organization’s overview and current position, this paper provides plausible solutions have been identified in this paper. The first one is to overhaul the entire managerial structure right from the CEO to other managerial positions. Coming up with an appropriate quality improvement plan would then help streamline the supply chain issues, mend partnership deals and help acquire other companies where possible. Finally, once all systems are up and running, a debt repayment schedule should be created to facilitate the payment of all the debts. The organizations will surely get back to making profit in no time.

Situation Analysis

Owens-Illinois, Inc. is one of the leading firms in the Packaging & Containers that was established in 1903. The company is well known for partnerships with various big players in the food and beverage brands. It had revenues of $6.9 billion in 2017 and employs more than 26,500 people at 78 plants in 23 countries. With global headquarters in Perrysburg, Ohio, O-I delivers safe, sustainable, pure, iconic, brand-building glass packaging to a growing global marketplace. The company is also listed at New York Stock Exchange (NYSE) and have a market cap 3.71B USD (Bloomberg, 2018).

Internal Performance

The company’s strategy is driven by the need to minimize the manufacturing costs and maximizing the annual revenues from all of its markets. It has adopted various strategies in its bid to increase the company’s values. Some of the strategies involve; enhancing capital flexibility, reducing its overall debt profile, de-risk its pension plans and reducing the liabilities related to asbestos production. The initial phase of the project outlined to shareholders reportedly has been focused on enhancing financial flexibility through proactive liability management and stabilizing and improving top and bottom line business performance. The company successfully improved its debt profile following a $5.3 billion coupon, settled $200 million pension obligations and reduced its liability related to asbestos by $125 million (Bloomberg, 2018).

Mission Statement

Our mission is to design, manufacture, and deliver products and services that meet the unique needs and expectations of each customer. To that end, we have successfully built a solid foundation and infrastructure for glass container manufacturing.

Company vision

To offer Packaging Solutions everywhere, every day.

Owens-Illinois Stakeholders

O-I has 161 million outstanding shares in the NYSE. The following are the top 5 shareholders of O-I Inc; Vanguard Group, Inc. (10.83%), BlackRock Fund Advisors (7.98%), First Pacific Advisors LLC (6.01%), GWL Investment Management (5.04%) and Atlantic Investment Management, Inc (3.97%). The Company had revenues of $6.9 billion in 2017 registering a 4.26% increase from the previous year. This sales growth was above the average revenue growth of its competitors in the industry which was 2.5%. However, the company registered a net profit of $4.51 billion in the year ended on 31st December 2017 with a return on assets of 34.46%. Regarding its debt, the company’s capital structure has more debt to equity ratio. The 68.56% debt financing of the company is regarded quite high compared to an overall benchmark of 25%. In the year ended on December 2017, O-I had a debt total of $5.28 billion which is a decrease of 1.6% from the previous year. Additionally, the company has a 27-year stock price history in the NYSE since 1991. The share price has been volatile during these years with the highest price of $55.15 being recorded in April 2008. The lowest stock price was $2.75 recorded in November 2000. Currently the share price is at $21.63 and is expected to rise as a continuation of the recently observed upward trend.

It is also important to note that the company has many licensed patents for its various packaging designs and manufacturing technologies. The following are some of the patents that are held by Owens-Illinois company; Closure pre-tightener for closure application machines (1986), Method and apparatus for manufacture of glass film (1983), Machine for producing a plastic-covered glass container (1983), Hot gob detector for controlling a glassware forming machine (1982) and Container with improved heat shrunk cellular sleeve (1981).

Industry Perspective

From the industry perspective, O-I a glass manufacturing company that operates under the packaging and glass industry. The packaging industry is a very competitive industry where new trends of packaging are being designed every now and then. The industry requires companies to be innovative and highly adaptable to embrace new trends of packaging. Owen-Illinois deals only with glass packaging products (Ibis world, 2018). The company also enjoys a successful global market penetration as it is the leading glass manufacturer and distributor in the European marketing taking a commanding 38.63% of the total market revenue. The table below shows the market segment of Owen-Illinois Inc.

Owens-Illinois Market Segments and Revenue Share

SOURCE: Owens-Illinois annual report, (2017).

Despite its huge size, O-I Inc. faces a stiff competition in the packaging industry. Below are some of the largest competitors of O-I Inc.

Owens-Illinois Inc. SWOT analysis

The table below provides the company’s SWOT analysis

Problem Analysis & Description

Despite being a leading manufacturer of packaging containers, O-I faces a number of problems. Indeed, the company is equipped with over 78 plants in more than 23 countries and generated O-I generated revenues of $6.9 billion in the year ended December 2017. However, as indicated by the following root cause analysis, all is not well inside the multi-national corporation. The company has recently shown some signs of inefficiency as its management has not been able to close some of its business deals.

Owens-Illinois Root Cause Analysis

1. Product Quality Problems

The first observable symptom at Owens-Illinois that indicated some problems is the quality issues of some of its products between 2002 and 2003. O-I had supplied HVR bottles to Clorox Food Company. O-I has been accused of manufacturing low quality bottles different from those that had been ordered. The company was guilty of using a single step manufacturing process as opposed to the usual two-stage production process as a way to cut on costs. O-I was trying to minimize its production costs by manufacturing substandard bottles which caused Clorox a loss of over $725,000. Clorox filed a lawsuit against O-I seeking compensations for the losses it incurred from the usage of the low-quality bottles.

Owens-Illinois had been experiencing challenges in acquiring soda ash from its Wyoming mining site which resulted in the production of the low-quality bottles (Lehner et al.). The mining of soda ash has become a costly activity for the company due to the rising oil prices. Energy costs are estimated to account for 25% of the total manufacturing costs depending on the type of energy used as well as the factories location. The constant rise in the global oil prices has increased the energy costs which reduces the company’s profit levels. As a cut costing strategy, the company’s management opted to reduce some of the operations in the manufacturing process. This involved eliminating repetitive production measures that were not very significant to the products quality. This resulted to the elimination of 2nd stage of producing plastic bottles which unfortunately altered the quality of the bottles.

1. Broken Partnership Deals

Another indicator was when the withdrawal from environment partnerships with Graham Packaging Company in June 2016. The two companies had been partners on a glass recycling project that was an environmental conservation partnership. However, after failing to honor its financial obligations in the partnership, O-I withdrew from the partnership. The CEO of O-I, Andres Alberto Lopez, admitted that the poor financial performance experienced in the previous year was partly due to its financial commitments to the Graham-Owens Recycling partnership. In the partnership, O-I had annual financial commitments of $500 million for a period of 5 years. The company pulled out of the partnership in its 2nd year of operations. From its financial statements, the profitability level of O-I fell by more than 15% which was attributed to inefficiency in its investment decisions. The company terminated a few other sponsorships deals it had with non-governmental charity organizations. The annual sponsorship and partnership costs stood at $1.9 million in 2015 and was reduced by more than 40% in the 2017 financial year. After conducting a root cause analysis, the reason the company has been experiencing a decrease in its profit margin was due managerial problems at the organization.

1. Failed Business Acquisitions.

In 2014, Owens-Illinois tried to acquire a German glass manufacturing company but the deal failed during the final proceedings of the agreement. O-I was looking to acquire Indram Glass Company that would allow O-I to have a commanding market share in the German glass market. However, the debt of O-I was too much to enable the takeover to be successful. The debt-to-equity ratio for Owens-Illinois Inc. is quite low which means that the company’s liquidity ratio is negative (Latino et al.).

1. Managerial inefficiency

After Al Stroucken retired as the company’s chief executive officer December, 2015, the company has been faced by managerial inefficiencies which have resulted to reduced profitability margin. Furthermore, the lack of proper organization in the departments has created a supply chain delays that increase the company’s operational costs. This has worsened the situation, especially in the acquisition of raw materials, which has subsequently led to the drop in the products quality. Finally, the lack of clear cut product distribution channel is another problem resulting from poor management of the company. The former CEO of O-I retired without having groomed his successor in the company which caused a shift in the company’s overall running.

1. Huge Company Debt

Over the years, the financial structure of O-I is funded by more debt than equity which is a bad sign of the company that is sent to the investors. Owens-Illinois capital structure has more debt to equity ratio. The 68.56% debt financing of the company is regarded quite high compared to an overall benchmark of 25%. In the year ended on December 2017, O-I had a debt total of $5.28 billion which is a decrease of 1.6% from the previous year (Annual report, 2016). This huge debt was the main reason that the Indram acquisition deal was never finalized.

1. Asbestos Liabilities

O-I has found itself behind numerous law suits filed due its association with asbestos that is a key ingredient in its products. Asbestos-related liabilities have accounted for $110 million in the 2017 fiscal year. These liabilities have been as a result of asbestos exposure, leading to employee related physical injuries and health complications. The company has been trying to reduce the liabilities using claims-handling agreements.

Conclusively, it is evident that Owens-Illinois Inc. is facing a number of problems that continue to weaken its position as a leading glass manufacturer. Of significance is that the company’s misfortunes have come after former CEO retired from his position in December 2015. Something needs to be done fast before things get worse.

Solutions, Evaluation & Recommendation

Several problems were identified key among them being product quality problems, broken partnership deals and failed business acquisitions. The first problem was largely witnessed between 2002 and 2003 when the company encountered a number of issues with its supply of HVR bottles to Clorox Food Company. O-I was accused of manufacturing low quality bottles different from those that had been ordered. This caused an uproar from the food company, especially after learning that the mistake was a deliberate move by O-I to cut on costs of production. Regarding broken partnership deals, O-I recently withdrew from environment partnerships with Graham Packaging Company. This was a glass recycling partnership which was broken since O-I failed to honor financial obligations. Finally, the third problem on failed business acquisitions involved a failed move to try and acquire a German glass manufacturing company (Latino et al.). Some plausible solutions to threes problems are addressed as below;

It is important to note that organizations are obliged to ensure that the quality of their products are up to standard. While there is often an organization that is mandated to ensure this is achieved, it should not take a third person to ensure that quality is upheld. For O-I, their compromise was as a result of a move to try and cut on costs. The end result was far much worse compared to a better alternative, which would have been to produce less bottles of the same quality and explain their situation to Clorox Food Company.

Regarding the second problem, O-I needed to understand the importance of partnerships to the overall development of the organization. The partnership in question was by far the most important of them all, given that it would not only save their current problem regarding the cost of raw materials but would also help foster a good image by remaining environmentally conscious. The best solution for this organization therefore is to mend the broken relationship and come to a mutual agreement regarding the financial dispute at hand.

Finally, the importance of business acquisitions to growth is unquestionable. However, such acquisitions need to be inch-perfect if the day to day operations of the organization is not to be interfered with. Furthermore, all the necessary requirements that are needed to facilitate the shift of power need to be put in place. This was clearly not the case with O-I’s attempts to acquire the German glass manufacturing company, Indram. Getting it right would not only increase O-I’s market shares in Germany but would also improve on their revenue collection. As such, to solve this issue, they need to follow the due acquisition process, put in place better negotiation team and ensure that they have all the necessary legal tools to work out the acquisition.

Other deeper problems that had been identified include managerial inefficiency, huge company debt and asbestos liabilities. All these can be solved by having an overhaul of the company’s structure and ensuring that the company’s financials are kept in check more often. A debt repayment plan should be put in place as soon as possible to help reduce the deficit.

Weighted-criteria decision matrix

Situation Analysis

· Improve quality product problems by maintaining quality even if it means producing less

· Mend broken relationships by resolving financial dispute

· Improve acquisition process by having in place better negotiation team and necessary legal tools

· Overhauling the managerial structure

· Having a debt repayment plan

The decision therefore is to fix the issues.

Cost Benefit Analysis

This provides the tangible and the intangible costs and benefits associated with the chosen solution

Implementation Plan

The analysis provided above has identified some critical problems for the company. As a result, several solutions have been proposed. These include improving the quality product problems by maintaining quality even if it means producing less and mending broken relationships by resolving financial dispute. Additionally, another proposed solution is to improve acquisition process by having in place better negotiation team and necessary legal tool, to overhaul the managerial structure and have in place a debt repayment plan. This section provides the step by step plan to implement all these.

The first approach to take would be to have an overhaul of the managerial structure. This should start from acquiring a competent CEO who is capable of filling his predecessor’s shoes. Further appointments should then be made to ensure that all other managerial posts are filled appropriately. The next step would be to come up with an appropriate quality improvement plan, which will be based on streamlining the supply chain issues, mending partnership deals and acquiring other companies where possible. This should be done after getting a better legal team to carry out the negotiations. Finally, once all systems are up and running, a debt repayment schedule should be created to facilitate the payment of all the debts. The organizations will surely get back to making profit in no time.

Success Metrics

Implementing the plan above will result to success, which will be measured using the following metrics.

· Successful debt repayment

· Improved Quality

· Better corporate and legal relationships

· Managerial Efficiency

· Financial impact

A successful debt repayment indicates that the company is finally getting rid of some of the liabilities that hold it back from making a profit. Improved quality on the other hand will directly have an impact on customer satisfaction, and thus, increased market share. This subsequently reflects on an improved profit. Better corporate and legal relationships will also be an indicator that the organization is headed in the right direction. Fewer law suits mean that the asbestos problem has been solved, saving the company millions of shillings.

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