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W ith further industry consolidation, many supplier mergers, and continued concerns about competitive position, 1999 marked another year for significant change in the paper industry. Pulp & Paper’s 1999 survey questioned mill managers about these trends, as well as their opinions on upcoming challenges for the North American industry, their responsibilities, and daily mill operations. Almost every mill size, grade, tonnage range, and geographical region were represented in the responses.
This year’s survey responses showed that anxiety about market and pricing issues seems to have eased in wake of recent price increases and improved corporate profitability. Managers indicated that these concerns have been somewhat displaced by the related issue of cost control, apparently as a means to continue the financial improvements.
Overall, managers appear cautiously optimistic about the future performance of their mills, as well as the North American industry. However, with increased customer demands, cost control pressures, and managerial responsibilities, job satisfaction ratings have inched up only slightly from some of the lower rankings reported last year (Figure 1).
FIGURE 1: Job satisfaction among mill managers showed only a slight improvement since last year, as ratings moved up from some of the lowest rankings.
MILL MANAGER RESPONSIBILITIES. Pulp & Paper asked mill managers to list their top mill responsibilities, along with nagging problems they have to address at the mill. Managers were also asked about their participation in strategic planning, as well as their use of the Internet for business activities.
Top responsibilities. Mill managers listed a variety of responsibilities associated with daily operations and management duties, but the most common ones related to leadership and managerial responsibilities (52%) such as decision making and employee/labor relations. This marks a slight increase from last year (49%), displacing safety as the top responsibility. However, maintaining a safe workplace still ranked highly at 46%.
As in 1998, cost control and financial management were also given top priority by respondents (43%). Quality and customer service (31%) were again emphasized, although less so than last year (40%). At 28%, production and productivity related tasks were frequently listed, as was strategic planning (20%), which was up five points. Environmental compliance held at 15%, while profitability (8%) dropped from 1998 (19%), perhaps due to somewhat improved industry performance.
Persistent problems. Labor relations and human resources were again listed as the most common “nagging” problems (40%) for mill managers. Specific problems mentioned were poor attitudes, resistance to high-speed organizational and operational change, interpersonal conflicts, inconsistent management by supervisors, and lack of trust from unions.
As opposed to last year’s focus on problems associated with financial issues, this year’s mill managers listed a wide range of nagging problems. Environmental compliance (11%), relations with corporate (9%), safety performance (6%), and aging mill equipment and facilities (6%) were some of the more common ones. Others included paperwork, transportation, raw material supply, poor vendor performance, industry consolidation, maintenance, cost control, markets, and product quality.
Strategic planning. A definitive 88% of managers said that they had adequate input into strategic planning for their mills, which is up from 1997 and 1998 (74%, 75%). However, the level of input ranged between mills, with some reporting almost daily contact with corporate offices and others reporting input mainly through financial planning activities. One respondent, who answered both yes and no, said that he had “input, but corporate people challenge and question all positions and strategies.”
Of those indicating they did not have adequate input into strategic planning, the most common reason was an overall lack of emphasis on long-term planning from their corporations.
Internet usage. Mill managers were questioned about their use of the Internet for business-related activities, as well as their company’s use of the Internet for e-commerce applications. For their responses, please see the sidebar, “Internet regularly used for business purposes, but e-commerce is in early stages.”
FIGURE 2: Of managers who reported outsourcing at their mills, 61% cited cost control as the reason for obtaining outside services.
INDUSTRY ISSUES AND OPINIONS. Pulp & Paper questioned mill managers about industry issues such as consolidation, supplier mergers, and competitive positive position, as well as their opinions on upcoming challenges for the North American industry.
Maintaining a competitive position. To improve financial performance and control capacity, some companies have cut their capital budgets, with a possible impact on competitive position. Managers were asked whether their companies were investing sufficient capital in their mill to retain its competitiveness. The majority (66%) said yes, which showed little change since last year.
However, for the 32% of mills experiencing a lack of investment, paper machine forming, pressing, and drying is apparently a growing area for concern. Although the paper machine was again listed as the area most needing investment, it rose to 90% from 65% last year, while other areas such as process automation (29%), new product research and development (19%), bleaching (5%), and recovery (5%) fell significantly. Pulping fell most dramatically from 43% to 5% in 1999, while concern for information technology investment was the only category to rise other than the paper machine, gaining 10 points to 19%.
When asked to further elaborate on where investment was lacking to retain competitiveness, most managers focused on automation and paper machine modernization. One manager noted that “maintaining an ‘as built’ condition” for the paper machine was “not adequate,” while another manager mentioned modernization as a way to reduce operating cost. So, why the overall lack of investment at these mills? In one manager’s situation, “environmental capital needs are extreme and drain money from ‘strategic’ projects.”
Customer service. The paper industry claims that it has become more customer focused, and most mill manager’s agree (71%), although many admit that this has been driven by market conditions in recent years. As proof, managers cite better communication with customers, more partnerships, just-in-time (J.I.T.) inventory, faster complaint resolution, and value-added, customized products. Here are some representative comments about customer service:
• “Soft markets force more customer focus, thus, customer support and service issues. For example – just-in-time-inventories and ‘no questions asked’ complaint resolution.”
• “Customers now drive the business. We are focused on J.I.T and have hired a full-time customer service person for the company. Our goal is 98%+ for on-time delivery, and we will make grade changes to meet them. Another goal is to turn over customer complaints (70%+) in two weeks.
• “We are tailoring our products to customers’ needs.”
Supplier mergers and R&D. From paper machine clothing to chemicals and major equipment, the paper industry has been bombarded with a wave of supplier mergers (see supplier merger article on pg. 48 in this issue). Mill managers were asked their opinion of supplier mergers, and how the mergers would impact price, service, and new product offerings. In addition, managers were also asked their opinion on the industry trend toward more supplier research and development (R&D).
When asked how the recent wave of supplier mergers would affect their mill, most respondents answered that they did not yet know (42%) or that it would have a negative impact (31%). Only 28% saw the mergers as having a positive impact. Respondents also indicated that there would be worse pricing (54%), worse service (51%), and less new products (48%) as a result of these mergers. However, 31% saw supplier price improvements, 40% thought service would improve, and 29% saw more new products as a result, so responses were somewhat mixed, although generally in a negative direction.
Pulp & Paper again asked if the industry trend toward more supplier research and development and less paper company research was sufficient. Managers are apparently becoming more receptive to the idea, since more found this acceptable (58%) than in last year’s survey (48%). However, though this is apparently driven by financial constraints in smaller companies, many respondents still found supplier research too nonspecific. Opinions were still strong in each direction, as these comments reflect:
• “We are a small company. We rely solely on R&D from suppliers and industry.”
• “The industry is extremely competitive. We do not have the resources to carry the additional research overhead.”
• “In-house control is important and should be balanced with supplier R&D to meet specific mill requirements.”
• “R&D must come from mills or a mill-sponsored R&D firm if we are to remain competitive worldwide. Suppliers’ R&D is transferred very fast between mills.”
Paper company mergers. Survey respondents were asked about their opinions on industry consolidation into larger paper companies. These opinions were asked in relation to mill profitability, customer service, and new product development.
The idea that mergers would ultimately increase mill profitability has become even more popular, with 88% of managers indicating so – an 11-point increase since last year. Likewise, the opinion that it would decrease mill profitability has fallen five points to 6%.
Once again, opinions about merger effects on customer service and new product development were not as positive. Forty-nine percent of managers felt that mergers would result in worse customer service, while 34% thought customer service would improve—findings that were virtually the same as last year. Similarly, most thought that mergers would limit new product development (45%), which was up five points from 1998.
Outsourcing. With the strong focus on tight cost control at mills, Pulp & Paper asked managers if they were outsourcing more mill functions. As Figure 2 shows, half of the managers indicated they were, and the most common areas for outsourcing were maintenance (61%) and transportation (39%). Energy (19%), woodyard operations (16%), and water treatment (16%) were less prevalent, but managers did list a variety of answers in the “other” category, including converting, warehousing, engineering, computer support, and finance/accounting.
When asked why the mill was outsourcing more functions, the most common answer, as expected, was cost control (61%). Other indicated reasons were a need to focus on core competencies (52%), labor savings/issues (42%), and corporate pressures (13%). However, one manager designated the trend toward outsourcing as “a fad.”
Technology. Mill managers gave a wide range of answers when asked to name the most important technological advancement in the paper industry in the last five years, although one manager asked, “Have there been any?” The most common answers were: process control and automation advances (15%) such as the DCS; information technology (11%), including Internet utilization; and the shoe press (6%).
Other answers included headbox advancements such as jet dilution and consistency control at the slice, online calendering, crescent former, gap former on linerboard machines, recycling technology, single-tier drying, chemically enhanced coating constituents, and camera systems. Stock cleaning, velocity induced drainage, improved wet felts, Cluster Rule compliance, and the ability to achieve mill closure were also noted.
Future issues and challenges. When asked to identify the biggest challenge facing their mill in 2000, controlling costs (20%) was the most common answer this year, replacing market and pricing concerns, which was down 11 points to 9% this year. Other prevalent answers were personnel/labor issues (12%), Cluster Rule/environmental compliance (9%), and productivity (8%). New product development and profitability were also mentioned frequently.
The outlook among mill managers for 2000 is much more positive than last year’s outlook for 1999, according to survey respondents. When asked about their general outlook for 2000 in terms of their mill’s products in the marketplace, 17% said it was excellent, while 55% said it was good, 26% said fair/guarded, and none indicated a poor outlook. These results were more positive than last year’s attitudes toward mill performance for 1999 (10%-excellent, 31%-good, 46% - fair/guarded, 13%- poor), most likely because of better paper company financial performance.
In addition, mill managers were asked, if, given the large fiber cost advantages in other world regions, the North American industry would stay competitive for the long term, and in what grades and products. Sixty-six percent said it would remain competitive, and 18% said it would be in all grades.
However, most survey respondents limited the success to certain grades as follows: brown grades such as corrugating medium, linerboard, and other strength-oriented products (30%); valued added and specialty products (27%); newsprint (11%); and tissue (9%). Although most mentioned specific grades, others noted the positive impacts of high quality products and technical superiority within the North American industry, as well as freight cost as a limiting factor for its global competitors.
FIGURE 3: Of the 49% of managers reporting staff cuts, those from mills producing fine papers were most likely to report reductions (28%), followed by containerboard (21%) and newsprint (17%) mills.
DAILY OPERATIONS. Pulp & Paper’s 1999 survey questioned mill managers about day-to-day operations, challenging events, and staffing/labor relations.
Operational philosophy. The survey asked mill managers if maximum tonnage was still the operational goal at their mill, or if the philosophy had moved toward targeting production in response to market demand. As in 1998, most (51%) indicated a shift toward demand-driven production. However, 42% indicated that maximum tonnage remained the operational goal.
Challenging events. Survey respondents were asked to identify the single most dramatic event at their mill in the past year. The most frequently listed events were capital project startups (32%). Of those, paper machine rebuilds (38%), including wet end, dry end, and press section improvements, were cited most often, followed by information technology (24%) and automation (19%) projects. Several respondents listed Y2K upgrades as the reason for those projects.
Contract negotiations (9%), new ownership or merger (8%), downsizing (6%), safety behaviors and improvements (6%), cost reduction (6%), and a major equipment failure (5%) were also reported as dramatic mill events. Other events mentioned were Cluster Rule compliance, mill closure, budget planning, natural disaster, and new grade development. One manager’s response was a bit broader, saying that “we made it one more year.”
Staffing and labor relations. Even though the majority of managers reported their most time-consuming and most persistently problematic task as labor relations at the mill, efforts in that area must be paying off. When asked if labor relations were better or worse than five years ago, 67% said yes. For a more detailed discussion of why managers feel this is so, see the sidebar, “Understanding of competitive pressures positively impacts labor relations.”
Mill managers were also asked if staff had been cut in recent years to control costs (Figure 3). Forty-nine percent said yes, which is down four points from 1998. Respondents were also asked what type of staff was cut and by what percentage. Of those reporting a reduction, the following trends stood out:
• As a group, engineering was the most commonly cut (24%) group according to mill managers. The average reduction was 16%, but ranged from 8% to 30% of employees in that mill group.
• Management was the next most common group to have staff reductions (14%). The average reduction was 22%, but ranged from 5% to 50%.
• Hourly employees also experienced staff cuts (7%), and these ranged between 10% and 25% within that group.
• Managers at mills producing fine papers were most likely to report staff cuts (28%), followed by containerboard (21%) and newsprint (17%) mills.
Survey respondents were divided when asked if employee retention was more of a problem than in the past. Forty-two percent said yes, while 45% reported no difficulties in that area. Of those who had problems keeping employees, 30% attributed it to poor wages, benefits, and hours within the industry, while 26% blamed the tight labor market. Around 11% said that poor industry performance and downsizing fears were causing employees to leave, and 7% found that poor mill location was a factor.
As in last year’s survey, many of those reporting no problem with retaining employees attributed this to being the preferred employer in their area (17%). Twenty-one percent of these respondents noted that their good wages, benefits, and working conditions were a factor. As one manager explained, ““People that work here want to be here (location). The company treats people very well, also.” *
Internet regularly used for business purposes, but e-commerce is in early stages
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| The 1999 Pulp & Paper mill managers’ survey showed that managers are increasingly using the Internet as a source for business information such as industry news and product research. However, questions about e-commerce applications through the Internet revealed that mills are just beginning to explore the Internet as a means for buying and selling products.
Business information. As the bar chart shows, Internet access among mill managers has grown since Pulp & Paper first began asking managers about it in 1996. At that time, many managers only had access from home. In 1998, about 14% still had home access only, but the 1999 survey revealed that all surveyed managers could access the Internet from the mill. Consequently, 75% reported both home and mill connections, which was up from 1997 (50%) and 1998 (55%).
Of those with access, 90% indicated that they use the Internet for business-related activities, which increased from 79% in last year’s survey and 32% in 1997. These activities included industry news (63%), product information (42%), information about competitors (38%), and communication with customers (32%). Although percentages in each of the preceding categories rose since 1998, the basic ranking stayed the same. In addition, 14% reported using the Internet for other business activities, including technical research and gathering information about customers.
 E-commerce applications. Although mill managers are increasingly using the Internet to obtain information, it appears that e-commerce applications are still in their early stages. In this year’s survey, Pulp & Paper asked managers if their company sold its products through their Internet website, and, if so, at what approximate percentage. Only 9% said yes, and the percentages ranged between 0% and <10%, indicating that this is a relatively recent application.
In addition, Pulp & Paper asked managers if their mills purchased products through the Internet. Eighteen percent said yes, and these respondents listed a wide variety of products, including used equipment, computer-related equipment, machinery parts, first aid supplies, and maintenance supplies. Several respondents mentioned that they were only purchasing a small amount through the Internet, and one manager said that the various products purchased were “based upon availability and corporate contacts.”
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Understanding of competitive pressures positively impacts labor relations
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 The majority of mill managers (67%) report that labor relations with union personnel have improved over the past five years, and most attribute this to better, more open communications and more employee empowerment at lower levels.
Though communication and empowerment were influential factors, many survey respondents indicated that the improved relations were due to a better union understanding of business and competitive pressures facing the paper industry. Likewise, many of those indicating that relations were worse attributed it to a resistance to competitive pressures, along with the sometimes unavoidable effects of cost reduction and downsizing. The following are some representative comments:
Better relations with union personnel
• “Relations are more cooperative. Cooperation is required to survive in today’s competitive environ- ment.”—Linerboard and corrugating medium mill
• “The union has a better understanding of our busi- ness and has chosen to get involved to improve.” —Flexible packaging mill
• “More involvement and empowerment of the work force—less supervision.”—Recycled paperboard mill
• “There is more self direction, and issues are worked at the lowest levels.”—Containerboard and corru- gating medium mill
Worse relations with union personnel
• “Our union is resistant to competitive pressures.”—Gypsum linerboard mill
• “There is a resistance to reorganization and downsizing.”—Bleached kraft market pulp mill
• “Strikes, personnel reductions, and cost cutting have taken their toll.”—Printing paper mill
• “Cost reduction and continuous improvement doesn’t fit the labor agenda.”—Printing, writing, and specialty papers mill
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