Industry Foundational Course: Process Industry –
Pulp and Paper
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Welcome and Introduction
Welcome!
In this course, I will be your coach and introduce you to the Pulp and Paper vertical, one of several in
the broader category called process industries.
My intention is to arm marketing, sales, presales, and application consultants with the basic
information needed to take the first step toward appropriately positioning the software solution
Process Industries for Microsoft Dynamics AX.
I have a lot of experience in this vertical, and I want to share some of what I have learned to benefit
you.
One of the most important things for your success is to know the industry and speak its language so
that you can establish credibility with a prospect.
If you do not, the first conversation you have may be your last! Because this course is only an
overview, resources for further study are provided throughout.
Let us get started!
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Objectives and Prerequisites
Upon completion of this course, you will be able to:
Identify the vertical’s categories.
Describe top business challenges.
Describe key operational factors.
List current trends.
Locate resources for getting more information.
The prerequisite for this course is Industry Foundational Course: Process Industry, which provides
information on process manufacturing concepts, characteristics, and basic terms and definitions. The
prerequisite course should not be skipped because it contains essential information for understanding
the content of this course.
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Vertical Description
This vertical is composed of companies that make pulp, paper, and paperboard and is experiencing a
significant shift in supply, away from North America and Europe to developing countries with low-cost
positions, primarily in Latin America. Canada and Europe have dwindling lumber supplies and the
United States shows a downward trend in wood availability as well as heightened interest in an
environmental agenda that has slowed growth.
Demand depends on both consumer and business use of paper products. Mills owned by large paper
companies have advantages by being vertically integrated: the parent corporation may own timber
farms, sawmills, pulp and paper mills, conversion plants, and other end-product manufacturing facilities.
Small mills can compete successfully in regional markets, in close proximity to timber sources or
customers. Mills are highly automated and capital-intensive. Most mills produce a combination of
products, but pulp mills tend to specialize by type of pulp. Profitability of individual companies depends
largely on production efficiency.
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Vertical Categories
This vertical is composed of the general categories shown here. The United States Department of Labor
Occupational Safety and Health Administration (OSHA) assigns Standard Industry Classification
[Link] (SIC) codes to this vertical and its categories as a way to
establish a common reference system. Microsoft, partners, and companies in the industry themselves
commonly use SIC codes although a newer classification system called the North American Industry
Classification Systems [Link] (NAICS) covering Canada, Mexico, and
the United States is also used. The primary system used in Europe is NACE
[Link] the common statistical
classification of economic activities. For your own research, become familiar with the classification
systems used in your region.
Pulp Mills
Paper Mills
Paperboard Mills
Paperboard Containers and Boxes
Miscellaneous Converted Paper Products
Resources
Process Industry SIC Codes contains codes for process industry verticals and their detailed categories.
Microsoft FY10 Industry Taxonomy shows a cross-reference for SIC and NAICS codes by category for
verticals within a specific industry and sector.
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Production Process
Manufacturers in this vertical have two “sides” to them: the wet side, which produces pulp, and the dry
side, which produces types of paper from the pulp.
Wet side
The raw material for paper products is pulp. To make pulp, a mill begins with wood chips and mixes
them with heavy chemicals to break down the fibers. Mills also mix recycled paper and paper scraps
into the blend. Some pulp is for recycled paper products only and “pure” paper pulp is destined for the
finer print quality paper. The pulp blend is fed into a huge, automated paper machine that is kept
running 24 hours per day. Mills are highly automated, using computer controls to operate equipment.
The end item is a large reel of paper with a unique “identity:” length, width, gauge (thickness or weight),
and grade.
Dry side
After the paper roll is produced from the wet side of the operation, it is cut to specifications to become
various paper products such as writing paper, packing paper, cardboard, or other paper form.
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Business Challenges
You probably use paper products every day but may not give much thought to the significant business
challenges companies in this vertical face. To learn more about the challenges, read the statements
below and select Yes if you agree or No if you do not.
Statement Y/N Business Challenge
Lumber prices stay Fluctuating product prices
relatively the same over Prices for mill products can change rapidly in a 12-month
time.
period. Prices for wood pulp, for example, can rise or fall
more than 25 percent in one year. Prices for end-products
are less volatile, but often change 10 percent in a year. The
uncertainty over prices discourages investment.
The supply of timber is Fluctuating timber supply
seems to be stable. The industry depends heavily on wood fiber as a raw material
so any interruptions in timber supply can have a significant
effect. Many mills are located near timberland and feel the
impact of local and regional fires, droughts, and logging
stoppages because of litigation or government regulation,
including various import duties placed by countries around
the world.
Energy costs to produce Rising cost of chemicals and energy
paper and pulp have been
on the uptrend. Despite monthly and yearly fluctuations, raw material costs
have trended upward. Since the mid-1990s, industrial
chemical prices have increased nearly 50 percent, industrial
electrical power 25 percent, and natural gas 300 percent.
Chlorine and other bleaches used during manufacturing have
a high energy input, which has been the primary driver
behind price increases in these substances.
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Statement Y/N Business Challenge
Paper and pulp companies Environmental issues
can be very polluting. Mills use toxic chemicals that must not be emitted into the
air or water. Companies that do not proactively correct
operations that cause environmental damage risk costly
remediation and fines, in addition to the cost of adapting
machines and processes. Sludge, a by-product of the
papermaking process, needs special treatment before going
into landfills. Remediation for damage already done can cost
millions.
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Operational Basics
Companies in this vertical share many of the same operational factors as other process companies.
Because those are covered in the prerequisite course, only those that are of special importance or
unique to this vertical are mentioned here. Move the ball to learn more about each.
Word Description
Dimensions Manufacturers identify their products by their dimensions, signified by
length, width, gauge, or weight. Products are also classified by color, if they
are dyed, or by the degree of whiteness or gloss, if they are coated.
Grades Grades of paper and pulp are based on their end use, process of
manufacturing, raw material used, and other factors. Papers can be graded in
many ways with many permutations and combinations. Some major grade
classifications for paper are:
Weight
Tissue, low weight
Paper, medium weight
Paperboard, medium high weight
Board, high weight
Color: Brown, white, or colored.
Usage
Industrial: packaging, wrapping, filtering, electrical
Cultural: writing, printing, newspaper, currency.
Food: candy wrapping, coffee filters, tea bags
Raw material
Wood, containing fibers from wood
Agricultural residue, fibers from straw, grass, or other annual plants
Recycles, recycle or secondary fiber
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Surface treatment
Coated: with clay or other mineral
Uncoated: no coating
Laminated: aluminum, poly, other
Finish: fine, course, calendered, supercalendered, machine finished, machine
glazed, glossed
TAPPI Roll Number The TAPPI (Technical Association of the Pulp and Paper Industry) Roll Number
was initially developed for the North American paper industry in 1967 and
then expanded in 1988 with the creation of this TAPPI TIP (Technical
Information Paper) 1004-01. The number applies to paper and paperboard
rolls manufactured in the United States, Canada, and Mexico and is intended
to provide guidelines to the manufacturers of paper and paperboard rolls for
the identification of such paper and paperboard rolls.
Trim Optimization Trim optimization is the process of sequencing production orders such that
the maximum amount of material in any given roll is used (for example, the
trim is reduced). True trim optimization is an extremely complicated,
mathematically-based computer algorithm that is usually unique to a
company’s particular products and the demand patterns it experiences.
Roll Tracking Roll tracking refers to monitoring and recording the dimensional changes in a
roll that result from its use to fulfill customer orders. As orders are fulfilled,
material is taken from the roll, which reduces its length and width. Through
roll tracking, the manufacturer can keep track of the actual amounts and
dimensions of a given product that are in inventory.
Block Schedules Paper mills typically schedule production based on the gauge (thickness) of
the paper stock. They will run the paper machine in blocks of production
based on .28, .30, and .32 mm (typical weights) of thickness up the scale and
then back down again from .32, to .30, to .28 mm. These runs may last a few
days or a few weeks. The total tonnage produced is the block. New orders
are dropped into these blocks based on availability of capacity, and so the
term Capable to Promise usually means that the manufacturer has the
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capacity to produce the order. Available to Promise means that the item
ordered is actually in inventory and that the order can be fulfilled.
Load Planning Load planning refers to how paper rolls are shipped and when. Intelligent
load planning—along with optimal space utilization—optimizes the cargo load
so that shipping and transportation costs are reduced. Because freight is
included in the price of paper, rolls are shipped either by rail—the least
expensive—or by truck, because of their size and weight. Load planning and
the block schedule need to be synchronized because the block schedule
determines if rail or truck can actually ship a roll.
The decision between two modes of transportation or a mixed mode
approach is often made on the basis of how far the order must be shipped
and whether the customer can be easily reached by one mode or the other.
There actually are places where an order cannot be delivered by rail.
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Current Trends
Trends in any industry are subject to change, and this vertical is no different. Consider your own
knowledge about this vertical and answer yes or no.
Statement Y/N Trends
Consumers are interested in Consumer preferences for specialized paper
highly attractive paper Consumer preferences for specialized paper are affecting
products—whether note market segment growth. Innovative companies that
cards, writing paper, or offer specialized products—such as tissue, packaging,
wrapping paper—because recycled paper) are driving the growth. In emerging
they are looking for markets such as China, growth in other manufacturing
something that is unique. areas will trickle down into the pulp and paper industry
as requirements for packaging increase.
Sources of wood for Supply shifts to developing regions
furniture and flooring have Traditional supplier regions are leveling off while other
expanded beyond the regions—particularly South America, notably Brazil, with
traditional North American its abundant eucalyptus forests and a shorter growth and
regions to other regions renewal cycle—are gaining. Regions on the rise are
around the world that can Africa, Russia, and other countries in Eastern Europe.
produce supplies faster and Countries in these regions can obtain the most pulp and
cheaper. paper supply at the cheapest price. They are able to
make their products and remain profitable and
consequently are current targets for world investment.
As a response, some companies—especially in the
United States—have found it more lucrative to use their
forestlands as real estate investments to sell to
developers, or to become the developers themselves.
There are so many new Reduced demand for printing paper
magazines and newspapers Consumption of paper for printing—such as newsprint—
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Statement Y/N Trends
coming into publication that has slowed down dramatically in North America, mostly
the demand for printing because many American magazine and newspaper
paper is on the rise publishing industry are seeing significant slowdowns in
worldwide. subscriptions. All markets in Western Europe, however,
are experiencing some growth, with the largest gains
coming in the printing sector. Of any region in the world,
China is generating the largest amount of growth for
printing paper, and South America is becoming a major
source of the raw materials needed to meet that growth.
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Sales Opportunity Guidance
To find sales opportunities in this vertical, it is important to know what to look for and where to find it.
The follow-on course Selling the Business Value of Process Industries for Microsoft Dynamics AX
explains how to sell to these markets, but a good place to start is by looking for companies with the
minimum characteristics below. Do you know any prospect right now that has these characteristics?
Check all that apply. Add to the list other characteristics that you think you should look for.
Reports annual sales of greater than $50 million U.S. dollars but less than $1.5 billion U.S. dollars.
Uses Microsoft products, thereby making acceptance easier.
Uses an ERP system but has not updated it for at least five years, making it ready for an upgrade or
replacement.
Is either in a growth mode and needs additional functionality to fit demand or is in a decline mode
and needs ways to cut costs and increase efficiency.
Resources
Dun & Bradstreet [Link]
Business credit information and credit reports for businesses around the world
IDG, International Data Group [Link] and its subsidiary IDG
[Link]
Global market intelligence for the information technology, telecommunications, and consumer
technology markets.
One Source [Link]
Products and services to obtain global information on companies, industries, and executives
Stratascope [Link]
Online research services geared primarily to help enterprise sales and marketing teams sell to their
target market
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Finding Financial Information
Part of assessing prospects is to learn about the financial health and well-being of the vertical they
belong to. The list below is a starting place for the information that you should collect. Review the list,
and check the items that you collect now when conducting research. Add to the list other information
that you think would be good to know.
Major costs, whether they are variable or fixed, and where they are located, for example, in
operations, marketing, quality control, or other areas.
Products or product lines that are the most profitable.
Nature of competitive environment: are there many local brands and manufacturers, or are most
products produced locally by international brand companies?
Where investments are typically made and why.
Research and development expenditures.
Current growth rate and forecasted growth rate.
Effect of the current economy on profits.
Essentials of an income statement: total net sales, operating income, expenses, and gross and net
profit.
Resources
Corporate Information [Link]
Global financial research and analysis.
First Research [Link]
Summarized reports about various industries and tools for salespeople.
HIS Global Insight [Link]
Global economic and financial analysis, forecasting, and market intelligence.
U.S. Fintel [Link]
Metrics and financial profiles for U.S. companies operating across many industries.
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More Information: Research, Compliance, and
Industry Links
Although you will need to become familiar with the specific research and regulatory resources for
various industries in your own region, a good place to start is with the links below.
General Research
Microsoft Dynamics AX PartnerSource [Link]
Central information source for Microsoft Dynamics partners.
Microsoft Dynamics AX case studies [Link]
Case studies with a search tool to filter by keyword, software, and industry.
AMR Research [Link]
Global research on industries and trends.
First Research [Link]
Research on industries and trends in the United States.
[Link] [Link]
Global market research by industry.
One Source [Link]
Products and services to obtain global information on companies, industries, and executives.
Stratascope [Link]
Online research services geared primarily to help enterprise sales and marketing teams sell to their
target market.
Regulatory Compliance
Europa, Gateway to the European Union [Link]
European Union portal site covering European Union affairs, legislation, and integration.
European Agency for Safety and Health at Work [Link]
European site for information on worker safety.
U.S. Food and Drug Administration International Organizations and Foreign Government Agencies
[Link]
Full list and links of organizations and government agencies by country and region.
U.S. Department of Labor, Occupational Safety and Health Administration [Link]
Information on rules and regulations covering workplace safety in the United States.
U.S. Environmental Protection Agency
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[Link]
Industry Information
Confederation of European Paper Industries [Link]
Information Resources Inc. [Link]
International Paper Knowledge Center [Link]
Paper Age [Link]
Paper Money Newsletter [Link]
Paper On Web [Link]
Pulp and Paper Products Council [Link]
[Link] [Link]
Resource Information Services Inc. [Link]
TAPPI [Link]
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