Hawthorne Plastics Case Essay

Words: 1965
Pages: 8

Harvard Business School

August 1, 1970

Hawthorne Plastics, Inc.
Hawthorne Plastics, located in Hawthorne, California, specialized in the fabrication of plastic
parts as a subcontractor to companies marketing plastic products, such as toys, kitchenware, fishing
tackle, etc. Most of its production involved the molding or extrusion of plastic raw materials and over
half of its production was for two major manufacturers of toys, located nearby. The vast majority of
its customers were located in southern California, with a few in Arizona, Nevada, and northern
California. In its market area the company was known for its high quality, low-cost products. Its low
cost was based on extremely efficient production methods, so
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The request came at an opportune time for Hawthorne, since capacity had just been freed up
after heavy production for the Christmas toy season. The negotiations proceeded to the point where
Hawthorne agreed to deliver 100,000 pounds of polypropylene plastic strapping per month to Pynes
for the next six months; capacity problems at Hawthorne prevented larger shipments, although Pynes
would have liked to buy more.
The price per pound that Pynes would pay depended on the quality of the strapping that
Hawthorne delivered. The industry distinguished between "low camber" and "high camber"
strapping: low camber strapping was much straighter and thus was suitable for use in automated
bundling machines; high camber strapping would cause automated equipment to jam and thus was
suitable for use in manual equipment only. Because low camber strapping was sold at a higher price
on the market, it was frequently referred to as "high quality", whereas the high camber strapping was
referred to as "average quality."
Pynes had agreed to pay Hawthorne 60¢ per pound for high quality strapping and 50¢ per
pound for average quality. It did not matter to Pynes which quality strapping it received, because by
adjusting its own production process it could provide itself with relatively more high quality
strapping if Hawthorne provided average quality strapping in a given month and vice versa. Pynes
would provide the production dies