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Pulp and paper

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Dec. 2006, pdf, 2.1 MB

Scope of the study

The sector covers the business activities specified in NACE Rev. 1.1 Division DE 21. The manufacture of pulp, paper and paperboard (NACE 21.1) is mainly an industry where large companies typically operate in a world-wide market. In the manufacture of articles of paper and paperboard (NACE 21.2), often termed the 'converting industries', companies are usually smaller and operate more on a regional or national basis. The total sector directly employs about 740,000 people in the EU-25 and has a production value of about 150 billion euros.

Adoption of ICT and e-business in 2006 – survey results

Among the ten sectors studied by e-Business W@tch in 2006, the P&P industry is a near-perfect yardstick for the state-of-play in ICT adoption and e-business activity. For many of the indicators, figures for the P&P industry are very close to the all-sectors average and represent the typical situation in manu­facturing industries. The P&P industry is neither among the avant-garde in ICT adoption (such as ICT-related sectors them­selves), nor is it a slow ICT adopter.
Survey results show that companies within the P&P industry use ICT quite intensively in all application areas along the value chain: for procurement processes, in production, for inbound and outbound logistics, marketing and customer service. As in most manu­facturing industries, improvements in supply chain management by integrating business processes with suppliers and customers is probably the main focus of all activities.

  • Enterprise Resource Planning (ERP) systems are widespread among companies from the P&P industry, compared to most other sectors studied this year. These systems constitute the basis for many of the advanced forms of e-business in the sector.
  • Supply chain management: ICT are intensively used to support logistics and supply chain integration in this sector. Emerging technologies for supply chain manage­ment such as RFID (Radio Frequency Identification) are not yet widely adopted, however, particularly in smaller companies. Among large firms, about 10% reported the usage of RFID.
  • Online marketing is gaining momentum: Almost 30% of P&P firms surveyed said they accepted orders online and more than 20% (by employment) reported using a Customer Relationship Management (CRM) system; this is more than on average in the 10 sectors studied and shows that e-marketing is quickly gaining momentum in the P&P industry.

Important e-business trends and implications

In the P&P industry, the impact of ICT is mainly felt as a driver and enabler of process innovation in business-to-business (B2B) trading processes and logistics. Meeting requirements for organising trade and logistics on an international scale has been a strong driver of ICT adoption. However, the e-business activities and experience of the smaller companies in the sector are quite different from those of large companies. The large P&P manufacturing comp­anies are quite advanced users of e-business, while many of the smaller companies rely on a rather simple ICT infrastructure.

papiNet® – a success story

Agreement on common standards linking disparate ERP systems between trading partners is one of the critical success factors for e-business. The P&P industry has developed and promotes the papiNet® standard for facilitating B2B trade processes. Despite the success of this standard in the sector, there is still considerable scope for new implementations, especially those involving small and medium-sized enterprises (SMEs).

In parallel to papiNet®, GUSI is being promoted by the consumer goods industry as a standard for e-business with their suppliers, including the packaging industry.

ICT as a driver of improved process efficiency

The integration of digital information flows, during all phases of B2B transactions (including ordering, invoicing and payments), with production manage­ment and logistics has significantly facilitated business processes between P&P producers and their suppliers and customers. Effects tend to be most significant if both trading partners have an ERP system as the main 'hub' for automating processes.

The main effects of ICT adoption with regard to process efficiency noted from case studies and interviews with companies are:

  • acceleration of processes;
  • increased internal transparency of processes; and
  • improved use of production capacity.
Deployment and implications of RFID

Manufacturers of pulp and paper increasingly use RFID for warehouse and inventory manage­ment. Early experience of RFID implementation demonstrates that it can help companies to link ordering, production and logistics processes, thereby streamlining their supply chain and reducing lead times.

However, the benefits of the use of RFID over barcode technology, for the same purposes, are not yet obvious. In particular, the total costs for RFID implementation are still considerable. Therefore, adoption strategies differ: some P&P companies choose to be early adopters, while others deliberately opt for a “wait-and-see” strategy.

In the converting industry, compliance with customer demand (in particular from large retailers and the consumer goods industry) is the most important driver for RFID adoption.

ICT impact on paper consumption

Although, in some instances, the adoption of ICT by households and businesses leads to substitution of paper or paper-based products, the net impact of all factors that have an influence in this respect results in a continued growth in paper demand and cons­umption.

Substitution effects are most significant in the daily and weekly newspaper markets, where a large proportion of classified advertising is already migrating to the internet. The average volume of newspapers as well as their total circulation are decreasing. However, a projection of figures on paper consumption in Europe since the mid 1990s indicates a moderate growth even in advanced economies.

Overall business impact

Impact at company level

ICT and e-business have a considerable impact on work processes and on business process efficiency in companies from the P&P industry. Companies increasingly use ICT for enhancing customer service, and also expect that this will be a major area of ICT impact in the future.

All evidence suggests that the powerful ICT systems and e-business solutions of the large companies currently allow more advanced practices, which enable greater achieve­ments in terms of process efficiency and cost savings. Many of this sector’s smaller companies, on the other hand, have only recently taken their first steps towards e-business. However, the P&P industry has good pre-prerequisites for B2B exchanges; thus, a dynamic development in e-business can be expected over the next 3-5 years.

Impact at industry level

Structural determinants make the P&P industry a sector with intense competition, mostly between well-established players. Rivalry could further increase if Asian or South-American competitors enter the European market. However, the key drivers of this competition are not to be found in ICT and developments in e-business. For instance, globalisation issues and the critical impact of rising energy costs (with implications on costs for raw materials such as chemicals) are not directly linked to ICT or e-business developments.

Policy implications

Survey results, case studies and desk research point at some issues which could be relevant for policy. The first two points concern the acceleration of ICT adoption among small and medium-sized P&P companies; the latter two points concern the objective to ensure a favourable framework for e-business.

  • Large firms as multipliers: The limited degree of B2B integration between large firms and their smaller business partners is a bottleneck for the optimal exploitation of e-business opportunities. An innovative policy approach in this context is to launch focused initiatives where large firms (and possibly the public sector) are used as a vehicle to accelerate e-business adoption among their SME suppliers.
  • Solutions for SMEs: Recognising the importance of ERP (Enterprise Resource Planning) systems for doing e-business in this industry, it is proposed to enhance the development of solutions for SMEs. Initiatives could build on a trend that software providers are now adopting more SME-centred strategies.
  • Standards for e-business: papiNet® and GUSI are parallel initiatives to establish e-standards in this industry. This has implications in particular for companies from the converting industry. It, therefore, deserves a closer look to assess whether there is a business case for integration and consolidation of technical components and semantic aspects of these standards.
  • Legal framework for e-invoicing: The fast development of e-invoicing has led to some legal uncertainties with regard to taxation in certain EU Member States. Furthermore, the different approaches taken in Member States make it difficult to use e-invoicing in cross-border transactions. A consultation among stakeholders could amend this situation.

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