Lily Tulip Case Study - Share

Lily Tulip Case Study - Share - Case Study: Lily Tulip...

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1 Case Study: Lily Tulip Problem Statement: Lily-Tulip has ordered four machines designed to manufacturer their patented extruder foam cups, effectively tripling this capacity. Doug Smith, vice-president of sales, must decide if all or any of the machines should be converted to produce the co- extruded foam cups that were recently developed by the company. Pertinent Facts: Industry and Market information: The disposable cup industry serves the fast food, convenience store, and restaurant markets with hot and cold beverage containers. Lily-Tulip is the second largest supplier of disposable cups to the food service industry in the United States and the largest in Canada. The three largest competitors held over 50% market share between them, with the remainder split among hundreds of suppliers, none of whom was thought to hold more than a 5% market share. Lily-Tulip has market share of approximately 15% with current production of paper (wax coated) and extruded foam cups. Table 1 identifies market share by product line and cup size. Cup sizes ranged from 8 ounces to 48 ounces and were used to hold hot and cold beverages. Generally, smaller cups were for hot beverages and the larger sizes for cold.
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2 A trend had emerged towards larger cups for hot beverages, primarily in the convenience store market. Table 2 presents 1984 industry demand. While it is considered that the fast food and convenience store markets have matured, growth in cup usage is expected to mirror growth in the general population (1984 U.S. population growth rate was 0.89% i ). The industry has significant excess capacity due, in part, to the introduction of foam technology and a general slowing of the growth in demand for disposable cups. Product Information: There are six variations in cup models: Paper (Wax coated), Paper (Poly coated), Foam, Plastic, Extruded Foam, and Lily-Tulip’s new Co-extruded Foam (which is yet to be introduced). Only variations based on foam technology are suitable for both hot and cold beverages. Table 3 identifies product characteristics of the most common varieties. Lily-Tulip management believes that, within a given technology, no competitor has a distinct cost advantage (as related to all manufacturing and distribution costs but excluding marketing and administrative costs). Extruded Foam cups are a patented design of Lily-Tulip. Co-extruded foam cups are a Lily-Tulip design expected to receive patent protection. Co-extruded foam cups are made with less polystyrene and more air. As a result, the co-extruded foam cups may be produced at costs equal to, or less, than all
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3 other varieties (Table 4). Co-extruded foam cups weigh less than extruded foam cups. Lily-Tulip declares superior product attributes for it’s extruded foam and co-
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This note was uploaded on 01/28/2011 for the course ECON 701 taught by Professor Johnson during the Spring '10 term at University of Central Florida.

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Lily Tulip Case Study - Share - Case Study: Lily Tulip...

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