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New option for finishing and converting: new customer demands and "the need for speed" have paper mills looking at many different options for finishing and converting operations, including in-house, off-site and outsourced.

Paper mills are typically closer to the forests than their customers. This simple fact--and the demands of customers to have products delivered immediately, wherever they want them-is driving paper mills that have traditionally used on-site converting of paper and board to consider new options, such as off--site and outsourced converting.

While bigger, wider, faster paper machines produce ever higher volumes, finishing and converting paper and hoard into usable products is a very different process. Customers want smaller order sizes, and they want them with extremely short turnarounds. Make orders are increasing.

With paper mills reorganizing to refocus on their core business--making paper--some have opted to move from traditional integrated converting operations to new options, such as offsite converting or outsourced converting. There are distinct advantages and disadvantages for all three options: integrated, offsite and outsourced. Typically, integrated converting means mill owned and operated, and mill housed; offsite means mill owned and operated at satellite locations; and outsourced means another business entity owns and operates the converting and finishing at another location.

INTEGRATED CONVERTING

Integrated converting has been the traditional choice for many paper mills. From a marketing standpoint, many of the most widely recognized labels for the past live to 10 years have been mill-branded products sold through distributors, says Larry Warren, plant manager at Willamette Industries in Owensboro, Kentucky, USA. The preference was for production, finishing and converting all under one roof.

Even now, locating finishing and converting functions within a mill site allows sharing of many resources, such as human resources, maintenance, engineering, accounting, scheduling, shipping and warehousing, Warren points out. "Assume that machines convert only paper produced at the mill; this eliminates rollstock transportation and storage costs and issues. From a greenfield mill project scope, adding the converting capability would only increase the budget by about 5%, so it really does not stand out. No additional permits are generally required and the facility is able to share some physical resources as well."

On the surface, it appears to be easier and more efficient to manage the on-site location given this sharing of resources. The reality, however, is that converting operations often gets lost in the shuffle of papermaking, according to Warren.

He says many of the perceived advantages of integrated converting are offset by lack of visibility. "Increased expectations from customers in terms of service, the changing distribution of converted products, and possibly the desire to try more flexible work rules--including union and non-union issues--are all issues that have driven companies to consider off-site converting. Not all have been successful, however."

For many years, explains Steve Brimble, vice president of Valmet Sheeters, a division of Valmet Atlas in Biggleswade, U.K., paper mills have tended to be self-contained for all production functions. "With so many mills situated in remote locations, the required services were not readily available. Mills tended to develop all necessary skills and services within their operation. In the same way, mills also carried out many subsequent value-adding processes. Remember, with merchants conducting most customer interface activities, mills had little direct contact with their final customers. As a result, the mode of supply was not customer driven and paper users endured inconvenient product delivery methods with high waste or long lead times."

In recent times, mills have developed much more contact with their customers and as a result have seen the need to change product delivery methods, says Brimble. At the same time, he explains that many service delivery companies have developed ways to provide their products or services to mills despite these remote locations.

The main catalyst for change is cost, says Brimble "The paper and board industry has faced many challenges, such as reduced paper prices, shorter lead time demands, and environmental issues. Each challenge has caused established thinking to be disputed. Labor costs and working capital have had to be reduced. Each operation has been studied to ensure that it brings value to the business. These studies have led to major rationalization of products and services offered by the mill."

Some mills retain a high level of value-adding activities, as their product is specialized and it is not practical to release the know-how to a third party. On the other hand, many mills have recognized their core business to be paper manufacturing, and all other processes are a distraction.

"The integrated converting approach has outgrown its value to the mills, and I don't mean perceived value, I mean real value," says Don Hildebrand, finishing and converting division leader with ViaTech Systems in Olympia, Washington, USA. "For mills to hold on to this aged business practice, at least at the primary paper manufacturing location, seems to imply a need for continued control or dominance over the downstream converting processes--nothing more, nothing less."

Hildebrand points to the continuous nature of the papermaking process. "It is a continuous manufacturing process that the mills perform reasonably well and for which their entire structure--from raw materials to equipment and to people--is geared. Converting is an intermittent, start-and-stop manufacturing process that requires significantly different technical and resource practices."

"The changes that have caused mills to outsource converting processes are economic and logistic, with the outside converting operations being less costly to run more flexible towards customer needs, and easier to locate near major markets," says Hildebrand.

Yet there is nothing quite like seeing your product being converted first-hand, rather than having to trust a contract converter or off-site converting facility. This is one of the benefits associated with an integrated system as pointed out by Chad C. Abel, president of Northwoods Converting, Inc., in Fall River, Wisconsin, USA. "With integrated, on-site converting, the mill has a lot of control of all facets of the converting operation. And, in having this control, the mill has flexibility if there is trouble with a particular order or product. With outside agents, it may take time to replenish the product or fulfill an order."

Some of the other benefits that Abel highlights include the ability to deal with one operation instead of juggling multiple operations throughout a given sales territory, converting to optimal sizes and products at an efficient price, and the fact that the investment in converting equipment may already be paid for.

However, there are several changes driving change in the integrated scenario. "With every passing day, end users want their product quicker and cheaper, but with the same product performance or better. This, in turn, forces the mill to provide product in same day, next day or two-to-five-day turnaround periods," says Abel. "Therefore, many mills must rely on a converter in a localized area near the mill's customer base."

OFFSITE: FOCUS ON THE FINISH

The main advantage of offsite converting is really focus, says Willamette's Warren. "These locations exist strictly to convert. While resources are more limited, they are applied only to the converting operations."

Commonly, he says, the operations are smaller, more flexible, and therefore more responsive to both internal and/or external needs. The decision-makers are fewer and closer to the operations. Training is not lost in people transferring outside the location, nor do people reach the upper level jobs without working up through the process; personnel only get promoted within the operation.

Still, Warren cites the major disadvantages for offsite converting of rollstock logistics, which include ordering, scheduling, transportation costs and storage. Staff requirements can be a drawback, too, as limited staffing requires multifaceted personnel.

Abel points out some benefits of off:site, mill-owned finishing and converting. "First, off-site converters allow both the mill and the converting operations to concentrate on their core businesses, the mill's being paper manufacturing and the converter's being converting and finishing." Abel agrees with Warren that the other major benefit is the ability for oil-site converting facilities to focus on finishing, and in so doing, to better respond to customer needs.

"However, the need for finishing facilities to be geographically situated in order to meet the demands of key market areas may require multiple finishing and converting locations, and that means more for the mill to distantly manage," he adds.

Brimble shares the opinion that continuous paper production is largely a different concept than finishing and converting. "Production methods essential to producing high quality paper and board with modern levels of cost and efficiency are often completely opposite to those required to deliver the finished or converted product to the customer in the way he or she demands."

He cites the example that printers typically expect same-day or next-day delivery of standard grades in standard sizes. It is not uncommon nowadays to offer the same service for special size sheets and reels.

Managing polar production mentalities under the same roof is sometimes impossible, says Brimble of Valmet Sheeters. Noting a few differences between mills and converting facilities, he says mills are often long-standing, established facilities where flexibility and rapid change are not always possible. Also, unionization is common, as are set working practices.

"When a mill decides to set up satellite converting operations, sometimes on its own doorstep, it would appear initially to be a high cost option," he explains. "Issues of transportation must be considered and certain administrative tasks are duplicated. The fact is, in many cases the added costs are totally overshadowed by the benefits of flexibility and efficiency."

LOCATION, LOCATION, LOCATION

"Many mills now locate converting centers in key locations relative to their customer base," says Brimble. "In this way, major benefits are provided to the customer in terms of rapid, low-cost delivery. Generally speaking, waste due to shipment damage is lower when parent reel stock is shipped rather than finished product." He goes on to explain that if a mill is required to hold stock in preparation for customer converting, this can just as easily be held at converting centers as at the mill at site.

And don't forget transportation of finished and unfinished product. "To distribute finished sheets and reels from the mill to the customer is very expensive and frequently not environmentally friendly. When parent reels are shipped to converting centers, rail and sea-freight can be effectively used. Road haulage is only used for short distance delivery to the customer."

THE OUTSOURCING OPTION

Many different elements go into the evaluation of converting options, says David Van Hoof, vice president of Progressive Converting, Inc., Appleton, Wisconsin, USA. While traditional mill-based finishing and logistical operations have been under pressure to reform and respond to increasingly stiff levels of service expected by customers, significant capital investment in mill-based or regionally-based mill facilities is also being weighed against outsourced converting facilities.

There are many potential benefits to outsourcing, says Van Hoof. "The first impact of using an outside converter is the increased capacity to support the long- or short-term converting needs of the mill. Qualifying an outside converter to assist with surge capacity needs can alleviate backlogs that potentially jeopardize customer service levels. Another variation on this uses outside converting as a 'bridge' while awaiting purchase, delivery and installation of additional equipment,"

Van Hoof says that longer-term converting strategies will benefit from the synergies of integrating the outside converter into the scheduling and logistical operations of the mill.

The four most prominent advantages, according to Van Hoof, are noted here:

1. Custom and standard sizes can be drop-shipped directly to the customer.

2. Quick ship inventory of finished products from the converter's warehouse can include a mixture of standard and special sizes, providing same-day or next-day shipment options to the customer.

3. The converter can supplement replenishment of stock inventory locations--a public warehouse, a merchant warehouse, a printer.

4. Complete, current and accurate reports are available from the converter to mill personnel for recapping inventory consumed, shipping details, trim loss, freight, and shipping delivery dates.

Extending mill reach with timely service to key print markets can support marketing programs designed to serve customers better, says Van Hoof.

QUALITY CHARACTERISTICS

Warren points out several critical qualities required for the success of off-site converting facilities:

1. Regular, complete communication is a must. Mills need feedback, and so do converting facilities. Mills need to communicate needs, especially time demands.

2. The converter must have an experienced work force, from management to manufacturing personnel.

3. Both parties need to be flexible with each other. For example, the mill may need to be flexible with production to the converter during slow times to offset the extra efforts the converter performed for the mill during busy months.

4. The converter must have tight quality control, a versatile employee base, be on time, provide good service to its customers, and be willing to be "invisible" to the end-user as required by the mill.

"The question of self-owned or third-party converting centers is normally decided by volume," according to Brimble. "If a mill group has sufficient volume in a given market, it makes sense to own a converting center. However, when this is not the case, the use of high quality trade converters can work very well. Two benefits of using a trade converter are zero investment and fixed price converting costs. In certain regions it is very difficult for a mill to recruit suitably qualified staff, and it is expensive to operate with expatriate staff. An established trade converter can salve this problem. In some cases, the trade converter is eventually purchased by the mill."

Van Hoof says that before outlining "qualifying criteria," you must define specifically what market segments the program will serve. Identifying product lines, grades, roll widths, sizes, etc., is an analytical step that helps to quantify the inventory commitment a mill is making to the program.

Speaking from the converting operation's perspective, ViaTech's Hildebrand lists advantages of outsourcing the process:

1. Lower overhead costs and labor costs,

2. Flexibility and independence afforded by locations remote from the mill,

3.Stand-alone or selective procurement of most suitable paper resources, and

4. Select proximity to customers.

BEST CONFIGURATION?

Integrated, remote ar outsourced ... "any of these are viable solutions to converting needs," says Hildebrand. "There are probably even a few other arrangements that we've not seen or heard about yet."

Hildebrand explains that the global consumption of paper and the evolving consumer paper market will not remain static, and neither will the business and manufacturing approaches required to meet these evolving demands. New paper grades created to meet new paper needs, new paper and converting technologies, new "business thinking" and new economic conditions will bring about unique solution sets in the converting industry.

With changes to the finishing, converting and distribution system in the paper industry being significant and inevitable, the solutions for finishing and converting operations will be as diverse as the goals defined by each paper and board mill.

DEALING WITH OUTSIDE CONVERTERS

Advantages

* JIT/quick turn/proximity

* Overflow

* Needed for new programs

* Outside converter may be price competitive vs. in-house mill operation (or mill off-site operation)

* Equipment: mill may have old equipment, cannot hold tolerances, may be inefficient

* Converter may be more versatile (equipment and personnel)

Disadvantages

* Mill may have to deal with multiple outside converting agents (due to sales territory or due to finishing and converting needs

* Mill does not have finger on quality control (must trust outside converter)

Larry Warren, plant manager, Willamette Industries in Owensboro, Kentucky, USA

Editor's Note: Several of the sources quoted in this article made presentations on finishing and converting at the 82nd Annual PIMA International Management Conference in Baltimore, Maryland, USA, this past June. Those presentations can be accessed at www.pima-online.org

Based in Oshkosh, Wisconsin, USA, Sara M. Scharpf is an independent writer and contributing editor to Solutions! magazine. She has written about mill construction and pulp and paper industry management needs for over a decade. Scharpf is a native of Wisconsin's productive "Paper Valley" and received her BS in journalism from the University of Wisconsin-Oshkosh. She can be reached at SMScharpf@aol.com
COPYRIGHT 2001 Paper Industry Management Association
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Copyright 2001, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Finishing and Converting
Author:Scharpf, Sara M.
Publication:Solutions - for People, Processes and Paper
Date:Sep 1, 2001
Words:2631
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