Hidden transformation champions
I have to admit I am always somewhat annoyed to read analyst papers claiming that some other industries are much heavier affected by digital transformation than the mill products industry. I am just coming back from an industry executive advisory council with some of the most innovative companies in this industry.
First, not all transformation is digital, and driven by buzzword technologies like blockchain or machine learning. As a chemical engineer by education, I am amazed (and somewhat excited) by the transformation that has hit the paper industry from a very different direction.
Forest products and papermaking have never been a place for complacency. We always had painfully small margins and fierce competition – with a few lucky exceptions in specialty niches. Technology has helped to push the limits, and Industry 4.0 and machine learning and its advances help to be even smarter, even more automated and intelligent.
In my opinion (and I should rather not post this as an employee of a tech company), mill products companies undergo a rather evolutionary digital transformation. There are good business cases. But I would not call it a revolution.
Diversification
The essence of the transformation in paper stems from the tree and the forest as a renewable raw material, and a sustainable alternative to oil and petrochemistry.
As an example, Sappi outlines their strategy as to reposition themselves from an integrated paper company into a “profitable and cash-generative diversified woodfibre group”. Let’s makes this more tangible.
You should definitely take a look at Sappi’s diversified product portfolio. This is way beyond woodfibre. I would call this rather forest-based advanced materials and specialty chemicals, and, as Sappi puts it, “adjacent fields”.
Channel innovation and disintermediation
And even the “classical” paper side is undergoing a fascinating transformation. ARC nicely outlined the disintermediation and market redefinition that Sappi achieved – evolving from a B2B customer based with a few paper distributors and paper traders, into a much more direct business with a multifold number of customers. And here technology was actually the enabler to scale.
The new barrier
There are other interesting details. In the functional paper section of their portfolio, Sappi names integrated barrier materials. If you are concerned about circular economy or recyclability of packaging materials – this is very noteworthy.
Classical packaging materials that needed to provide a barrier against grease, vapor, or mineral oil consisted of multi-layered materials or required additional coatings - making them very difficult to recycle.
Sappi is able to provide this just with paper, and won the German packaging award for this. Tree huggers and green folks, take note.
Your chocolate tastes like a tree to me
How about you? Would you like to have your cake (or your chocolate) taste like a tree?
Well, very likely it does just that.
As Borregaard (“the worlds most advanced biorefinery”) explain it nicely in their vanilla video, a tree is 15% fibre (aka specialty cellulose), 25% sugar (aka Bioethanol), and 30% binding materials (aka lignin and vanillin).
There is not enough vanilla to meet the world demand. The vanilla orchid in Madagascar does not scale to global chocolate hunger, and is highly expensive. Luckily, there are alternatives.
Pure petrochemically synthesized ones appear on the list of ingredients as artificial flavoring. Genetically modified bioconversion vanilla is somewhat more tricky to classify.
And then there is extraction from the tree.
Why is this noteworthy?
It’s another nice example of creating a market under interesting conditions – between the artificial and the natural flavour. Quite far away from the core of a forest product company.
Probably a significantly more profitable business than manufacturing newsprint - considering that in 2015 “a string of giant food companies, including General Mills, Hershey’s, Kellogg’s, and Nestlé, vowed to eliminate artificial flavors and other additives from many foods sold in the U.S.”
Are this isolated examples?
UPM claims to make “versatile use of renewable wood biomass” to develop new innovative (and profitable) businesses like biofuels, biocomposites and biochemical. It is worthwhile to see the stats to understand better how far this transformation is already underway.
Check out the section "transforming the business portfolio" and note the change from 2008 to 2016.
UPM accordingly changed their branding to the "The Biofore Company."
But not every company becomes a biorefinery. Many others innovate around existing products, adding superior capabilities, more versatility.
The forest-based future
To win the game against fossil-fuel-based materials, the new forest-based materials need to be superior not just on sustainability, but also on quality and cost. I am quite optimistic that the innovators in the paper industry will make this happen.
Digital technology will play a significant part in this as well – to strive for higher quality at lower cost, to plan smarter and more versatile taking into consideration multiple possible what-if scenarios, and finally being smarter about customers and their innovative ideas with the new materials.
We will tear down these walls
Finally, a diversified forest-based innovation company will make use of advances from industries like agriculture, chemicals, oil & gas, and consumer products – and of course mill products. You better build your processes future-proof on a versatile, modern, multi-industry platform such as SAP S/4 HANA.
Tearing down the walls and boundaries between classical industries was a key objective when we built our new "digital core", aka SAP S/4 HANA.
More on adopting innovation?
Still think, mill products adopt innovation slowly? Check the facts in my upcoming blog on SAP S/4 HANA – and which industries are the first movers.
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