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The e-business revolution is heading straight for the margins of many of the traditional players along the pulp and paper supply chain
by Jim Kenny
Bye bye distributors, hello e-commerce facilitators
With the last remnants of 1999 being tidied away and 2000 just getting started, now is probably as good a time as any to look at what issues are holding the industry's attention going into the new millennium. Unsurprisingly, the internet is taking top billing on many corporate agendas, especially now that all the consternation over that little bug called Y2K has been passed over. It appears that the e-business revolution is now looming large on the radar screens of a very significant number of pulp and papermakers who now have to try to figure out what it means for their companies.
At several of the industry conferences toward the end of last year, the implications of the internet were discussed to a greater or lesser extent. Indeed, PPI's own Supply Chain Management Forum for the Forest Products Industry dedicated an entire morning session to the topic. The event in Barcelona, Spain, was organized in conjunction with one of the world's leading business solutions companies, SAP of Germany. Although several of the speakers that tackled the topic of the internet and its effects on the paper industry had different ideas about timing and impact, the one thing that they all agreed on was essentially this - the internet can be compared to a massive, fast-moving train, and if you're not planning to get on board, plan to get run over. Needless to say, it was a long way from being the type of reassuring message that many of the delegates in Barcelona would have hoped to have heard, but at least the industry cannot say that it didn't get fair warning of what's in store for the future.
Although on the face of it, supply chain management (SCM) may appear some way off from e-business, it does in fact represent one of the keys components needed to make e-commerce work for companies. The installation of an effective business solution such as those on offer from the likes of SAP, Baan, Oracle, JD Edwards, Intentia, etc etc, is a vital first step in delivering the supply chain transparency and flexibility needed to step up to a truly internet compatible business model. Clearly, without a digitized production, inventory and delivery system, it is fairly difficult to reap the benefits of a virtual selling environment.
The internet is certainly capable of delivering a new vitality to the many companies that have already chosen, or are about to choose, to venture down the virtual path. But the medium presents some rather more troubling dilemmas for pulp and paper industry players as well.
Virtually gone
Let's take what is considered to be one of the more vulnerable sectors of the industry as an example. Traditionally, merchants have done fairly well out of the distribution of pulp and paper down the years, typically adding a fairly healthy margin on prices over and above what the producers ever see. But at least four times over the past couple of months, internet savvy experts have stood on public platforms and declared "if you're a traditional merchant, get out quick while you still can".
Now, while this may sound like scare-mongering, the fact that comments like these have been repeated by such a diverse range of people across a broad spectrum of business suggests that now might be a good time to get nervous and start working on a Plan B. Even if you work for a terrific merchant and firmly believe that the internet age will not disrupt your commercial relationships too much in the future, it’s worth looking at an alternative plan just in case.
The fact is, it is not only overpaid internet consultants and IT experts that are coming out with such doom-laden prophesies. A broad range of businessmen and women from other sectors are echoing the same sentiments. Even a cursory glance at other industries, and particularly steel and chemicals, reveals that many companies have already been chewed up and spat out by this particular trend.
Let's take just one of several scenarios for the paper industry. Some internet group comes along and does a partnership deal with a couple of visionary merchants. Suddenly the e-company can provide paper buyers will all the price transparency and availability that they need on a scale that was previously unimaginable. "Could never happen", you say, "people will still need all the other merchants to make the deliveries and hold the inventory." Well, yes and no. Because if you are not part of the new internet site that is attracting the attention of more and more customers, you will be losing a lot of orders.
To put it as simply and crudely as possible, the traditional merchant will no longer "own" the customer. So even if the old-style merchant can, and even still does, deliver the goods, fundamental changes are set to take place in the power structure of the business. Customers that prefer the advantages of online price comparison across a wider range of grades and suppliers that any traditional merchant can ever offer - and there will be many - will push the margin away from the merchant and toward the 'e-business facilitator' instead. Overall, the customer gets cheaper paper because the e-business facilitator can charge lower margins on higher volumes. But the traditional end-user supplier becomes a glorified delivery company or goes out of business altogether.
Hold tight
Obviously, no-one knows what the future holds in store for any of us. But there is no doubt that the structure of the sector is set to change dramatically over the next couple of years - and not just for paper merchants. The changes could in fact be very positive for many people, but how your company fares in the future depends on the strategic decisions you make now.
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