As part of an industry with generous profit margins and high barriers to entry, American Greetings had spent decades in a comfortable position. Beginning at the turn of the 20th century, it had helped to create a mass market for the greeting card and had presided over its growth into a multi-billion-dollar industry. Because the manufacturing of cards—especially those with special designs or attachments—could be complex, and because customers were used to choosing from a large selection of cards, it was difficult for new players to offer the big, established card companies any serious competition.
By the end of the 20th century, American Greetings was the second-largest greeting card company in the world, after Hallmark, and had bought out several of its lesser competitors. It had expanded its expertise to become a major manufacturer of gift wrap, party goods, stationery, calendars, and other “social expression” products. And it had also been successful as the creator of licensed characters such as Holly Hobbie, Strawberry Shortcake, and Care Bears. But the core of its business remained the profitable greeting card. As senior vice president and executive supply chain officer Michael Goulder put it, “The average card has 25 to 40 cents of variable cost in it, we wholesale it for a buck or so, and the retailer sells it for $3.00. What a wonderful industry!”
However, by the late 1990s, the business had become more challenging. Growth in greeting card sales stagnated, and existing customers began to turn to online cards. At the same time, the company began to experience pressure from retailers who wanted an increasingly larger share of the healthy margins. Greeting cards were still a wonderful industry, but there were worries about the future.
As executives began to look for cost-cutting strategies, it was clear that the manufacturing process needed to be re-examined. In Goulder’s words, “because of the way the industry worked for a long time, we were late in focusing on the efficiency of operations.” But the question turned out to be complex, because American Greetings had incomplete data on its manufacturing costs and no data on outsourcing alternatives. Before it could decide on a plan for reducing costs, it had to more precisely measure the company’s current costs for machinery, production, labor, and transportation.
Then the company had to decide on the most effective way to economize. Two main options rose to the top: improvements in process and technology, and outsourcing to China. A number of executives assumed that the answer lay in moving production overseas, but others argued that more savings could be obtained by improving existing facilities and upgrading legacy equipment. In March 2005, partisans of outsourcing and partisans of upgrading were both making their cases, as the company looked to determine the future of manufacturing.
Published Date: 21/02/2008
Suggested Citation: Andrea R. Nagy, Gene Lee, and Arthur Swersey, "American Greetings," Yale SOM Case 08-010, February 21, 2008.
Keywords: Outsourcing, Automation