Tips for business development of graphic paper mill operations
In this article, I have listed tips and the key questions to be asked for developing paper assets.
Picture 1. Asset development.
Vision and Strategy
Making money in declining markets is challenging. You need to set a powerful vision and targets for the company or paper line. The weakest assets in the low quartile in cost structure will be constantly facing a challenge to make money, This means that these assets will be closed or they need to move into new business segments. The more competitive assets can still make money and have time to improve their cost position further and enhance their product offering and services. Some of these assets are being sold to new owners and/or converted also to new businesses.
What is your strategy? Are you going to reduce the share of the current business and develop new businesses for the paper line or mill? Make an exit when it is still possible? Just close the line? Stay in the business and improve your cost position?
Picture 2. Product life cycle.
Cost leadership
Do we want to improve our good cost position and be the ones who can be profitable and avoid losing money and avoid closing assets? This means constant cost programs and successful implementation. Are you realistic about the possibilities and capabilities in achieving this? Can we still squeeze some costs out?
Some key questions:
- How can we further reduce the use of raw materials and energy?
- Can we change into cheaper raw materials?
- Can we renegotiate deals with our suppliers?
- Could we find innovative low-cost logistic solutions with our partners and customers?
- Can we share the cost with other organizations or divisions of the company? What do we need to do ourselves?
- What is nice to have and what is essential to our business?
- Should we clean our product portfolio?
- Is it possible to relocate any of our processes into lower-cost countries?
- Can we renegotiate personnel compensation packages? Put more weight on success compensation models instead of fixed salaries?
Differentiation
What could we achieve by this? The main options: concentrate on a niche market segment that is less affected by the market decline, have less competition, or optimize the efficiency potential and competitiveness of your asset.
Each market has segments, products, and customers that are less affected by the market decline or have less competition. The customers are innovative and can develop products and service offerings that keep the revenues high and profitability at an acceptable level. Analyze the market and try to find the best options for your asset.
E.g. focusing on high substances or low substances. Relatively fast and wide machines could develop products that give better yield advantages to customers (less material used per square meter) or narrow and slow machines can improve the output by developing the offering to the high-end substances. The main trends in these markets are using less material per square meter but in some cases, the high-end market could be big enough to support some specialized assets. There are new paper production technologies that make it possible to produce very low substances for markets that need better yields from their raw materials to save costs.
Picture 3. New business development process.
There are many assets that can develop new business with minor or no investments. Why has this not been done before? The reason could have been that the asset is part of a larger organization and the roles of different assets are set to be very narrow. It could have been that the sales organization has not had the skills, focus, and right targets to support this kind of development. If you are a mill manager, business unit director, or managing director of a mill you should take an active role to develop the assets. You should not let corporate policies or earlier set roles and visions to prevent you from developing the business position of the asset. This needs courage, strong vision, and firm implementation of the plans.
Especially flexible paper lines currently in WFU/WFC or LWC/MWC business have many opportunities to enter new markets. You should have a high weight in developing an efficient product development process and constantly renew the product portfolio.
What other megatrends drive the paper and packaging market development? There is new legislation related to plastic products coming in force in many regions. How could you substitute plastic products? Which markets will grow due to this development?
Some examples of possible entries into growing paper markets:
- One side coated products (flexible packaging, self-adhesive label market, high-quality shoppers, white top liners for the packaging market, silicone baseliners, barrier coated papers)
- Uncoated products (shopping bags, small bags, medical leaflets, scholastic, white top liners for packaging markets, thin papers)
These products are based on a high share of virgin fibers. The WFU/WFC and LWC/MWC assets can use virgin fibers. This share could be limited due to pulp handling capacity but it does not mean that you could not enter the market and start developing a profitable business. One could start with a hybrid model and later enter the market on a big scale with less risk.
Entering new markets takes time; market research, developing the products, certification, customer introductions and acceptance process, investment delays, etc. If you have a business that can support this and bring in positive cash flow it is much easier than if you run into low profitability and you start looking for new options only after this has happened.
The graphic paper market is globally still a very large business (70 Million tons) although it is declining. There are opportunities for asset development in this business and conversions of the paper lines into new growing businesses. The first steps in new market entries and improved profitability can be many times achieved with relatively low investment costs.
Heikki Hyvärinen
Founder, Partner
H&H Advisors Oy
