PAPER RECYCLING SUPPLEMENT - Telling Secrets

Panelists at the "Secrets of Successful Mill Buying" seminar of the 2003 Paper Recycling Conference & Trade Show, held in Chicago this June, agreed that mill buying is largely transparent. However, they did stress certain principles that may result in more successful mill buying. Foremost among these principles is communication.

Session moderator Ed Tucciarone, vice president of eastern sales for Smurfit-Stone Container Corp., Clayton, Mo., began the session by outlining the importance of many issues that affect mill buying. Chief among these are the influence of export markets, inventory management, consumption volatility and quality issues.

EXPORT INFLUENCE. Anyone involved in secondary markets for scrap metal and paper feels the impact export markets are making on the industry as a whole. While Asian markets are hungry for North American secondary commodities, seemingly gobbling up anything we can send their way, the effect on the American scrap industry is not always favorable.

Tucciarone said that the role of export markets is expanding, adding that even Chicago is experiencing the shift to export markets for various grades, a phenomenon that the coastal cities have been experiencing for some time.

John Lucini, vice president of fiber supply for the Pacific Region of SP Newsprint & Recycling, Newberg, Ore., also commented on the growing demand from the Chinese market, saying that it impacts all U.S. markets, regardless of region. He added that in markets such as Los Angeles, New York, Houston and the San Francisco Bay area, export demand is the dominant market factor.

Export markets are characterized by dynamic fluctuations, which are influenced by ocean freight, currency fluctuations and broker speculation, Lucini said. Understanding the factors that influence global and local markets can help a buyer to better manage market fluctuations, he said. Some of the factors to consider are overall economic conditions, seasonal fluctuations, markets for paper and paper products, market conditions for alternative fiber sources, transportation costs and currency fluctuations.

The comparative low quality of Asian OCC is causing problems for U.S. mills, Tucciarone said. He also pointed his finger at single-stream collections, moisture and UV printing, claiming that they also negatively affect the quality of the recycled paper produced.

QUALITY ISSUES. Lucini echoed the problem of obtaining a quality supply of recycled fiber. He suggested steps mills should take to ensure a stable supply of quality fiber, including buying consistently and developing a secure supply base that focuses on relationships.

Some mill buyers say that the quality of incoming recovered paper is declining, and Lucini agreed with them. "Demand requires that we go deeper into the waste stream to collect enough," he said, hinting that going further into that waste stream will bring along with it residual materials.

Jan Marrs, vice president of supply for Weyerhaeuser, Federal Way, Wash., said the company has developed a fiber procurement strategy that assures the needs of each mill are met and balanced by the system. This strategy takes safety; volume, grade and transportation; bottlenecks; market conditions; and various vulnerabilities into account.

To secure a quality supply, Lucini suggested that mills set clear and consistent quality requirements and communicate these requirements to their suppliers. "Educate your suppliers about the impact poor material quality can have on your finished product," he said.

Lucini also suggested that mills should make every attempt to understand their suppliers’ capabilities and quality issues. Communication between the mill and its recovered paper suppliers is key. Lucini recommended providing the supplier with constant feedback in regard to quality performance.

Jeff Kibler, executive vice president of Visy Recycling, Conyers, Ga., also stressed quality issues. He assured attendees that having a consistent quality specification is important to suppliers.

"Mill buyers must maintain a mill quality specification and effectively communicate with all of their sources," Kibler said. "The mill buyer’s secret is relationship, relationship, relationship."

Kibler continued, "In maintaining a mill quality specification, the specification must not change due to the market. When the market is loose, the specification cannot tighten, and when the market is tight, the specification cannot loosen."

Lucini also said that consistency goes a long way in securing a stable supply of recovered paper. He said that establishing joint ventures with suppliers and collectors can help to increase supply stability.

Standard specifications make a mill that much easier to do business with, and that confers certain advantages.

"If you are easy to do business with, you’ll be a preferred customer for your supplier," Lucini said.

BUSINESS FRIENDLY. Mills can also set themselves apart from their competitors through customer service and transportation, as movement and the price of fiber are key, Kibler said.

Marrs also emphasized providing suppliers with a good experience. She offered Weyerhaeuser’s fair-market pricing, consistent takeaway and payment terms and its high level of ethics and integrity as contributing to this good experience. The company also sees itself as a company that is easy to deal with, thanks to various Web-based tools.

Weyerhaeuser’s E-tools enable domestic customers and suppliers to check on the status of their orders. The company strives to create a valuable experience for its suppliers, Marrs said.

Also, by analyzing the data the company collects, Weyerhaeuser seeks to continually improve its performance, she said. This typically involves looking at monthly reports on freight and fiber costs by mill, monthly inventory trend reports, quality reports and external benchmarking, which Marrs says she "loves to hate."

Accurate reporting can help to manage a mill’s inventory, warehousing operations and transportation costs, which Lucini finds increasingly important. It also allows for supplier feedback and details quality performance, Lucini says.

Weyerhaeuser also emphasizes its commitment to safety with its suppliers, offering to share its best practices with them.

Marrs added that Weyerhaeuser mills are increasing their inventories, selling to third parties and taking advantage of their regional locations in response to current market conditions.

NUMBERS GAME. In terms of inventory strategy, Lucini again suggested consistency.

Determining the physical, operational and financial capabilities of the mill is a critical part of the process. Inventories should be managed to accomplish consistent purchasing, to protect against seasonal and market-related fluctuations in supply and for efficient warehousing operations, he said.

The result of successful inventory management is the maintenance of the most important tenet in mill buying, Lucini said: "Don’t run the mill out of paper."

Whether that inventory is supplied by virgin or recycled fiber is determined by the mill capabilities and minimum content requirements, Lucini said. "Buyers are sometimes the last to find out that the mill has switched its fiber capabilities," he joked.

Even the cost of power influences the type of feedstock used. "Power has actually been the biggest influence over whether we use virgin or recycled material in the last two years," he said.

Lucini also addressed the use of financial derivatives. In his view, this tool can help stabilize raw material costs, but it does not assure raw material supply.

Lucini was also careful to emphasize that financial derivatives are only as secure as the financial institution providing the service.

While to the buyers in question it may not be a secret, the key to successful mill buying appears to lie in good communication between the mill and its suppliers. As Lucini said, "We need each other to be successful."

The Paper Recycling Conference and Trade Show took place in late June at the Hyatt Regency Chicago in downtown Chicago. The 2004 Paper Recycling Conference & Trade Show will take place in Atlanta at the Renaissance Waverly June 27-29.

The author is assistant editor of Recycling Today and can be contacted via e-mail at dtoto@RecyclingToday.com.