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Rationalization has been a key word in the industry in the recent past. Canadian companies have restructured and rationalized operations through acquisitions, closures, cost-cutting measures, etc. Som…

Rationalization has been a key word in the industry in the recent past. Canadian companies have restructured and rationalized operations through acquisitions, closures, cost-cutting measures, etc. Some have optimized operations by getting out of non-core business, and specializing in a narrower line of products.

The result is a bit of an oxymoron — leaner but larger companies with more clout, who use their clout to lower their production, selling and administrative costs.

Within the mill the work and workers have become more specialized and focused on fewer tasks. For suppliers to the industry this restructuring has meant several changes: a need for greater involvement in the day to day operations of the mill; staff with different skills; the need to provide greater service for key customers; and a change in the working relationship with the client.

Selling service

New technology and restructuring within paper companies has changed the staff in the mills and the staff of the supplier. More and more mill employees have higher technical training, more education, but fewer years of experience operating a paper machine. Service providers pick up the slack.

“Mills rely on suppliers for papermaking knowledge,” said Boyd McIntyre, Sales Manager, Appleton Mills. “We hire the people who used to do these jobs in the mills. People with 20-plus years of experience…knowledgeable paper makers…. We have paper makers who know the machines better than the employers.”

Alan Whitehead, Raisio Chemicals, said that his company has benefitted from the restructuring. “It has been a great opportunity for us to get people with a chemical background and real papermaking experience. In the past these people might not have wanted to join a chemical supplier. Now it is a viable option.”

As well as an increase in manufacturing and production knowledge, suppliers dedicate staff to one mill or one group of mills. Tom McInenly, JWI Group, agreed that service over the years has changed dramatically. The scope for his company has expanded from simply ensuring that the clothing supplied performs properly. JWI has developed a regional approach to its sales and service. “Our sales and service groups live and work in their regions so that we can respond immediately to our customers’ needs. Our people work as a team to service all of our products rather than being focused on an individual product line. This approach has allowed us to be much more effective and efficient. Today we are focused on maximizing the value to our customers by assisting them achieving their production and paper quality objectives.” The supplier more and more is required to look at a larger picture, take more into consideration, everything from the fibre makeup to the customer’s customers and their printing needs, McInenly said.

JWI staff is dedicated to all clothing products. The company says it has invested heavily in technical and product training for its sales and service representatives. As a result, said McInenly, all JWI field people are more technically knowledgeable about forming, press and dryer fabrics and their effect on production and paper quality.

More than ever, suppliers are expected to advance the technology. Pulp and paper companies, like MacMillan Bloedel for example, have closed their research facilities, and turn to their suppliers for technological advancement. “We have to have sophisticated equipment,” said McIntyre. Vibration equipment, water-measuring devices, for example, are very expensive pieces of equipment, but you have to have it to do business. “The oldest piece of equipment we have is less than ten years old,” said McIntyre. To remain competitive you have to keep up with R&D. Providing technical servicing is an expensive proposition.

There is more of a partnership, as the suppliers contribute knowledge to run the paper machine. There is also a new working relationship with mill employees. The paper machine superintendent, in the past an employee with 30 years of experience, who climbed the ladder in the mill, no longer has that wealth of experience. In most cases he has also lost his purchasing power. Service calls to the superintendent continue, but sales calls have diminished.

Suppliers deal much more on a corporate level, especially in the case of multi-mill companies. This, the suppliers say, is a focus that did not even exist 20 years ago.

Multi-mill service

Once upon a time mills would purchase equipment one piece at a time. With multi-mill organizations, paper companies look at leveraging their buying power, and with it they expect more service.

One supplier noted that years ago equipment was bought on a “personality or friendship basis.” In recent years it is the corporate purchasing that dictates to the mills. The powers that be tell the superintendent ‘these guys give the best price, so buy from them.’ The superintendent is no longer the decision-maker.

Service, the suppliers say, is often built into the price of a product. For example if there are five mills in a corporation a supplier may only sell to one of the mills but provide service to all of them. The reasoning is simple: keep the corporate bosses happy and they will continue to send business your way.

This emphasis, some say, is counter-productive. Leveraged buying drives prices down for supplier products and services. For example, for clothing providers there has been no price increase in 3 or 4 years. Price discounts, reportedly, are in the range of 50 to 70%. The problem often is that paper companies become so fixated on reducing prices that other areas suffer. The same suppliers relied on to provide papermaking expertise, increased service, and ever-evolving technology are operating on reduced sales revenue. R&D efforts are among the first to be reduced in order to meet other demands.

With the increasing demands on pricing, service and research, suppliers say that they still must compete every step of the way for business. They are at the mercy and whim of a corporate buyer, who could be enticed away by a lower price. The business is in constant need of the suppliers’ services and products but they are at the mercy of leveraged pricing. In some cases, new equipment may be purchased from another supplier but the original service agreement continues.

Trends

Bob Zaniol, H. A. Simons, said that there is a definite trend toward fewer suppliers. What motivates this is the need for fewer purchase orders, less paper work. As an example he said that in the past a mill might work with three chemical companies. The mill superintendent negotiated the purchasing of chemicals and a contract might last for three months. The mills dealt with several suppliers and many purchase orders.

Now a mill will deal with one chemical company for a year and at the end of the year will reevaluate. “This thinking is driven by good sense,” said Zaniol. If you give the supplier a longer contract “he will look after you more. You will get better service.”

This better service comes from the supplier knowing his client more intimately. If a mill is only working with a few suppliers and you’re one of them, those mills get 80% of your attention, said Zaniol. “The personnel — you have to know who they are, know what they are buying.”

Long-term single supplier transactions will continue as will the trend to get and keep the mill payroll down, said Zaniol. “I think there will be continued growth in single sourcing, and short-listed sourcing.” The “middle men,” in this case the business-development, sales, administration and accounting staff will be reduced.

McInenly, JWI, said that over the past few years, there has been a strong trend towards rationalizing the number of paper machine clothing suppliers in the mills. It was not uncommon for a mill to have five or six suppliers and sometimes many more. McInenly estimates that now 75% of Canadian mills have two main suppliers. They have rationalized the number of suppliers, he said, to:

improve performance by reducing the number of variables,

increase the focus on continuous improvement,

better manag
e product inventory levels,

improve pricing opportunities with volumes.

While JWI’s market share has continued an upward trend in all product lines, McInenly reported that, “we are involved in more corporate partnership arrangements than in past years. This change has been prompted by our customers’ need to be more efficient and effective in today’s much more difficult market place.”

Another trend is to have more spelled out in the contract. Contracts today tend to be longer and are more detailed, “so that a clear understanding of the working relationship and responsibilities exists,” McInenly stated. “There are some that tie your remuneration directly to machine production, some that fix the remuneration, regardless of volume, and some that focus on improved pricing versus greater volumes.”

Whitehead agreed, saying that big companies are moving toward the type of purchasing agreement where the chemical provider agrees “to deliver a chemical program for a certain cost per tonne of paper.”

Many accounts require spec sheets. “The buyer in the mill wants to know exactly what they are getting,” said McIntyre. “They may ask the size of the needle on the loom, the size of the iron, number of the iron….” In short, it can be very specific.

Yet the dependance on spec sheets, too, can be counter-productive. During a question and answer period at the TAPPI meeting held in March, one pulp and paper company ceo said that what the industry needs is innovation from all sides, including suppliers. A supplier replied that suppliers are required to produce to spec. That limitation takes the innovation out of the process.

Knowledge is power?

The job gets done with this new working relationship between mill and supplier, but there is some concern. For one, the paper makers now working for supply companies have indispensable knowledge. They are, according to one supplier, a crutch that mills can lean on. The paper companies, he said, have abdicated their responsibilities. Secondly, the original equipment manufacturer has the know-how to use and maintain the machines. The equipment is too sophisticated so, like a modern car, you can’t work on it yourself. Thirdly, innovation is taken out of the hands of the mill. With the trend to single sourcing, mills cannot be open to innovation from other suppliers. Is the mill giving up too much?