The Center for Paper Business
& Industry Studies -- CPBIS
– CPBIS and the –
Building of a Profitable Paper Industry
Joint Lake States TAPPI/Papermakers Meeting
Wednesday, October 23, 2002
Overview
 Paper Industry Situation Statement
Where Are We – Industry Performance
Major Issues Facing the Industry -- To
Survive – Prosper -- & (re)build a Profitable
Industry
 The Center for Paper Business & Industry
Studies
What is CPBIS & Where is It Headed
How Can the CPBIS Help -- Re-Build a
Profitable Paper Industry?
2
Where Are We?
 The U.S. Paper Industry Continues to Struggle
 CEOs are under intense pressure
 Performance is lagging
 Capacity excesses still exist
 Substitution (imports & alternative products to meet
consumers needs) is an every present issue
 Balance sheets are out of balance
 Reinvestment in revenue generation steps is lagging
 The competitive landscape is Intense
 The Global Market Place & Competitive Arena is
Upon us . . . . . . Let’s Take A Quick Look . . .
3
Where Are We?
 N. Am. Pulp and Paper industry is mature web of
businesses -- generally characterized by:
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Highest global per capita consumption -- all grades
Slower growth than real GDP
High capital intensity
Cost and price based competition
Below cost of capital returns
Cyclical pricing and profitability. . . . .
And -- Historically – The N. Am. industry has expanded after
each cyclical peak. Excess capacity pushed to Int’l Markets
4
Where Are We?
 However – the combination of - A strong dollar -- Maturing domestic demand -- Poor
returns -- Unifying European markets & Aggressive
industry growth in developing regions -- Asia & Latin
America – Interrupted this growth pattern
 The N. Am. Industry did not recognize this competitive
landscape change until the mid 1990s and - Continued to behave as it did in the past – investing
available cash in new capacity in 1980’s & early 1990s
 This new capacity relied on increasingly competitive
export markets to maintain volume. Simultaneously,
developing regions began to aggressively export back
to N. Am.
5
Where Are We?
The result has been persistent over-capacity, globalization
of markets and, as a result, undermined and sustained
weak balance sheets, debt levels, pricing and profitability
In response -- N. Am. industry restructuring to better compete
in changing global markets -- and is poised – after 2001-02
Recession -- for greater profitability & increased capital
spending going into 2003-04 – But Not Like a Rocket ship. . .
Let’s Look at some of the Situational
Aspects of the Industry . . .
6
U.S. Industry -- Debt Levels
70%
Debt To Capital Ratio
60%
50%
40%
30%
20%
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002F 2005F
U.S.
Companies
Are Making
Debt
Reduction A
Priority – But
Debt Levels
Are Still
Constraining
Needed
Business
Investments
Debt % of Invested Capital
7
U.S. Real Capital Expenditures ($2001 - Millions)
U.S. Industry -- Capital Spending Level
15,000
12,500
10,000
7,500
5,000
2,500
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002F 2005F
Total
Primary Pulp & Paper
Converting
Real U.S.
Pulp & Paper
Capital
Expenditures
Will Continue
To Languish
Until The
Cyclical
Recovery
Circa 2003 /
2004
8
U.S. Industry – Production Capacity Expectations
Total U.S. P
Paper &
Board
Capacity
Will Resume
Growth
– But At 1/2
Its Historical
Rate --
4,500
3,750
Short Tons - 000s
3,000
2,250
1,500
750
(750)
(1,500)
(2,250)
(3,000)
1976
1979
1982
1985
1988
1991
1994
1997
2000 2003F 2006F
Change In Capacity (Tons)
9
U.S. Industry -- Profitability & Capital Turnover
15%
180%
Net Operating Profit Margin
13%
140%
10%
120%
100%
8%
80%
5%
60%
40%
3%
20%
0%
Sales To Invested Capital Ratio
160%
U.S. Pulp &
Paper Capital
Turnover Will
Continue Its
Downward
Trend -- But
Profitability
Will Improve
/ Stabilize
0%
1975 1978 1981 1984 1987 1990 1993 1996 1999 2002F 2005F
Net Operating Profit Margin
Sales / Invested Capital Ratio
10
Major Issues Facing the Industry -Despite a tough situation – we can see the U.S. industry to be
positioned for performance improvements starting in 2003.
 But There are Four immediate significant risks – To
Survive – Prosper & (re)build a Profitable Industry
Prolonged economic downturn,
Greater than anticipated substitution of U.S. produced
P&P by Int’l competitors or non-fiber based products,
Failure to maintain capacity management discipline, &
Not Continuing to Seek New Ways of Operating
11
Major Issues Facing the Industry -Even with this rebound at hand – The U.S. P&P industry’s
Future is a point of extensive debate within management circles
 Some believe the industry has begun a long-term decline
and as such -Will follow in the path of U.S. steel and textiles –
Others believe it will restructure and reassert itself
 In truth – the true U.S. Industry path is not clear –
The degree to which U.S. demand returns, and U.S. capacity
fulfills the demand -Plus. when the overall economy improves will be a good
early indicator of the industry’s directional fate
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So -- What Is CPBIS?
“The Center for Paper Business &
Industry Studies”
& Where is It Headed
How Can the CPBIS Help –
Re-Build a Profitable Paper Industry?
What Is CPBIS?
 An Unpronounceable Acronym?
subbis?
zipbees?
14
What Is CPBIS?
 A Joint Venture of IPST, Georgia Tech, the Alfred
P. Sloan Foundation and the Paper Industry?
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What Is CPBIS?
 A Center for the Creation and Dissemination
of Business Knowledge of a Kind that Is Vital
to the Paper Industry’s Future Prosperity?
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What Is CPBIS?
 A Paper Industry Focal
Point for Involvement of
Faculty and Students in
Business, Management,
Organizational, and Social
Sciences?
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What Is CPBIS?
 The Nucleus for Creation of an Academic
Community that Understands the Paper
Industry?
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What Is CPBIS?
 Actually --
CPBIS Is All of the Above!
?
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What Is CPBIS?
 A Joint Venture of Academe, Industry and The
Sloan Foundation
 A Creator and Disseminator of Business
Knowledge
 An Attractor of Business Faculty and Students to
the Paper Industry
 The Nucleus of an Academic Community that
Understands the Industry
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CPBIS –
Insight, Innovation & Investment
 Insight – From Research
 Innovation – By Applying
and Building Upon New
Insight
 Investment – In the
Creation of Intellectual
and Human Resources
for the Industry’s Future
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CPBIS – Genesis
 How we got here
 Sloan Industry Centers
 Resources
 Development
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Organization and Themes
Research
Education
Continuing Education
Industry Support
The Path Forward
22
Sloan Industry Centers
 "The objectives of this program are to create an
academic community that understands industries
and to encourage a direct approach to the
companies and people of each industry for data
and observations. We believe observation-based
work by well informed academics will, in the long
run, lead to practical contributions to the
industries studied"
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The 19 Centers …
PAPER
AIRLINES
INFORMATION
STORAGE
MANAGED
CARE
MOTOR
VEHICLES
FINANCIAL
SOFTWARE
FOOD
APPAREL
PHARMACEUTICALS
PRINTING
STEEL
TRUCKING
CONSTRUCTION
SEMICONDUCTORS
TELECOMM.
INDUSTRIAL
PERFORMANCE
POWDER
METALLURGY
ELECTRICITY
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… and Their Host Institutions
MINNESOTA
MIT
UC
SAN DIEGO
GEORGIA
TECH
IPST
CARNEGIE
MELLON
WORCESTER
POLY
PITTSBURGH
COLUMBIA
UT AUSTIN
HARVARD
WHARTON
RIT
UC
BERKELEY
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A Powerful Combination
 IPST – premier center for graduate education and
research in the industry’s technology
 Georgia Tech liberal arts, management and
engineering units
 Ivan Allen College
 DuPree College of Management
 College of Engineering
 Sloan Foundation interest, parallel efforts, & funds
 Paper industry support, both financial & in-kind
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Georgia Tech: Beyond Engineering
 Ranked 9th among U.S. public
universities, Georgia Tech is
unique among engineering
schools in its emphasis on
societal impacts & management
of technology
 This is reflected in the
excellence of Ivan Allen College
& the DuPree College of
Management
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A Unique Collaboration
Mission
 Create an Academic Community that
Understands the Paper Industry,
Studying the industry by direct observation, for
research results that are of high, practical value
to the industry
Creating educational programs to produce
skilled, paper industry-oriented Ph.D. and M.S.
graduates in a variety of disciplines
Establishing a diverse set of in-depth
continuing education programs tailored to meet
explicitly defined needs of the paper industry
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Faculty & Management Team
McCarthy
RESEARCH FACULTY
29 from Georgia Tech,
IPST, and UGA
Giebelhaus
McDonough
McNutt
Singhal
AFFILIATES
from Other
Universities
Bell
Vallas
Burney
Lafond
30
CPBIS Themes
 Globalization – international forces
 Enterprise Effectiveness – factors affecting
company performance
 Workplace Transformation – organizational
changes for productivity
 Commercialization – harnessing science
 Community – relationships with
constituencies
31
CPBIS Research
 Primarily business- rather than technologyoriented
 Studies the industry, not just things
important to the industry
 Generates own data through field work and
observation-based methodology
 Results disseminated to both academic and
industrial audiences
32
Funded Research Faculty
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Management (GIT)
Economics (GIT)
Paper Science (IPST)
Industrial and Systems Eng. (GIT)
History, Technology & Society (GIT)
Mechanical Engineering (GIT)
Forest Economics (UGA)
Public Policy (GIT)
7
5
5
4
3
3
1
1
33
Research Projects
 Commercialization of Forest Biotechnology
Seeking the most commercially rewarding ways
to apply genetics to develop trees of highest
value to the industry
 Price Behavior, Forecasting and Elasticity
Understanding what causes prices to move and
why, and developing forecasting tools and price
behavior models
34
Research Projects (continued)
 Policy, Organization & Innovation in the American
P&PI since 1914
Understanding factors contributing to the
industry’s previous successes and failures for
use in developing management strategy for
contemporary problems
 Configuration and Management of Globally
Efficient Supply Chains
Impacts of exchange rates, national policies,
tariffs, trade barriers and international trade
policies
35
Research Projects (continued)
 The Maintenance, Repair and Operations Supply
Chain for Pulp and Paper Mills
Focusing on the maintenance and operations
portion of the overall production supply chain
 Workplace Transformation and Human Resources
in the P&PI
Learning how the mill work environment needs
to change for better organizational performance
36
Research Projects (continued)
 Integrated Environmental and Economic
Performance Monitoring of Paper Manufacturing
Operations
Learning how to simultaneously optimize the
financial and environmental performance of mill
operations
 Revitalizing the U.S. Market Pulp Business
Cataloging available pulps in terms of their
properties for alignment with market needs and
value structures
37
Research Projects (continued)
 An External Benefits Study of Black Liquor
Gasification
Evaluating business and societal impacts of the
coming industry transition to a new chemical
recovery technology
 Profiling Best Practices: A Cross-Center and CrossIndustry Exploratory Analysis of Box Plant Trucking
Logistics
A joint study with the Sloan Trucking Industry
Center analyzing box plant trucking logistics in
comparison with cross-industry standards
38
The CPBIS Business Education Function
 Education within and across existing
disciplines to prepare students for careers
in, or supportive of, the pulp & paper
industry
Dissertation research
Research assistantships
New paper industry oriented courses
Modular course components
Seminar programs
Continuing education
39
Current Student Involvement
 Ph.D., Enrolled:
 Ph.D., Affiliated:
 M.S., Enrolled:
 M.S., Affiliated:
 M.S. Degrees Awarded:
4
5
6
7
1
40
Courses Offered to Date
 “Studies in American
Manufacturing: The Paper
Industry” (Spring, 2002)
 “Process Management in Paper
and Processing Industries” (Fall,
2002)
41
Symposia
 “Rethink and Discovery I – Beyond
Today’s Paper Machine,” March,
2002, Atlanta
 “Rethink and Discovery II – The
Superintendent’s Roundtable,”
June, 2002, San Francisco
 “Rethink and Discovery III –
Opening Doors to Innovation and
Learning,” October, 2002, Raleigh
42
Seminars to Date
 A total of 21 seminars in 18 months by
noted speakers, including
Academics (9)
Consultants (7)
High-level industry executives (2)
Competitive technology experts (2)
Labor union leader (1)
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Distinguished Lecture Series – 2002-03
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Bob Renner, CEO, ForestExpress
Alan Procter, Former MB Executive
Kai Korhonen, CEO, Stora Enso NA
Patrick Moore, Director, Greenspirit
Bob Buckman, Former CEO, Bulab
Richard Florida, Director, Software
Industry Center, and noted author
44
Continuing Education -- Mission
 Establish diverse, in-depth continuing
education programs tailored to meet
explicitly defined needs of the paper
industry for enhanced management
success
45
Continuing Education –
Current Directions
 Needs assessment
 Planned Management Development
Course
4½ - day course to be offered in March,
2003
Instructors from industry and the DuPree
College of Management of Georgia Tech
46
Industry Support –
Financial Commitments to Date
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Abitibi-Consolidated
Accenture
Albany International
AstenJohnson
Australian Paper
BE&K
Bowater
Buckman Labs
ForestExpress
Forestweb
Georgia-Pacific
Gulf States
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Inland
Jacobs Consultancy
Kruger
MeadWestvaco
P. H. Glatfelter
Potlatch
Sappi-North America
Stora Enso
Tembec
Tradition Financial Services
UPM–Kymmene N. Am.
Weyerhaeuser
47
Industry Support -- In-Kind Support &
Alliances to Date
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AF&PA
Ecole Polytechnique
Forestweb
FPAC
Learning Framework
NC State Univ.
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Oregon State Univ.
PACE
PAPRICAN
PAPTAC
PIMA
TAPPI
Watermark
48
The Path Forward
 Maximize output and relevance of current
research projects
 Stimulate direct interaction of CPBIS faculty
with industry personnel
 Accelerate the identification and
implementation of new educational offerings
 Initiate Continuing Education program
 Work in Concert with the Paper Industry & all
of its Stakeholders to help “Re-Build” a
Successful & Profitable Industry
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Visit the CPBIS Web Site
www.PaperStudies.org