Paper Products Manufacture
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Industry Overview
About 4,000 companies manufacture paper products in the US, with combined annual product revenue of $160 billion. Large companies include International Paper, Kimberly-Clark, Georgia-Pacific, Avery Dennison, and MeadWestvaco. The industry is only moderately concentrated as a whole, but is highly concentrated in specific product segments, where the largest 50 companies often hold close to 70 percent of the market. A typical manufacturer of paper products has 150 employees, a single plant, and $40 million of annual sales.
Competitive Landscape
Demand is driven by general commercial activity and population growth. The profitability of individual companies depends on efficient operations, as products are sold mainly based on price. Big companies have advantages in distribution and can supply large customers. There are few economies of scale in manufacturing; large and small producers operate the same kinds of plants--large producers just have more of them. Small companies can compete successfully by making specialty products or serving a small geographical market. The industry is capital-intensive: average annual revenue per worker is close to $300,000, although the figure varies by product segment.
Products, Operations & Technology
Major product categories are paperboard containers, coated papers, tissue products, stationery, and paper bags. Paperboard containers include single-layer boxes and multi-layer corrugated boxes and account for about 30 percent of industry revenue. Coated papers account for 15 percent of revenue, tissue products for 5 percent, stationery for 5 percent. Tens of thousands of different paper products are produced, but most manufacturers concentrate on a very limited product line.
The manufacture of paper products is mainly a commodity business. Manufacturing processes are standardized, as are the products. Paper products are made in three stages. First, wood is turned into pulp at pulp mills. Then, pulp is turned into large rolls of commodity product at paper or paperboard mills. Finally, the large rolls are used to make finished products at converter plants. While the large national companies typically have vertically integrated operations (they own their own forests, cut their own trees, make their own pulp, etc.), most smaller companies operate only converter plants, buying the paper or paperboard raw material from the large producers.
Paper is made from cellulose tree fiber, by dicing and pounding wood, and treating it with water, chemicals, heat, and mechanical beaters to dissociate the fibers. The resulting wood pulp is spread onto large moving screens to drain, then flattened by rollers, dried, and collected in large rolls. Many different types and thicknesses of paper are produced according to the type of raw wood used, the pulping process, the chemicals used and added, and the rolling process. The kraft (which means "strength" in German) chemical pulping process is the most common manufacturing process, using soft woods (mainly pine) to produce paperboard and heavy paper (used in grocery bags, etc.). Paperboard can be used directly to make cardboard containers (often with one white side made from recycled office paper), or can be glued together (two flat outside layers of "linerboard" and an inner layer of "corrugated medium") to make containerboard, used to make corrugated boxes.
Because the finished product is inexpensive and bulky, transportation costs can be a significant part of the total delivered cost. Due to high transportation costs, small manufacturers can compete effectively with big producers in their local market. The effective sales area for corrugated boxes, for example, is only about 150 miles from the production plant.
Pulp and paper mills are capital-intensive operations that may operate just one giant machine. Converting plants are more labor-intensive because of the large number of different customer orders they typically handle. Production machinery, both at mills and converting plants, is large and expensive. A corrugated-box producer will typically operate a production line with several large specialized machines (corrugating, gluing, slotting, shearing, stitching, etc.) that can be adjusted to make boxes of many different grades and sizes.
The technology of making various paper products is well-known. Most R&D is oriented toward greater production efficiency rather than new products. Computer technology is used mainly to track the receipt and completion of customer orders.