HAROLD CODY is editorial director ofPulp & Paper Magazine

MILL OPTIMIZATION

Sappi Fine Paper has implemented new costing software that allows the Westbrook, Maine mill to know its true production costs. The system analyzes costs grade by grade, ton by ton, and customer by customer.

PROS AND CONS OF SUPPLIER CONSOLIDATION

The rapid consolidation of paper industry supplier companies will change the options mills have to buy everything from chemicals to paper machines. P&P provides a review of mergers and delves into the pros and cons of fewer, but bigger suppliers.

 

Industry broke at retirement?

The difference between the approaches outlined above is essentially a long-term vs. short-term perspective. A parallel that touches on many of the magazine’s readers will help illustrate the point. Everybody in the country it seems is fixated on analyzing where they stand financially now, on what they need to do to plan for a secure retirement and if they have younger children, to pay for college. No matter what media you examine—print (magazines, newspapers, newsletters) or electronic (web-based, radio, TV, cable), we’re all bombarded with information on investment options, investment planning, and retirement planning. Many people look hard at what’s needed for retirement. They look at long-term trends such as inflation rates, retirement age, life expectancy (male and female), long-term growth rates for stocks, bonds, etc. They examine what annual savings are needed at certain growth rates to meet long-term targets.

Regardless of the exact approach, a constant theme throughout most approaches to retirement planning is—THINK LONG TERM. Don’t time the market. Save a little now, rather than waiting until you can afford it.

Lack of Vision Now contrast that with the direction of North America’s pulp and paper companies. Are they investing for the long term in their mills and their people? What caused me to think of this was some recent visits to industry conferences, mills and suppliers.

The first thing I observed is that mill people are practically an endangered species at conferences. It’s mainly lots of suppliers standing around looking like they can’t wait to get out of there. Obviously, with the staff cuts mills have made, it’s harder for people to be away from the mills. Government data on employment at paper and board mills back this up, showing employment has dropped strongly since about 1990, falling off more than 15%, or 35,000 people. But, even if they could go, they don’t have the money. So short term they are saving money. But it seems there is a lack of commitment to investing in training and educating our industry managers and technical people for the long term. They can’t learn if they’re not allowed to see new technology and to meet with their peers to discuss problems and how to solve them. Some would argue that with the shift of the knowledge base to suppliers the need for investment in staff training is less. I don’t believe this is the best long-term strategy.

This ties in with something else that a number of people have mentioned recently. The fact that we don’t seem to be investing sufficient funds in our mill assets to maintain competitiveness. Several people recently asked me why mills in Scandinavia seem to think long term and invest long term, when we can’t in North America. The parallel again can be made to personal investing. If you save a little more money now, you get a bigger return down the road. Instead, industry managers and executives are so focused on the next quarters earnings report that they simply refuse to invest in anything.

Can Consolidation Substitute for Planning? Many people say that consolidation will save the industry. Companies will save money by not adding capacity—they’ll acquire it cheaply. Furthermore, they insist, fewer bigger companies will be better able to manage business cycles by not over investing at the wrong time. Other conventional wisdom dictates that when companies merge, the least efficient facilities will be shutdown, and this will help the process of modernizing the industry. All of this will improve financial performance and in turn the overall industry.

Well, I’m just not convinced that it’s that simple. First, investments that need to be made in existing facilities that survive such a merger aren’t being made either. At the same time, many old mills remain running despite the merger activity. The weak do survive apparently.

It’s hard to predict the future whether its projecting how much money you need to retire or where the paper industry in North America will be when I retire. But I believe the industry needs to make the necessary investments in people and technology now to ensure a long-term future. But, I don’t think we’re banking enough now, and this makes the chances of future problems greater.