Managing machine clothing: a Solutions! roundtable: the past decade has seen major changes in machine clothing. Our expert panel sorts out how this has affected the development, purchase, and application of machine clothing in today's paper mill.

The following is a Solutions! magazine machine clothing roundtable. The participants are: * Steve Cole, director-marketing, Weavexx, Wake Forest, North Carolina, USA.

* Tom Curry, vice president, sales & marketing-U.S., Albany International Corp., Albany, New York, USA.

* Jerry Davis, vice president, strategic business development, AstenJohnson, Charleston, South Carolina, USA.

* Ivan Fearnhead, CEO, Voith Fabrics, Raleigh, North Carolina, USA.

* Art Rankin, technical director (retired), Appleton Coated LLC, Combined Locks, Wisconsin, USA.

SOLUTIONS! Consolidation has led to large paper companies attempting to merge established purchasing policies and practices. How are paper companies changing their paper machine clothing (PMC) buying practices because of consolidation? Is consolidation leading to more corporate directed buying practices, or will individual mills continue to have some discretion in how they purchase PMC?

RANKIN: Years ago, the superintendent had the primary responsibility for clothing purchases, and purchasing merely formalized the process. The philosophy was that the superintendent understood his machine and issues such as runnability, cost and service. This has changed over the past two decades as paper companies felt the cost of clothing was too high. Ultimately, purchasing departments assumed a very large role in the process and that role has grown with paper company mergers. Today at many paper companies, corporate purchasing has the ultimate authority to buy clothing with input from operations.

Early in the 1990s, the phrase "there will be five in '95" was heard in the paper industry. This was purported to be a philosophy of Scott Paper and was meant to be a prediction for clothing company mergers. The new theme may be "three in '03". Clothing companies are lacing a challenging marketplace as they try to stay in business.

COLE: Consolidation has certainly spawned more centralized buying, but individual mills contribute to the selection process. Corporate directed buying initially focused primarily on price, but disappointing results shifted the emphasis to total cost of use. The most successful PMG agreements are based on overall value generated and not merely on the price-per-piece.

CURRY: One of the potential advantages of consolidations is distilling best practices from the consolidating companies' processes. While some paper companies have moved toward "corporate buy" programs with little individual mill input, others have developed true "team" purchasing initiatives that more fully address total cost-in-use numbers with full input from production managers. The team approach has gained favor in many of the consolidations, and we believe it will be the trend moving forward.

DAVIS: Consolidation in any industry places more emphasis on achieving cost saving synergies through increased purchasing volumes. Most major paper companies have formed PMC teams comprised of corporate and mill representatives. This practice helps ensure that individual mill needs are met while maximizing the value suppliers bring.

FEARNHEAD: Corporate purchasing initiatives are based on procurement costs using market conditions to drive down the price. This is basic competitive economics. However, these separate initiatives by individual paper companies have succeeded to the point of what I personally suspect are negative returns for most, if not all, machine clothing companies, with this situation, the in-depth service that machine clothing suppliers once provided for the papermaker with the cost of the product is largely gone. There is a certain amount of technical know-how that must be present to efficiently manufacture paper. There is, of course, a cost associated with this. Much of that cost was transferred to the suppliers through paper company cost-cutting projects. This expertise never was free, no matter where it came from. With deteriorating prices, PMC suppliers can no longer cover it in product cost. In my opinion, mills will have to decide if they want this service expertise. If they do, they must be willing to pay for it, either in the cost of the product or through some other means, such as value-added consulting fees.

SOLUTIONS! Over the past decade, paper mills have continued to reduce their technical staffs, moving more and more service functions to suppliers. At the same time, paper companies and PMC suppliers are seeking to develop more technology partnerships, where each side contributes to the development of more effective materials and processes to make PMC operations more productive and effective. How can paper companies and suppliers develop truly effective partnerships in an age of downsized mill technical staffs?

RANKIN: Paper companies are looking to suppliers to do basic research and in-mill development. At the same time, paper companies are reducing their own in-mill technologists and buying products primarily on cost. This is not a partnership by any stretch of the imagination. Without a reasonable profit, machine clothing suppliers cannot perform the required R&D. With the exception of product development, most paper companies have relied on suppliers for the majority of R&D for years. The costs have been extensive, but the results have been excellent. The only way for this to continue is for the mills to work with the suppliers and pay them for their R&D, either directly or through product price. Some have suggested consortiums as a way to go, but sharing information is far harder to do than it was 20 years ago.

CURRY: Applying the proper clothing to a position on a paper machine is like a doctor prescribing a medicine; you must fully understand the existing conditions and the desired results. It is encouraging to see the movement by our paper customers-driven to derive true value out of the relationship toward developing common understanding of objectives and goals. We are anxious to share any expertise that our sales and service teams have to improve our customers' processes. Over the last several years, we have focused on training our field personnel to find opportunities to help our customers drive cost out of their processes and deliver true quantifiable value. The paper industry is under extreme pressure, and both customer and supplier can be successful only by working together.

DAVIS: Cross functional technology development teams must be created. The paper company should include both papermakers and sales/marketing representatives to insure that both mill and market needs are considered. The PMC supplier should engage R&D, manufacturing, design/product managers, and business development representatives on the team.

FEARNHEAD: As mills cut back their resources, the technical expertise has to come from somewhere. Automation advances and fuzzy logic are not enough in themselves. One new formation of talent has been the increasing linkage between paper machine clothing and paper machinery makers. A step-change in fabrics can make a critical difference in overcoming obstacles to higher sheet quality and better printability, and create the opportunity to share resources. However, we can only afford to do this at a supportable return on capital employed.

COLE: TO effectively thrive in a difficult, competitive, and global market, PMC companies and paper manufacturers must work together to achieve mutual benefit. The value proposition means creating value through technical innovation and then demonstrating and documenting this value. Our company describes this as defining objectives and optimizing results. The goals of a collaborative effort should be to deliver incremental savings through value added products and processes and drive down the total cost of ownership for both mill and supplier. The ultimate goal is for papermakers to make higher quality paper at reduced costs.

With paper machine clothing accounting for less than 2% of the total cost per ton of paper, the largest opportunities for impacting mill profitability are usually in energy, raw materials, and labor. Even the best technology, when misapplied, leads to inefficiencies, non value-added activities, and economic loss. Therefore, there must be established guidelines for each project, including the following:

* Plan the project--define the objectives

* Know the value--for the project to be valid, it must have economic return

* Action plan--product trial, scientific investigation, measurements

* Document the process--track the data, trap the savings

* Quantify results--calculate and report the value

SOLUTIONS! Inventory costs have become a major issue in the PMC sector. Suppliers are carrying most, if not all, of the ownership and warehousing costs for PMC until it is used by paper and board mills. With average life for most PMC increasing rapidly, some inventory is being held for years, often becoming obsolete by the time it can be used. Do you see movement toward inventory limits, including reductions in inventory and "sunset" provisions where clothing must be paid for within certain time periods?

RANKIN: 1 personally think that asking suppliers to foot the bill is wrong and cannot continue. Through the years I have seen thousands of dollars worth of clothing abandoned through obsolescence while suppliers ate most of the cost. The usual agreement was for the mill to buy new styles of clothing and the suppliers would take back the old. This did not, however, reimburse the supplier for the money tied up, in many cases, for years. If suppliers were not burdened with the current level of inventory costs, there might be more funds available for R&D. In this case, everyone could benefit in the long run. Clothing suppliers must, however, assume some of the inventory cost or at least some financial arrangement must be made whereby mills are compensated for costs associated with obsolescence. This is a less straightforward issue, but it is solvable.

COLE: The burden of increased inventory does not come without costs. PMC suppliers cannot continue to absorb all the working capital for the mills and invest at optimum levels in new technology. Mills and suppliers must work together to share inventory costs to sustain a healthy level of growth to keep North America competitive in a global market. Certainly there are practical limits to inventory. We are seeing rapid adoption by customers of "sunset" dates whereby clothing is invoiced after a certain number of "boxed" days in inventory, regardless of installation date. In addition, we are seeing some customers purchasing at least one piece per position of inventory. We must also determine the best inventory levels to be carried for each position and reduce excessive requirements that over-burden the supply chain.

DAVIS. Longer clothing life, machine and mill shutdowns, and continued production downtime to control paper inventories have increased the inventory cost burden on the PMC industry. Inventory costs continue to be a large burden for PMC suppliers and a source of financial risk for the paper company. For the paper company, excessive inventories lead to fabric obsolescence, costly write-offs when machines are shut down, a barrier to using new technology products, and a hindrance of the paper company's ability to react to changing market demands.

The use of "pack caps" to ensure transfer of ownership within a reasonable time period has proven successful in highlighting areas of excessive inventory. Vendor Managed Inventory based on projected customer demand is the latest strategy for creating an efficient supply chain.

CURRY: Cost of inventories is a serious financial threat to all clothing companies. Costs anywhere in the supply chain affect everyone. In the past, efforts have focused on how to shift costs back to someone else in the supply chain--not on eliminating them. We have worked hard to help our customers understand that excess inventory is an unnecessary cost. The paper industry has responded very well to this challenge, and together we have removed--not shifted--many needless costs. The concept of sunset dates was developed to help both parties drive out excess inventories and it has been extremely successful. Clothing that reaches a sunset date is probably excess inventory, and we must work together to eliminate it.

FEARNHEAD: "Never-ending" inventory is a serious problem and must stop. It is not good business for custom clothing to sit at a paper mill for months on end, and remain on our books. Even worse, when a PMC company develops a new product, what happens to the old inventory? Is it shipped back and written off by the PMC company? That's what used to happen. Those days are gone. In effect, overstock is an incentive not to introduce new products, which, of course, impedes innovation.

SOLUTIONS! Machine clothing suppliers are now investing more and more working capital in "nonproductive" activities such as warehousing and inventory. What has been the impact of this trend on R&D in the machine clothing industry? How do you see this practice changing in the future?

RANKIN: Clothing companies supply clothing, service, quality, and R&D. Quality and certain services cannot be cut back. To survive, PMC companies can cut R&D and some aspects of service. PMC companies have traditionally offered a variety of routine services such as audits that have become very costly. The question is whether routine audits are actually used by the mills.

Several years ago, at a Papermakers Committee Meeting, I asked that question and the response was that audits are not as useful as we are led to believe. The majority of mill representatives at the meeting said they would be willing to get by with less service even though mill technical help was being reduced. Several clothing suppliers, however, said that upper management and purchasing at paper companies were adamant that these services continue. This Catch-22 should be resolved, most likely with a combination of routine service bundled in the cost of product and specialized, tee-based service for more advanced service.

Regarding R&D, most suppliers acknowledge that budgets are more limited. Again, the answers seem to lie in the relationship between paper companies and suppliers, with both parties truly understanding their co-dependence. I know of no other industry where suppliers are so totally a part of the business as in the paper industry. Without the supplier's products, service and R&D, the paper industry would still be in the horse and buggy era.

CURRY: R&D and new product development are the lifeblood of the paper industry. During the very difficult times over the last few years, it has been hard for machine clothing companies struggling to survive to keep focus in this critical arena. However, this is a core competency and must be maintained. As a company, we are not satisfied with the speed of new product introduction and have spent much of this year reengineering our efforts to drive greater productivity. This is a crucial part of the total value equation, and we believe it is the foundation of our relationships with customers looking to improve profitability.

COLE: PMC working capital is near 50% of annual sales, and every dollar tied to inventory is a dollar not spent on R&D and new equipment to improve technology. As discussed above, we must team with the paper industry to reduce inventory costs, to help keep the North American paper industry competitive in a global market.

DAVIS: R&D investment by PMC companies is absolutely essential to the long-term needs of the paper industry. Process technology improvements would not be possible without the innovation of advanced paper machine clothing. Single shoe press sections, through air drying, and increased machine speeds are just a few of the process changes that would not be possible without innovative PMC designs. Higher levels of contaminants in recovered papers create the need for contaminant resistant clothing, and papermakers need to drive down energy consumption. Driving out waste and reducing costs are musts for the PMC producer, or vital R&D dollars will be at risk. With the North American paper industry facing decreased demand, it is increasingly difficult to justify significant R&D spending while bearing the burden of working capital costs.

FEARNHEAD: I think that commodity pricing has become cornmonplace in paper machine clothing, even though many R&D breakthroughs have occurred in forming and pressing in the past few years. I could cite many multi-million dollar examples of production savings, or higher-value, differentiated paper products, that have been made possible by clothing suppliers!

The only way, however, for suppliers to survive the "pricing cuts into the marrow" trend is to be rewarded for innovations that lower overall papermaking costs and add value to paper. True partnership is the recognition of mutual success--including recognition of the supplier's contribution. This requires a mutual commitment by each paper company and its respective supplier(s) to helping each other improve their products and processes, earn an appropriate return on investment, and ensure their long-term survival in an increasingly competitive world market. S!

IN THIS ARTICLE YOU WILL LEARN:

* How paper companies are changing their purchasing practices

* How paper companies and suppliers can develop effective partnerships

* The trend toward inventory limits and "sunset" provisions

* The impact of current business practices on R&D

ADDITIONAL RESOURCES:

* Paper machine clothing, by S. Adanur, 1997; 396 pages, hard cover. This hook covers the design, engineering, and application of paper machine clothing in papermaking, To order this title, go to: www.tappi,org/index.asp?rc=1&pid=29006

* "Troubleshooting: Turning problems into opportunities," Solutions!, February 2002, Val 85 (2)

* "To run lean, you must be clean," Solutions!, September 2002, Vol. 85(9)