The Center for Paper Business

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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

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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?

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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 . . . . . . Lets Take A Quick Look . . .

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Where Are We?

• N. Am. Pulp and Paper industry is mature web of
  businesses -- generally characterized by
• 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 Intl Markets
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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
  1980s 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.

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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. . .
Lets Look at some of the Situational Aspects of
the Industry . . .
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U.S. Industry -- Debt Levels
U.S. Companies Are Making Debt Reduction A
Priority But Debt Levels Are Still Constraining
Needed Business Investments
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U.S. Industry -- Capital Spending Level
Real U.S. Pulp Paper Capital Expenditures Will
Continue To Languish Until The Cyclical Recovery
Circa 2003 / 2004
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U.S. Industry Production Capacity Expectations
Total U.S. P Paper Board Capacity Will Resume
Growth But At 1/2 Its Historical Rate --
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U.S. Industry -- Profitability Capital Turnover
U.S. Pulp Paper Capital Turnover Will Continue
Its Downward Trend -- But Profitability Will
Improve / Stabilize
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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 PP by Intl competitors or non-fiber
  based products,
• Failure to maintain capacity management
  discipline,
• Not Continuing to Seek New Ways of Operating

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Major Issues Facing the Industry --
Even with this rebound at hand The U.S. PP
industrys 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 industrys
  directional fate

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So -- What Is CPBIS?The Center for Paper
Business Industry Studies Where is It
HeadedHow Can the CPBIS Help Re-Build a
Profitable Paper Industry?
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What Is CPBIS?

• An Unpronounceable Acronym?

subbis? zipbees?
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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 Industrys 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 Industrys Future

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CPBIS Genesis

• How we got here
• Sloan Industry Centers
• Resources
• Development
• Organization and Themes
• Research
• Education
• Continuing Education
• Industry Support
• The Path Forward

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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
APPAREL
INFORMATION STORAGE
PHARMA- CEUTICALS
TELE- COMM.
MANAGED CARE
FOOD
PRINTING
MOTOR VEHICLES
STEEL
TRUCKING
FINANCIAL
INDUSTRIAL PERFORMANCE
POWDER METALLURGY
CONSTRUCTION
SEMI- CONDUCTORS
SOFTWARE
ELECTRICITY
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and Their Host Institutions
MINNESOTA
MIT
HARVARD
UC SAN DIEGO
GEORGIA TECH
IPST
CARNEGIE MELLON
WHARTON
WORCESTER POLY
RIT
PITTSBURGH
UC BERKELEY
COLUMBIA
UT AUSTIN
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A Powerful Combination

• IPST premier center for graduate education and
  research in the industrys 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
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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
Giebelhaus
McDonough
RESEARCH FACULTY 29 from
Georgia Tech, IPST, and UGA
McNutt
Bell
Singhal
Vallas
AFFILIATES from Other Universities
Lafond
Burney
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CPBIS Themes

• Globalization international forces
• Enterprise Effectiveness factors affecting
  company performance
• Workplace Transformation organizational changes
  for productivity
• Commercialization harnessing science
• Community relationships with constituencies

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CPBIS Research

• Primarily business- rather than
  technology-oriented
• 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

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Funded Research Faculty

• Management (GIT) 7
• Economics (GIT) 5
• Paper Science (IPST) 5
• Industrial and Systems Eng. (GIT) 4
• History, Technology Society (GIT) 3
• Mechanical Engineering (GIT) 3
• Forest Economics (UGA) 1
• Public Policy (GIT) 1

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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

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Research Projects (continued)

• Policy, Organization Innovation in the American
  PPI since 1914
• Understanding factors contributing to the
  industrys 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

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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 PPI
• Learning how the mill work environment needs to
  change for better organizational performance

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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

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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
  Cross-Industry 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

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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

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Current Student Involvement

• Ph.D., Enrolled 4
• Ph.D., Affiliated 5
• M.S., Enrolled 6
• M.S., Affiliated 7
• M.S. Degrees Awarded 1

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Courses Offered to Date

• Studies in American Manufacturing The Paper
  Industry (Spring, 2002)
• Process Management in Paper and Processing
  Industries (Fall, 2002)

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Symposia

• Rethink and Discovery I Beyond Todays Paper
  Machine, March, 2002, Atlanta
• Rethink and Discovery II The Superintendents
  Roundtable, June, 2002, San Francisco
• Rethink and Discovery III Opening Doors to
  Innovation and Learning, October, 2002, Raleigh

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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

• 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

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Continuing Education -- Mission

• Establish diverse, in-depth continuing education
  programs tailored to meet explicitly defined
  needs of the paper industry for enhanced
  management success

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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

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Industry Support Financial Commitments to Date

• Abitibi-Consolidated
• Accenture
• Albany International
• AstenJohnson
• Australian Paper
• BEK
• Bowater
• Buckman Labs
• ForestExpress
• Forestweb
• Georgia-Pacific
• Gulf States

• Inland
• Jacobs Consultancy
• Kruger
• MeadWestvaco
• P. H. Glatfelter
• Potlatch
• Sappi-North America
• Stora Enso
• Tembec
• Tradition Financial Services
• UPMKymmene N. Am.
• Weyerhaeuser

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Industry Support -- In-Kind Support Alliances
to Date

• AFPA
• Ecole Polytechnique
• Forestweb
• FPAC
• Learning Framework
• NC State Univ.

• Oregon State Univ.
• PACE
• PAPRICAN
• PAPTAC
• PIMA
• TAPPI
• Watermark

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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