MILL MANAGERS REPORT

Pulp & Paper's annual North American mill manager's survey indicates a cautiously optimistic outlook, despite a rocky 1997

BY Monica Shaw, Associate Editor

Reserved Mill Managers Glance Upwards for 1998

Climbing paper prices in the latter half of 1997 have North America's pulp and paper mill managers looking up-but only slightly. A further indication of this conservative outlook is that job satisfaction has not recovered from last year's dip, damaged in part by new responsibilities from environmental regulations and tighter cost control requirements. Although the issues of pricing, overcapacity, and demand dominate the managers' future concerns, a definitive 70% have planned capital expansion projects for 1998-and one of the most commonly listed reasons is to expand capacity.

Only a slight majority of mill managers responding to a recent Pulp & Paper survey regard their mill's profitability for 1997 as either excellent (13%) or good (42%). Reflecting the lingering effect of the 1996-1997 price drop, increased regulatory demands, and pressures to create shareholder profit, 45% of the managers responding to Pulp & Paper's exclusive mill manager survey for 1997 view this year's performance as fair/guarded (28%) or even poor (17%).

Despite a recovering market, the fluctuations of the past two years have left managers cautious in their predictions for 1998 (Figure 1). While a larger majority predicts an excellent (15%) or good (61%) 1998, as compared with a combined excellent and good outlook of 59% for 1997, it is interesting to note that the majority are only predicting a good 1998 and that expectations for an excellent upcoming year have even dropped from last year's prediction (22% in 1997 vs 15% in 1998).

Curiously, this reserved outlook has not kept mill managers from contemplating expansions and production increases, even though managers continue to worry about overcapacity. Although the outlook for 1998 is reserved, 70% of survey respondents said their mills are planning a major capital expansion. When asked for the focus of these projects, managers mentioned capacity increases (28%), environmental/regulatory compliance (28%), improved quality (20%), grade changes (13%), and cost reduction (13%).

One area targeted for spending was paper machine upgrades (33%), including wet-end rebuilds, and new control systems, sheeters, winders, and speed-enhancing projects. Spending for fiberline upgrades was also indicated (24%), including boiler improvements, beater and cook room upgrades, and new cleaners, pulp washers, and woodyard equipment. Equipment and system improvements to help meet environmental requirements (15%) were also mentioned.

MANAGER PROFILE. To determine the profile of a typical manager, Pulp & Paper's survey asked questions concerning experience, education, and daily activities. All survey respondents were resident or mill managers. Almost every grade, geographical region, tonnage range, and mill size was represented in the responses.

In keeping with surveys from previous years, most mill managers are males in their 40s (34%) or 50s (47%), as Figure 2 shows. However, this year's survey reports more managers in their 50s than in 1995 and 1996 (31%, 33%) and less in their 40s (44%, 44%) than reported in those years, indicating a maturing workforce. The average age for a mill manager in the survey was 49, while the oldest participant was 64 and the youngest was 32.

Most mill managers have a bachelor's degree (67%) or higher (19%). Of the 67% with bachelor's degrees, 81% had degrees in some engineering discipline, with chemical (39%) and pulp and paper (22%) being the most common. Other four-year degrees represented included forestry, accounting, and finance.

The majority of survey participants with master's degrees had an MBA (65%), followed by chemistry and chemical engineering (38%) and pulp and paper (13%). All PhDs participating had their postgraduate degree in pulp and paper science.

The average survey respondent had seven years of experience managing his current mill and any previous ones. The majority of respondents (45%) had been promoted from within their own mill, while 31% were transferred from another mill and 15% had managed a mill outside their current company (Figure 2). Only 9% of survey respondents were transferred from their mill's corporate offices. However, this number has nearly doubled over last year's 5%.

Prior managerial experience in an operations-related area was the most common professional background for a mill manager, with 83% of respondents reporting as such. The most commonly held title within this group was production manager (33%), followed by superintendent (11%), operations manager (9%), maintenance manager (9%), and plant/project manager (7%). Non-operations titles included assistant mill manager, director of human resources, and controller. In addition, 7% of the respondents had formerly been corporate vice presidents.

Thirteen percent of this year's respondents indicated that they had work experience outside of North America. Engineering maintenance, process engineering, paper machine startup programs, consulting, troubleshooting, and managerial tasks were among the types of work listed by these managers.

Job satisfaction for mill managers changed very little between 1996 and 1997, with 54% ranking their jobs a five for "strongly like" (Figure 3). Comparing these years with 1995-when a convincing 81% of managers ranked their jobs a five-shows the effects of increased responsibilities along with stresses caused by the 1996-1997 price fluctuation.

Seventy-eight percent of this year's respondents indicated that their mill and corporate duties have not only changed, but increased, in the past five years. Not only is this more than last year's response of 69%, the associated comments also indicated different duties than were reported last year. Instead of listing increased corporate responsibilities as a result of downsizing and more mill autonomy, managers most frequently listed work associated with ensuring environmental, safety, and other regulatory compliance, as well as tasks associated with achieving cost and profitability goals (see sidebar, "Emphasis shifts to regulatory issues, profit margins," p. 80).

To stay informed about the pulp and paper industry, managers find magazines and journals (98%) their most important source. Supplier companies (63%), internal communications (61%), newsletters (52%), word of mouth (52%), and conferences and seminars (43%) provide other useful methods for the exchange of ideas.

The Internet continues to offer the paper industry a potential source for communication and information. While only half of last year's survey respondents reported having Internet access, 81% of this year's managers reported access. Fifty percent of those indicated a connection at both the mill and home. Of those with access, 32% indicated they found the Internet useful for receiving paper industry information, while 52% said they did not. Those managers accessing the Internet for business activities reported using it to obtain general industry news and information (23%), e-mail (16%), research business-related topics (16%), visit competitor's web sites (9%), and visit supplier sites (5%).

WHAT DOES A MILL MANAGER DO? Though mill managers perform a variety of operations and management tasks on a given day, insuring personnel safety (63%) was most frequently listed as a top mill responsibility. Another daily responsibility given top priority included cost control (43%), which was up nine points from last year's 34%.

Leadership and managerial responsibilities (39%), including personnel development, also ranked highly, as did production and productivity related tasks (39%) and quality and customer service (30%). Environmental compliance, which respondents rarely listed last year, was given top priority by 19% of the managers.

When asked which daily activities absorbed the most of their time, managers most frequently reported labor relations and human resources (48%), paperwork (35%), meetings (30%), communications (20%), and responding to mail, voicemail, and e-mail (15%). Many managers (26%) provide hands-on technical support by "just walking the floor" on a daily basis.

Most mill managers find that dealing with personnel issues (44%) is the most important activity they perform. Safety issues and developing successful safety audit programs (30%) also ranked highly, reflecting the growing emphasis on regulatory issues. Although strategic and budget planning (15%) was ranked as an important activity again this year, it was not the most common response to this question as it was in 1996 (33%). Instead, communications and human resources responses dominated this question, with several managers describing "cheerleading" and "coaching" as some of their most important activities. Leadership and activities related to building an effective structure (17%) in downsized organizations was listed, as well as effective communication of goals (26%).

Quality and customer service (19%) was yet another area listed as important by the managers, especially as it related to "making a connection with the customer." When asked what kind of direct involvement they had in dealing with customer service issues, 70% of survey respondents indicated either extensive or moderate contact with the customer. As one manager noted, "I have daily interaction with customers and customer service planning." Another manager wrote, "I receive all complaints directly and sign off on all settlements. I also visit key customers and lead the customer contact program."

A definitive 87% of mill managers said that they have direct financial responsibility for their mill. In addition to management activities at their own mills, 57% of this year's respondents report responsibilities for strategic planning at the corporate or division level. Thirty-three percent indicate their participation in budget planning at those levels. Other corporate activities noted by the managers included participation in designing safety and environmental programs for the corporation (30%), as well as marketing and sales responsibilities (13%) at that level.

Demonstrating the move toward greater individual mill autonomy, 74% of survey participants said that they had adequate input into strategic planning for their mill (Figure 4). Some of the comments included the following:

"I have direct responsibility for capital and operational budgets."

"I have direct daily involvement with the president and CEO."

"We had a total senior management change four years ago with heavy streamlining. Business is now run from the mill site, including financial and strategic planning, with much more mill input. The mill site is heavily involved in directing its future."

"We are very involved in strategic planning. At times, the majority of the input is from the mill staff."

However, the 74% of managers indicating adequate strategic input is actually down slightly from last year's 82%. Many comments expressed inadequate input, especially as it related to corporate sales and marketing control at some mills:

"Responsibility is shared with sales and marketing organization."

"The corporation has no known strategic plan. There is mill level input on the financial budget, but this is basically dictated by corporate."

"Operational planning and financial results are fallouts of marketing strategy. Operational opportunities are ignored until marketing identifies the need and calls for operations to execute a plan."

"We need more aggressive sales and marketing."

AREAS OF CONCERN. This year's survey respondents were asked to name the number-one problem at their mill in the areas of operations, maintenance, quality (customer service), and labor/human resources. Although a wide variety of results were reported within each area, some trends stood out.

In addition, managers were asked to identify some particularly persistent problems, and, as in years past, they were asked to rank their mill's relationship with neighboring communities.

Operations. For this year's managers, the most commonly occurring operations problems were efficiency related (18%), with throughput limitations and finding ways to correct those limitations specifically mentioned. In addition, some mill managers found that training and employee issues (17%) were negatively affecting operations, especially "getting people to take responsibility" and "pay attention" to their work. Equipment breakdown and the "mix of old and new equipment" (9%) were also noted as a common problem.

Other common operations-related problems included: contaminants in raw materials, lack of capital for needed improvements, safety, grade change issues, finding process variations, changing customer requirements, closed-loop systems, recovery boilers, reducing downtime, and maximizing asset utilization.

Maintenance. Mill managers ranked equipment failure (17%) as the number-one maintenance problem at their mill, specifically mentioning unscheduled downtime, repetitive repairs, and the inability to find the root cause of failures. The second most common maintenance problems were employee-related (15%), with managers complaining of poor workmanship, a lack of trained personnel with proper skills, and poor productivity.

The move from a "fire-fighting" type maintenance program to preventive/predictive maintenance (7%) was also noted as a common problem, as were difficulties relating to maintenance planning (7%) and costs (7%). Some managers found changing technology (4%)-specifically, the shift from mechanical to electronic and instrumentation (E&I) controls-to be a maintenance challenge.

Other common maintenance problems included: getting corporate to respond quickly to problems, lack of capital for improvements, lubrication, safety, and efficiency.

Quality. Twenty-two percent of survey participants found meeting and understanding customer needs as their number-one quality problem. The second most common quality problem was product variability (11%), or "producing too much second-rate paper," as one mill manager described it.

Other quality problems mentioned included: product specification inadequacies, damaged rolls, production scheduling, on-time product delivery, a new computerized quality data and SPC system, poor feedback from sales, coordinating testing, communications, lead times, and packaging.

Labor/Human Resources. Mill managers found that labor negotiations and union issues (24%) were their most common human resources problem, especially as it related to motivating employees to accept greater personal responsibility. Training issues (7%) were also a common source of difficulty.

Other common labor/human resources problems included: solving interpersonal problems, getting salaried and hourly workers to communicate, retirements, and attitudes.

Persistent Problems. When asked to list "nagging" problems that they must deal with, managers find dealing with employee attitudes and interpersonal problems (26%) the most persistent, despite the fact that 44% of them also find this their most important activity. Following as a close second are environmental compliance, permitting, and regulatory changes (24%).

One interesting fact is that although the majority of managers feel they have adequate input into strategic planning for their mills, survey participants indicated a growing lack of support as corporations focus on bottom line profitability (11%). In addition, labor negotiations appear to be a chronic problem (9%).

The following comments are representative of the problems plaguing mill managers in these areas:

"Corporate penny pinching and maintaining a qualified and motivated workforce."

"Getting all teammates to fully accept involvement, ownership, caring, and commitment to themselves, their teammates, our customers, and the company so that we can meet our objectives."

"Environmental compliance issues."

"EPA, DEQ, DNR, and IRS."

"Delayed decision-making due to the involvement of the uninformed corporate focus on number of heads vs overall personnel effectiveness. They take forever to make a decision, and then expect overnight execution."

"Unions try to maintain relationships of the 1950s."

Community relations. Perhaps one silver lining to the cloud of increased environmental regulations and spending is an improved relationship between the mill and the community. While only 28% of last year's participants ranked this relationship a "five" (good relations), 42% of 1997's respondents chose the highest rating this year, reflecting an apparent shift upwards from the more lukewarm "four" category (Figure 5).

FUTURE CHALLENGES. As with last year, this year's survey asked participants to identify the greatest challenges facing their mill in the upcoming year, as well as the greatest challenge facing the North American paper industry. While pricing, capacity, and market issues dominated the mill managers' outlook for the North American industry, concerns about cost control and improving profit margins ranked as the highest challenge for their individual mills.

With prices rising in the latter half of 1997, only 9% of survey respondents listed market/pricing concerns as the greatest challenge facing their mill in 1998, compared with 24% of respondents from last year's survey. Instead, 30% found cost control and improving profit margins their top concern, as the following comments demonstrate:

"Reducing operating costs and increasing production with limited capital."

-Midwestern recycled paperboard mill

"Increasing production and lowering costs to make the mill more profitable."

-Northeastern newsprint mill

"Reduce or hold cost in a rising cost market."

-Northeastern book paper mill

"Profitability and quality."

-Canadian linerboard, newsprint, and tissue mill

Other areas for concern were upcoming labor negotiations (9%) and quality improvements (9%).

As for challenges facing the North American industry, managers most frequently chose pricing and market concerns (26%) as the most threatening. Serious concern about overcapacity and expansion (17%) was also expressed. Global competition (9%), profit margins (9%), and environmental compliance (9%) were among the other responses. The following comments indicate these concerns.

"The industry must learn to better manage
pricing to avoid the dramatic cycles that have occurred."

-Canadian newsprint, directory, and board mill

"Reduced cyclicality with improved inventory control and balanced supply/demand."

- Midwestern corrugating medium mill

"Not going crazy with price increases at the first opportunity. Continuing to drive toward being globally competitive."

-Canadian uncoated SCA/SCB mill

"The industry needs self discipline regarding expansion plans."

-Southeastern deink pulp mill

"Shedding non-competitive capacity."

-Midwestern printing papers mill

"Improved investor returns. Capital flow is questionable if returns cannot be improved. Without new capital, we cash out."

-Southeastern fine paper and board mill.