By Susan Avery
As many procurement and supply management leaders know, the old three bids way of purchasing is long gone. Still, few have figured out how to bring their sourcing teams into the 21st century.
When Matt Stites, Executive Director--Supply Chain at Appvion in Appleton, Wisc., joined the company in 2008, Appvion was Appleton Papers, the economy was in the midst of the Great Recession and, with a proliferation of tablets and smart phones, the paper industry was beginning to undergo some fundamental changes.
While at the time many were thinking that a downturn in the paper industry was cyclical, Stites and the executive team at Appleton had a different idea. Making that idea a reality was the job of the supply chain group and others. From supply chain, it took talented procurement professionals, insight into the market and the broader economy and skill at managing relationships with suppliers.
Supply chain’s entrepreneurial work has helped transform the company. Through a strategic alliance with a key supplier, Appvion now is less focused on making paper and is concentrating efforts on coatings and microencapsulation technology. In one use of the technology, Appvion is microencapsulating perfumes for Procter & Gamble laundry detergents; P&G has named it a top-performing supplier several years in a row.
Appvion continues its quest for supply chain excellence.
Building a High-Performing Supply Chain
The shift from papermaking to coatings and microencapsulation technology began right around the time Stites arrived at the company. With a background mainly in procurement at an automotive supplier where he helped centralize the function and had assumed global responsibility managing chemicals and plastics commodities, Stites was recruited to take on a similar task at Appleton Papers.
“I had the opportunity to leverage my experience and skills, and I had the desire to build a high-performing supply chain team that would be part of differentiating the company from its peers in the industry,” Stites tells My Purchasing Center.
Initially, Stites was tasked with centralizing the function. Given the timing, he had few resources and less time to learn about the industry. “We had to be creative in how we did it,” he says, quickly starting to meet with suppliers and discuss ways to restructure agreements in the challenging economic environment.
Typical buys for a paper company are fiber in the form of wood or chips, and in the case of Appleton which also had a deinking facility, waste paper and pulp. Chemicals and indirect categories such as Maintenance Repair and Operations (MRO) goods and services make up much of the rest.
“We renegotiated contracts with little knowledge of the relationship with the supplier and some crash courses on the materials markets,” Stites says. “During these discussions, we started out trying to leverage the way we intended to do business. We were seeking partners committed to collaborating and realizing how we could generate mutual value.”
Some forward-looking suppliers were willing to work with Appleton then, Stites says. These relationships are still on going.
Relationship with CFO Encourages Strategic Thinking
At Appvion, Stites reports to the Chief Financial Officer (CFO), another change management put in place at the time of his hire. Historically, supply chain had reported into operations. “It’s refreshing to report to finance,” Stites says. “It enables us to think and work more strategically than if the relationship was to a business that was only looking to supply chain to service its plant or facility.”
Stites focused the supply chain team on getting to a deeper understanding of the changes occurring in the market. By February 2009, supply chain was using this insight to publish monthly updates that keep leadership abreast of market dynamics that could impact the business. “There are broader changes happening that help redefine commodity strategy,” Stites says. “We added some macro perspective and made recommendations for the strategic direction of the company.”
Communicating the team’s insight into the markets to the executive leadership team is critical, Stites tells My Purchasing Center. “If we don’t challenge ourselves to stay abreast of the markets, we might not be current because the markets were changing more dynamically than some perceived at the time.
Stites’s instinct was spot on. The market insight led to discussions with potential strategic partners, one of which changed the direction of the company’s business.
“We talked with Domtar, North America’s largest uncoated free sheet producer, about what is happening in the market and what it meant to them to learn if there was something we could collectively do to change the industry practice,” Stites explains. The meetings turned into discussions about a strategic alliance.
Until that time, a paper company responded to downturns in the market by idling or shutting assets. This practice is still common among some industry players. An alternative is to produce lower value products or sell into regions with lower returns to keep assets running.
“With Domtar, we discussed building a plan that would repurpose assets,” Stites says. “We tested the concept and were successful with it.” By February, 2012, the two companies had negotiated a contract and announced a 15-year strategic alliance. Domtar has repurposed assets while Appleton Papers shut some and redeployed resources to focus on new markets.
Supply chain’s insight into the global market showed that demand from China would continue to help keep prices of waste paper and pulp high. “The business is not only seeing a decline of paper, but also volatility and escalated prices of materials needed to run a facility,” Stites says.
To reflect its -revised business strategy, in May, 2013, Appleton Papers changed its name to Appvion, borrowing from the words Applied Innovation. “Our value,” Stites says, “is not in making paper. It’s generated through the coatings and technology that we put on paper and in leveraging our core competencies to develop new or alternative markets.”
Journey to Supply Chain Excellence
At the same time, Stites began to work with Bob Rudzki and his team of experienced procurement leaders at Greybeard Advisors in Pittsburgh. Stites asked Rudzki and his team to assess the supply chain at Appvion and help prepare a roadmap “to ensure that we are aligned to support the changes in the business,” he tells My Purchasing Center.
“Bob suggested we leverage the strengths of our people and to act like a supply chain,” he says, adding that Appvion created a new position, Director of Operational Supply Chain, to manage the company’s indirect spend as well as the buyers at the plants. “This individual ensures that we are acting as one company, using the same processes and tools across the organization.” Stites also asked a commodity manager to manage the new relationship with Domtar.
Other recommendations include shoring up the team’s analytical skills and adding resources that can help facilitate open innovation, critical to developing new products and technologies, such as an individual with a Ph.D. in chemistry who is serving as Director of Chemical Strategic Sourcing.
With a team in place, “we are working to develop our supply chain entrepreneurs,” Stites says. “As we talk about our goals, we are passionate and focused on redefining supply chain excellence.”
As such, he says the team is continuing “to optimize the value potential of the Domtar strategic alliance.” They’re looking to work with suppliers on open innovation and value generation.
In addition, they’re continuing to benchmark in and outside the industry. “That really has us well grounded on how we are doing now, and will ensure we sustain it,” Stites says. “We’re looking for future opportunities to support the business transformation through distinct and sustainable sourcing strategies. We would not be successful in a three-bids environment.”
As he sees it, “It’s really a different future for us. It came from having the insight into the market and being able to open up with our leadership and partners to talk about how we are going to go about business differently. One major impact of what we’ve done so far is that together with our partners we are working on a different course other than the status quo.”
Also see the My Purchasing Center article, From Tactical to Strategic: Transforming Procurement One Company at a Time
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.
George E. Krauter
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