Amcor Case Study

Amcor is a global leader in responsible global packaging solutions supplying a broad range of rigid & flexible packaging products. It is a large company, with revenues of US$9.5 billion, 27 200 employees, 66 000 shareholders and 180+ sites in 43 countries. Amcor’s history dates back to the 1860s when Samuel Ramsden arrived in Australia to seek his fortune in a new land. He established Victoria’s first paper mill on the banks of the Yarra River in Melbourne. For most of its life this operation was known as Australian Paper Manufacturers. In the 1970s and 1980s the company added a range of diverse packaging interests to its traditional papermaking activities and in 1986 changed its name to Amcor Ltd. Amcor now serves markets around the globe by pursuing profitable organic growth, strategic acquisitions and divestments and the provision of packaging solutions in Australia, Europe, Latin America, Switzerland and the United States of America.

Amcor’s is world’s largest producer of Polyethylene terephthalate (PET) bottles (such as those used by Coca and many other household and industrial products). Other packaging products produced include materials for industrial applications such as aerospace, agriculture, automotive, energy and insulation. Amcor also manufactures flexible and rigid packaging for food, household items, personal and homecare products, tobacco products, beverages, hospital sterilisation units, medical devices, and pharmaceuticals. They also provide services in packaging design, materials, testing and recycling. Amcor is currently structured into three business groups namely, Flexible Packaging, Rigid Plastics and Tobacco and Specialty Packaging.

Amcor’s main competitors are Ball Corp, Mondi PLC, Sealed Air Corp, UPM Kymmene OYJ and Weyerhaeuser Co. Amcor is committed to light weight packaging innovations which save thousands of tonnes of the earth’s resources and reduce CO2 emissions through lower raw materials usage and reduced fuel consumption for the transport of its products. Efficient use of raw materials reduces the volume of material that needs to be managed through recycling programs and reduces the quantity of packaging material sent to landfill. Amcor works strategically with partners throughout their entire value chain, and is thus able to unlock powerful social, environmental and economic opportunities throughout a product’s entire life cycle. For example, Amcor’s rigid plastic bottle value chain starts with packaging planning and design, raw material (plastic resins) purchase, manufacture and transport, conversion of raw materials into rigid plastic packaging, establishing targets to reduce waste to landfill, greenhouse gas emissions and municipal water use, and delivery to customers’ manufacturing sites for use in packaging their products. The packaged products are then transported through an often-complicated supply chain for ultimate display and sale by retailers around the world. At the end of the product life cycle packaging can still add value, as a result of sophisticated re-cycling and energy recovery processes.

Issues: Budgetary control systems dilemma

Sue was learning more about the organisation every day. Her immediate boss was the Chief Financial Officer, Nick Rafter, who organised a meeting with her. As Sue had a background in Management Accounting, the CFO felt it was in her best interest to learn the budgetary process within the organisation. He was one among the many CFOs across Amcor’s global manufacturing plants. He was the CFO of the Australian business and had the following to say:

“In Australia, we operate over 50 packaging and recycling sites in all States and Territories and are a leading manufacturer of fibre, metal, flexible plastic and glass packaging with annual sales of around A $1.9 billion. Amcor Paper is a leading producer of recycled paper, brown liners and fluting grades for the Australian and Asian markets. With the commissioning of a new Paper Machine at our Botany site (NSW), Amcor Paper will increase efficacy and capacity to suit Amcor’s internal and external requirements. As a leading packaging supplier to food, beverage and industrial manufacturers in Australia and New Zealand, Amcor Corrugated Packaging offers a full service, from design and testing through to automation and supply chain integration. Amcor Carton board supplies carton board from its Petrie Mill in Queensland, the only carton board mill in Australia, to packaging manufacturers across Australia and New Zealand. With eight plants across Australia and New Zealand, Amcor Folding Cartons has the widest geographical coverage of any carton manufacturer in the region.”

He paused and then said to Sue,

“I can carry on about the Australian operations, but my immediate problem is the annual budget process. It is a daunting task to bring together the budget for the 50 packaging and recycling sites across Australia.”

He continued

“We have to identify responsibility centres and it is often confusing to separate out cost centres, revenue centres, profit centres and investment centres. What we would like to do is to have operating budgets across the 50 sites and have a consolidated set of financial budgets for the whole Australian operation.”

At this point Sue interrupted Nick and asked him about the current budgeting process; Nick explained how each site prepares its own operating budget which is coordinated at the head office.

Nick said:

“Each manager prepares the budget for his responsibility centre within each site, but they don’t seem to get it right. There seems to be a lot of toing and froing (moving back and forth) after preparing the initial estimates.

He closed by saying:

“Surely there must be a better way of doing this. What are your ideas about these issues”?

Required:

Examine and evaluate each of the following FOUR issues and write responses to each of them in your own words.

Issue 1

Explain to Nick how the budgeting process at AMCOR can be used to achieve financial accountability within a responsibility framework.

Issue 2

Explain to Nick how budgets can become more meaningful to the managers when they reflect the strategic plan of the organisation.

Issue 3

Describe to Nick, with examples, how participative budgeting can give employees the feeling that ‘this is my budget’, rather than the feeling that ‘this is the budget you can impose on me’.