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A PUBLICATION OF AICC—THE INDEPENDENT PACKAGING ASSOCIATION
September/October 2015 Volume 19, No. 5
PRIMED FOR MODERN PRODUCTION
ALSO INSIDE Employee Stock Ownership Plans Member Profile: Independent II The Founding of AICC’s FirstPak
4
BOXSCORE September/October 2015
TABLE OF CONTENTS September/October 2015
•
Volume 19, Issue 5
COLUMNS
3
CHAIRMAN’S MESSAGE
4
SCORING BOXES
11
ASK RALPH
12
THE HIDDEN FACTORY
16
SELLING TODAY
18
A VIEW FROM THE FLOOR
20 LEADERSHIP
40
24 SUSTAINABILITY 64
ASSOCIATE ADVANTAGE
68
THE FINAL SCORE
FEATURES
DEPARTMENTS
40
8
WELCOME NEW MEMBERS
27
GOOD FOR BUSINESS
34
POINT OF VIEW
36
MEMBER PROFILE
66
ICPF UPDATE
DIGITAL PRINTING: PRIMED FOR MODERN PRODUCTION Digital printing is headed for the big time, but are box plants ready to commit?
52
52
40 YEARS OF AICC AICC’s FirstPak: Independents band together to compete nationally and globally
58
EMPLOYEE STOCK OWNERSHIP PLANS Let them eat cake! Or, have your cake and eat it, too?
58
BoxScore is published bimonthly by AICC—The Independent Packaging Association, PO Box 25708, Alexandria, VA 22313, USA. Rates for reprints and permissions of articles printed are available upon request. AICC is an international trade association representing a majority of independent North American manufacturers of packaging products and the suppliers to the industry. AICC members are represented by 538 boxmaking locations and 482 supplier locations, both segments of which are offered a full array of membership services, programs, and benefits. The statements and opinions expressed herein are those of the individual authors and do not necessarily represent the views of AICC. The publisher reserves the right to accept or reject any editorial or advertising matter at its discretion. The publisher is not responsible for claims made by advertisers. POSTMASTER: Send change of address to BoxScore, AICC, PO Box 25708, Alexandria, VA 22313, USA. ©2015 AICC. All rights reserved.
Visit www.aiccboxscore.org for Member News and our Selling Today, The Hidden Factory, View From the Floor, and Sustainability columns. Scan the QR code to check them out!
BOXSCORE www.aiccbox.org
1
OFFICERS Chairman: Greg Tucker, Bay Cities Container Corp. First Vice Chairman: Tyler Howland, Sound Packaging LLC Vice Chairman: Mark Williams, Richmond Corrugated Vice Chairman: Tony Schleich, American Packaging Corp. Vice Chairman: Al Hoodwin, Michigan City Paper Box DIRECTORS-AT-LARGE Brad Albright, Touchpoint Packaging Jay Carman, Stand Fast Packaging Products Joseph Palmeri, Jamestown Container Companies Marco Ferrara, Cajas de Cartón Sultana Jana Harris, Harris Packaging Corp./American Carton REGIONAL DIRECTORS Region 1: Don Simmons, Empire Container & Display Region 2: Matt Davis, Packaging Express Region 3: Kevin Ausburn, SMC Packaging Group Region 4: Eric Elgin, Oklahoma Interpak Region 5: Jeff Ramsey, Central Florida Box Region 6: Clay Shaw, Batavia Container Inc. Region 7: Finn MacDonald, Independent II Region 8: John Forrey, Specialty Industries Inc. Region 9: Vacant Region 10: Peter Hamilton, Rand-Whitney Corporation Region 11-12: John Franciosa, Coyle Packaging Group Region 14: Yair Caballero, CorrEmpaques Overseas: Kim Nelson, Royal Containers Ltd. President: A. Steven Young, AICC Headquarters Immediate Past Chairman: Mark Mathes, Vanguard Companies Chairman, Past Chairmen’s Council: Chuck Fienning, Sumter Packaging Corp. Secretary/General Counsel: David P. Goch, Webster, Chamberlain, and Bean Counsel Emeritus: Paul H. Vishny, Esq. ASSOCIATE MEMBER DIRECTORS Chairman: Brian Kentopp, Bobst Vice Chairman: Keith Umlauf, Haire Group Secretary: Jeff Pallini, Fosber America Director: Ed Gargiulo, Equipment Finance Corp. Immediate Past Chairman: Kevin Widder, Automatän
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ADVISERS TO THE CHAIRMAN Kim Nelson, Royal Containers Ltd. Jerry Frisch, Wasatch Container PUBLICATION STAFF Publisher: A. Steven Young, syoung@aiccbox.org Editor: Taryn Pyle, tpyle@aiccbox.org EDITORIAL/DESIGN SERVICES The YGS Group • www.theYGSgroup.com Executive Editor: Kelly Crane Winkler Managing Editor: Lori B. Racey Copy Editor: Steve Kennedy Assistant Managing Editors: Ashley Reid, Melanie Bracey VP, Marketing Services: Jack Davidson Graphic Designer: Zon Buckley Account Manager: Kali Eskew
“The Industry Experts” 580 Sylvan Avenue, Suite M-A Englewood Cliffs, NJ 07632 (201) 731-3025 Fax: (201) 731-3026 Info@Klinghernadler.Com
SUBMIT EDITORIAL IDEAS, NEWS, AND LETTERS TO: BoxScore@theYGSgroup.com CONTRIBUTORS Director, Meetings: Cindy Guarino, cguarino@aiccbox.org Director, Latin America: Maria Frustaci, mfrustaci@aiccbox.org Director, Membership: Virginia Humphrey, vhumphrey@aiccbox.org Administrative Assistant: Chelsea May, cmay@aiccbox.org President, ICPF: Richard M. Flaherty, rflaherty@icpfbox.org ADVERTISING Information: Taryn Pyle, tpyle@aiccbox.org Opportunities: Howard Neft, InTheKnow Inc. 847-899-7104 • thneft@aol.com Folding Carton and Rigid Box Advertising: Taryn Pyle 703-535-1391 • tpyle@aiccbox.org AICC PO Box 25708 • Alexandria, VA 22313 Phone 703-836-2422 • Toll-free 877-836-2422 • Fax 703-836-2795 BOXSCORE www.aiccbox.org
2
September/October 2015
On The Cover: HP T400 Simplex Color Inkjet Web Press at Obaly Morava in the Czech Republic Photos courtesy of Hewlett-Packard
Chairman’s Message
A FOND FAREWELL
T
his will be my last Chairman’s Message to all of you. The last year has really flown by. I can’t believe, when Mark Mathes handed me “the gavel” and Jerry Frisch handed me a morning line I ripped out in the British Virgin Islands, that the year would fly by so quickly. I have had the fortunate opportunity to travel all over North America and halfway around the world, bringing my message of moving from a lifestyle company toward a professional company. I received a timely email from a gentleman named Ken Ude, titled “Escaping the Value Creation Trap.” In it he delivers this quote: “Owners can find themselves trapped in their companies. They cannot sell because the value realized at sale will not support that owner’s lifestyle.” During this year of crazy travel and countless hours on conference calls, our industry continued to consolidate. With all that change of ownership in the last couple of years, it was a very timely correlation with the message of building a professional company. Let’s face it—if you want more dollars for your business, you have to create value. Creating value centers on three things: a strong management team, a growing EBITDA, and forward cash flow. If an owner wants to retain his/her lifestyle, that owner had better get busy creating value for the company. Refer back to what was in Ken Ude’s email. While consolidation brings much change, it also is a testament to an improving economy and a strong industry. I hope many of you understand the power of an ESOP (see Page 58) and how that vehicle creates value for the owner and the employees alike. Many advisers from legal and accounting fields shun an ESOP simply because they do not understand it. I can tell you firsthand that the value created just by employee morale is huge in setting up a professional company. While we were in St. Louis for a regional meeting, one of the speakers was Scott Colbert, who runs a bond fund for Commerce Trust Co. He stated, “An ESOP is one of the best vehicles for a sale or transition of a business.” If a company is for sale, the ESOP company will most likely win the purchase with regard to tax treatment of the owner selling the company and a clean remaining legacy. Many times the owner will not have to pay one cent in taxes if the structure is done correctly. I know this for a fact, as I sold my shares back to Bay Cities 100 percent taxfree. Also, the owner of a company can convert the company to an ESOP, take money out, many times tax-free, and still remain in control of the company. This allows for the owner to really set the company up when he or she decides to move on. Nothing like having your cake and eating it, too! I hope to see you all in Fort Worth, where we will continue to drive value creation, celebrate everyone’s great design accomplishments, see a bunch of cutting-edge facilities, network, and have a lot of fun. So long, farewell, and remember, “Happiness is a quality box, and everything comes in one!”
Greg Tucker Chairman/CEO, Bay Cities Chairman, AICC
BOXSCORE www.aiccbox.org
3
Scoring Boxes
TRADING IN BOXES BY DICK STORAT
4
BOXSCORE September/October 2015
Canada were worth $335 million, while the 2014 imports into the United States from our northern neighbor added up to $133 million, netting U.S. corrugated producers a positive $202 million trade balance. Box export volume to Canada increased by 7.2 percent last year, while imports from Canada also grew rapidly over the same period, rising by 8.9 percent. Mexico is the No. 1 destination for U.S. box exports. That country received
62 percent of U.S. corrugated box exports last year—1.6 percent more than the previous year. The $737 million worth of U.S. exports were offset by $47 million worth of imports, providing U.S. corrugated producers in southern areas with a positive contribution of $690 million to the U.S. corrugated trade balance. Last year, Mexico and Canada together accounted for 92 percent of all export volume, but only for 62 percent
CORRUGATED EXPORTS TO CANADA & MEXICO 60,000
50,000
Short Tons per Month
C
onventional wisdom in the corrugated industry has been that not very many empty (knock-down) boxes are exported to foreign destinations or imported from abroad. Because of their corrugated construction, they are not very dense and, thus, take up considerable volume for their weight. That makes the long-distance transportation often required for international trade less economical. Surprisingly, however, last year’s exports of empty boxes had a value of nearly $1.2 billion, according to the U.S. Census Bureau, which provides trade statistical information. Imports from foreign destinations into the United States during the same period added up to $342 million. As a result, trade in empty corrugated containers contributed a positive $822 million to the nation’s trade balance last year. The net export volume of knock-down corrugated boxes grew by 1 percent last year, closely in line with U.S. box shipment growth of 1.2 percent. Export volume growth was 3.3 percent last year, while import volumes rose more than three times as rapidly, by 10.4 percent. As one might expect, the lion’s share of this trade was with our nearest neighbors, Canada and Mexico. Last year’s exports of corrugated paper products to
40,000
30,000
20,000
10,000
0 J09
A
J
O
J10
A
J
O
J11
A
Exports to Canada
J
O
J12
A
J
O
J13
A
Exports to Mexico
J
O
J14
A
J
O
Scoring Boxes
2014 CORRUGATED IMPORTS BY SOURCE CANADA
93,296 60,532
CHINA
24,067
MEXICO
6,690
OTHER ASIA
3,691
EUROPE
2,101
CENTRAL AMERICA OTHER
230
Short Tons
2014 CORRUGATED EXPORTS BY DESTINATION OUTISDE NORTH AMERICA CENTRAL AMERICA
19,881
EUROPE
7,547 5,027
SOUTH AMERICA ASIA
4,754
OCEANIA
3,120 2,260
MIDDLE EAST AFRICA
205 0
5,000
10,000
15,000
Short Tons
20,000
25,000
of imported empty knock-down corrugated boxes. Consequently, while U.S. corrugated producers have earned a positive trade balance of $892 million with their North American neighbors, the result of trade with the rest of the world last year was a net negative balance of $70 million, as the volume of imports exceeded that of exports by 30,270 short tons. The U.S. Census Bureau reported imports into the United States from 67 countries last year, but shipments from China amounted to 83 percent of the total 73,245 short tons of 2014 imports from countries other than Canada and Mexico. China is the second leading foreign country supplier of empty corrugated boxes to U.S. customers, exceeded only by Canada. During 2014, the volume of imports from China rose by 14.2 percent compared to the previous year. Imports of empty corrugated boxes into the U.S. from regions outside North America grew by 14.8 percent in 2014, 10 times as much as the 1.5 percent rate at which exports from the U.S. to all destinations outside North America grew. The Census Bureau reported that the United States exported 42,795 short tons of knock-down boxes to 110 countries, besides Canada and Mexico, in every corner of the world last year. A total of 46.5 percent of them went to Central American locations, mainly to package bananas and other fruit produce. South America also received 12 percent of these exports, while 18 percent went to Europe, and another 11 percent ended up in Asian countries. While most of our nation’s trading in boxes remains with Canada and Mexico, the negative balance arising from trade with other nations, especially China, is a growing source of supply into the United States and bears watching to understand its increasing contribution to demand for corrugated products in our country. Richard Storat is president of Richard Storat & Associates. He can be reached at 610-282-6033 or storatre@aol.com.
6
BOXSCORE September/October 2015
“Quality is our goal and we work hard to deliver it.”
RITA JANSSEN
Manufacturing Department
®
www.alliancellc.net
MADE IN AMERICA 5303 E Desmet Avenue Spokane, Washington 99212 509 535-0356 info@alliancellc.net
New Members
WELCOME AICC’S NEW MEMBERS AXIM TECHNOLOGY JEFF NATALINO Manager 630 Village Trace, Unit 15A Marietta, GA 30067 Phone: 770-818-0114 Fax: 770-818-0071 jnat@mindspring.com www.aximtechno.com
COLLIERS INTERNATIONAL BRIAN PREVOE Realty Adviser 245 Yorkland Blvd. Toronto, ON M2J 4W9 CANADA Phone: 416-791-7259 brian.prevoe@colliers.com www.colliers.com
BLACKHAWK CORRUGATED JAMES WILLIAMSON Manager, Business Development 700 Kimberly Drive Carol Stream, IL 60188 Phone: 630-740-7979 jwilliamson@blackhawkcorrugated.com
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BOXSCORE September/October 2015
COPAMEX CORRUGADOS, S.A. DE C.V. GERARDO FLORES Director de Ventas Poniente 134 #649 Col. Industrial Vallejo 02300 Mexico City DF MEXICO Phone: +52 815-000-7200 Fax: +52 815-000-7209 gerardo.flores@copamex.com www.copamexcorrugados.com M & M BOX AND PARTITIONS CO., INC. JOSEPH A. MARIELLA JR. CEO 4141 W. Grand Ave. Chicago, IL 60651 Phone: 800-992-3557 Fax: 773-276-8181 jrm@mmboxpartitions.com www.mmboxpartitions.com SOLEMA USA INC. C. SCOTT ELLIS President P.O. Box 472 Crawfordsville, IN 47933 Phone: 765-361-0806 Fax: 765-361-0989 csellis@solemausa.com www.solemausa.com SOLUCIONES EN EMPAQUE Y LOGÍSTICA S.A. DE C.V. JORGE SCHULTZ Technical Director Prol. 5 de Mayo 253B 45019 Zapopan, Jal. MEXICO Phone: +52 1 33-3364-6135 j.schultz@sel.com.mx sel.com.mx TECNOLOGÍA DE CARTÓN S.A. DE C.V. PEDRO R. AGUIRRE MARTINEZ Director de Operaciones Prol. Valle del Guadiana #961-B 35077 Gómez Palacio, Dgo. MEXICO Phone: +52 871-719-9000 al 04 p.aguirre@tecnologiadecarton.com www.tecnologiadecarton.com
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Ask Ralph
OVERVIEW OF NORTH AMERICAN WHITE GRAPHIC MARKET: PART 2 BY RALPH YOUNG
L
et’s continue our discussion from last issue (see Ask Ralph, July/August 2015, Page 13) by turning to the subject of end-use market drivers. The one key driver toward more white-surfaced printing substrates is the growth of big box stores, which may have now stagnated with the changing buying habits of millennials. These retailers have accounted for more than 60 percent of consumer purchasing, and they use graphics to sell the products. The package must act as the sales agent. This is especially true for consumer goods that are imported. Box shape is also becoming critical to the purchasing decision. Additional market drivers are: • Self-service stores • New product introductions • Customer expectations for more colors and a “wow” factor • Small flute applications • Enhancements from white top grades • Improvements to the other components of the flexographic printing process • Significant improvements to digital printer speeds While e-commerce is a significant growth industry, it is has not been a user of white graphic grades. Current End-Use Markets The graphic markets are not unlike the market segments that are delineated in the FBA’s Annual Report. By far the largest market is agricultural, where the corrugated packaging is headed into the wholesale and retail trade. Uncoated free sheet is a large white box user. Take a walk
through Office Depot, Staples, or Office Max. Displays and POP use large amounts of white grades, usually at the higher end. The microflute market could consume as much as 500,000 TPY of white grades, some of which come from the fine paper and folding carton industries. Corrugators and Laminators While corrugators are getting wider at 110 inches and above, so are the containerboard rolls that are supplied to those plants. While it is not likely that the need for wider white rolls will develop overnight, the pressure will be on those mills that do not trim these sizes well to sell more into the secondary market. There are no imminent indicators from the end-user markets that would call for larger graphic boxes. New corrugators have been designed to run lighter-weight, lower-caliper, and denser grades using less heat and starch. Companies with this technology will have a cost advantage over others who have not embraced this hardware and process software for graphic board production. Warp and washboarding may be issues of the past with the newest equipment and process controls available for corrugators. This includes infrared (IR) detection devices, new automated starch kitchens, rewet showers—which we have had on paper machines for decades— delamination detection, and glue-gap monitoring in addition to all the ones that have been available for some time. The growth of inline laminators and production on these machines has been exponential. Accurate Box has tripled its business in the last 10 years. MicroChoice
has added another laminator, and the startup of Packrite and the doubling of its footprint have been unprecedented. These specialty combiners are capable of converting 20# and lighter substrates. Preprint Market Recently there has been a reduction in the number of flexo preprint presses, usually older ones. In their best period they consumed more than 250,000 tons per year of white grades. Typical end-use markets include beverage—which reached 35 percent of the total output—food, hardware, sporting goods, computers, appliances, toys, and automotive aftermarket. In Europe, the pre-printers have learned how to run a half-roll economically because of reduced setup times and more consistent substrates. We have gotten there also in the States, and the demand for the high-end white tops and coated whites will increase. We have reduced turnaround times from six weeks to four to the same week. The average substance for preprint is 38# and has been for some time. Geographic locations of the facilities are concentrated in six regions: the Pacific Northwest, Texas/Louisiana/Arkansas, Georgia/Florida, Ohio/Indiana, the MidAtlantic, and Ontario, Canada. Ralph Young is the principal of Alternative Paper Solutions and AICC’s technical adviser. Contact Ralph directly at any time about any technical issues that impact our industry at askralph@aiccbox.org.
BOXSCORE www.aiccbox.org
11
The Hidden Factory
AN INSIDE LOOK AT DIGITAL PRINTING BY LES PICKERING
W
ith this issue’s focus on digital printing, I thought I would share several observations made during my experience with the process. The first thing that hits you is the odor. It is not harmful or concerning, just different. For some customers, this can be off-putting. Just have a conversation with them to get ahead of the topic. Almost all packaging processes give off an odor—digital printing just gives off a different one. The next noticeable thing is how young everyone is in the digital department. With this comes no hierarchy—no “who has worked the longest” or path of progression that other processes have. All that noise in the channel is removed, and it’s refreshing. This new generation of team members requires different elements of work compared to the majority of your other team members.
12
BOXSCORE September/October 2015
Cross-functional training is welcomed, openness to change of work procedures is easier, and they are just a lot more flexible when it comes to getting the job done. These team members bring lots of ideas to improve their process, so you had better be equipped to handle that in order to keep them stimulated. It took me a while to realize that the digital printer is not a printer in the traditional sense, but a large-format output device. The operator makes almost no changes: The file is queued up and accessed, the sheet is fed, and then the file is processed for the number of copies required. No plus/minus 10 percent, just the number needed. With digital printing, the image is on the sheet as it approaches the cutting process. Many of the existing cutting processes in plants are a little abrasive in
regard to the sheet treatment. For example, if the cutting machine is running but the feeder is switched off due to a delay, the mechanicals of the feeder continue to reciprocate under the sheet. This reciprocation of the feeder mechanism against the sheet can cause abrasions on the surface of the digitally printed image. It’s not as though the digital printing is delicate—it’s the existing mechanical mechanisms that are abrasive. What is needed here is servo indexing of the feeder mechanism only when it’s required. When the feed is switched off, the mechanicals will stop under the sheet, removing the abrasion to the printed image. An explosion of retrofits for cutting machines will occur, or new machinery will be purchased for this reason alone. Artwork can be done in digital that flexo cannot do. The advantage of this is
ONE OF THE TOP TEN REASONS TO JOIN AICC
EDUCATION
9. GET THE EDUCATION YOU NEED WHERE AND WHEN YOU NEED IT: PACKAGING UNIVERSITY, SEMINARS & INDUSTRY MEETINGS AICC represents a majority of the independent corrugated and paperboard packaging manufacturers and their suppliers. A good employee and a good company are always learning. With AICC, you can find all of the educational opportunities you need to stay on top of the latest industry innovations and best practices.
5. ING ORK
10.
GROWTH
t with NETW onnec rs to
1.
STRENGTHter
You build a bet box, we’ll help 4. r you build a bette COMM UNICATIO company. Be part of a cultu N that allows you tore ask questions an d share ideas.
3.
DEVELOPMENT Learn how to inspire and motivate the next generation of leaders.
Define your goals and we’ll help you get there.
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Gain the practical know-how to grow and prosper.
KNOWLEDGE Stay competitive with industry information and benchmarking surveys.
RSHIP PARTNtuEre rs and Manufac haring suppliers s and information e. knowledg
8
LEADE . RSHIP Join a
C Group EO Advisory to your op maximize excelle erational nc profitab e and ility.
To learn more about AICC or getting the most out of your membership, visit AICCbox.org or contact Virginia Humphrey, Director of Membership at vhumphrey@AICCbox.org or call 703.836.2422.
113 S. West Street • P.O. Box 25798 • Alexandria, VA 22313 • Phone +1.703.836.2422 • www.aiccbox.org
The Hidden Factory “The packaging manufacturer has the opportunity to sell a sophisticated printing solution that serves better than any other current solution for high-quality, on-demand, cost-effective packaging.”
that if you are the primary digital printer in your area, it will be hard to move that work without art modification. The packaging manufacturer has the opportunity to sell a sophisticated printing solution that serves better than any other current solution for high-quality, on-demand, cost-effective packaging. Consideration should also be given to your supplier of corrugated sheets. Traditionally the printed sheet is face down, resulting in the sheets needing to be turned, as most digital printing is done face up. Inquire of your sheet provider whether it’s possible to run the printed sheet face up. Some modern driven belt single facers can run the printed surface on the top of the web, eliminating the need to turn the sheet. Another perk is no printing plate costs. Not having to cost or amortize five, six,
seven, or more sets of printing plates means a tremendous amount of money that can go into the box. This helps simplify the process and gives the client longer on the project because you have removed the lead time for print plates. It really is a revolution in printing within the packaging world. Now we can truly “see what we protect and protect what we sell.” Les Pickering is co-founder of Quadrant 5 Consulting, based in San Francisco. Les can be reached at 415-988-0000 or leslie.pickering@ quadrant5.com. Follow him and Quadrant 5 on Twitter @Q5cLP.
© 2015 Valco Cincinnati, Inc. All Rights Reserved
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Selling Today
UTILIZING APPOINTMENT SETTERS FOR LEAD GENERATION BY KIM BROWN
I
n the past few years an increasing number of companies in the B2B market are utilizing appointment setters for lead generation. Although the packaging industry was not quick to adopt this method, this trend is now gaining momentum as a result of many companies facing stalled business growth. If you are exploring this direction for your sales team, here are a few areas to consider before moving forward. In-House or Third Party? Appointment setters are responsible for identifying, and to some extent qualifying, new sales opportunities. Historically, the packaging industry has held its outside salespeople responsible for lead generation. Although this might still be the best scenario for your operation, exploration into alternatives can be beneficial. If strong closing salespeople are busy locating prospects, they are losing valuable time generating revenue. Based on this and the strengths of the individuals, some companies have split the roles of their existing team into appointment setters and outside sales. Others have chosen to either hire new members to perform this function or outsource to one of many companies providing such services. To determine the best fit and desired results, you’ll need to first define the following areas: • Know the Numbers. Begin by detailing the mathematical results of your current sales team to understand the conversion percentages and acquisition costs of a new customer. In a very simplified definition, the Cost of Customer Acquisition (CAC) can be achieved by dividing the total cost incurred by the
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BOXSCORE September/October 2015
total number of new customers within a specified time period. If this metric is not currently being monitored, you’ll need to determine the level of detail you wish to capture in these associated costs. Some examples to consider: sales rep compensation and benefits, entertainment, ramp-up support, design lab costs (table time, material), additional time requirements of customer service personnel, tooling transfer, etc. The cost of customer acquisition number alone can be misleading. For accuracy, these figures must be viewed alongside their lifetime value. It is important to understand the cost impact of securing and transitioning a new customer, but without also considering the longer-term number and impact of losing them within a few short months, you risk a false measurement, and your true costs will be skewed. In essence, are you making more money from a customer than you spent to get a customer? A thorough understanding of these numbers is necessary to analyze the ramp-up and ROI of appointment-setting options. • Define the Expectations. The objectives and expectations need to be clearly defined. Based on the cost analysis, what are the results you seek? This, along with clearly defined stages of a sales process, are critical in determining success rate and areas for improvement. This is true whether you utilize an outside appointment-setting firm or your own team. How how will they initiate contact? How clear is their message and why should a prospect choose you over your competition? How will this be communicated? What tools,
email templates, and scripts are available? How often will they make contact? At what stage will they cross an opportunity off the list to work others? What metrics will be tracked and how? Who will monitor these results and make adjustments accordingly? Many companies report tremendous success with the appointment-setter model. Prior to determining that this method will cure what ails, you must diagnose where the breakdown in results is actually occurring. Rather than a very broad perspective of simply tracking cold calls and conversion rates, break the entire sales process down into stages, and track effectiveness at each stage. Are you struggling to find prospects that are a good fit with your organization? Or in generating interest from the buyer and securing the appointment? In stalled sales cycles? In quoting too early before the opportunity has adequately developed? Or perhaps the biggest financial opportunity lies in reducing the churn of existing customers. These answers will help determine where your team is strong and uncover focus areas to improve percentages and economics. Before moving forward with the appointment- setting model, make sure you’re asking the right questions. Work with your team to determine the priority areas that will have the biggest impact to top line growth—and to bottom line results. Kim Brown is the founder of Corrugated Strategies. She may be reached at 317-506-4465 or kbrown@ corrugatedstrategies.com.
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MILLENNIALS AND MANUFACTURING: CREATING AN ATTRACTION BY DEAN MITCHELL
I
n my most recent columns we discussed the need for successful companies to have a workforce skilled in 21st-century technology and the fact that competing in a global economy requires evaluation of our organization, workforce, and processes, respectively. Now I would like to focus on changing company culture to attract a workforce with those necessary skill sets. Here are some ideas to attract millennials to the box business. Develop an Internship Program: An internship program for college or high school students exposes them to the creative and challenging world in a box plant. They will have an opportunity to look at what goes on inside a manufacturing facility. Be a Mentor: Pair a millennial with an experienced employee. There is a lot they can learn from each other, and this kind of interaction is important to this generation. Both the mentors and management should provide a creative environment to take advantage of this generation’s technological and innovative skills. Nurture Creativity: Millennials like to approach problems creatively. Give them that freedom, and avoid “do it my way” and “we have always done it that way” directives. They need to be continually challenged to believe that what they do has both meaning and purpose. Create a Team Environment: This generation values peer relationships as a means of learning and changing. They want to work with people they genuinely like and enjoy being with—both at work and outside of it. Cultivate Work Culture: Millennials value an organizational structure that
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BOXSCORE September/October 2015
promotes collaboration, not hierarchy. They want honesty and transparency, not politics or corporate nonsense. Millennials aren’t all about the money, as they value liking the job and being challenged over pay. Millennials require immediate attention and feedback. This generation is attracted to innovative technology. Doesn’t this sound like a perfect match for an industry in the process of rapid technological change? Throw in Some Perks: What are some of the perks our industry needs to consider in order to compete for this generation? 1. Flexible Schedules. Work hours are fluid to millennials. They work when there is work to be done, and that can be at 9 a.m. or midnight. Give them the autonomy to get the work done on their terms. Your workers and bottom line will thank you for it. 2. Continued Education. Provide ongoing job training and reimbursement for courses at colleges and technical schools. 3. Stress Reduction. Consider offering some free snacks, on-site massage chairs, or a game room. A relaxed employee is a productive employee. 4. Company Activities. Plan biking, hiking, or skiing trips, movie days, summer picnics, holiday parties, health fairs, and quarterly off-site group gatherings. I have an industry veteran friend whom I respect and who, after reading this article, commented, “I think it will take a lot to get some of our older owners and managers to make those kinds of changes. I can just hear some of them when they read about some of the perks. They will say perks cost money they don’t have with
existing margins. However, in order to afford the new technology and continue to share in new and expanding markets, the cost-price relationship will have to take into account not only the cost of capital, but also the cost of personnel. In the end, the dinosaurs of our industry will be relegated to low margins; anybody can complain about their competitors who don’t allow them to make a decent profit. In the meantime, the industry innovators will see the writing on the wall and will adapt, change, grow, and prosper in the new world of 21st-century packaging.” Your challenge is to hire, train, and provide the necessary tools and creative environment to be a world-class corrugated manufacturer. The world of manufacturing is changing, requiring our industry and your company to embrace a new workplace culture, new methods, new tools, new concepts, and a new generation of workers. We need to find ways to attract millennials to the world of corrugated manufacturing. Author’s note: I would like to dedicate this article to the young executives I know personally who are leading the way to creating a new corrugated industry culture: Sam Abbott, David DeLine, Greg Hall, Greg Tucker, and Mark Williams. I am sure there are others whom I have not had the pleasure to meet. Good luck! Dean Mitchell is the president of The Mitchell Group. If you have a question or comments about doing business on a global scale, email Dean at tde55@aol.com.
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Leadership
WHAT EVERY MAINTENANCE PROFESSIONAL SHOULD KNOW BY SCOTT ELLIS, ED.D.
I
write this article as I return from the inaugural AICC Machine Maintenance Forum in Chicago. Along with the other 50-plus participants, I will return to a pile of work and risk losing the clear message of the forum in the chaos of daily challenges. To combat that loss, let’s review the themes, the learning opportunities, and the resources that were introduced. Knowing that each of us will face the tyranny of the urgent upon return, we concluded the meeting with the prioritization of the best practices learned and observed to propose an individual action plan. I say propose because each participant also determined to quickly meet with a decision-maker in their home plant to share the best practices and work in concert on thoughtful implementation. Some of the most informative and encouraging time spent at this forum was on the bus, and at meals and receptions. Most maintenance personnel do not
“A recurrent theme that was heard again at this forum was the difficulty of finding, retaining, and keeping pace with the continuing education needs of maintenance personnel.” 20
BOXSCORE September/October 2015
network, so this was a rare exposure to others with like machines, challenges, and company cultures. It was great to see suppliers, seasoned maintenance pros, production managers, and company owners share their perspectives and resources. Many of the maintenance managers in attendance had no formal management training and were promoted solely based on their technical abilities. For these especially, it was a landmark experience. The education experience can be described in two distinct categories: classroom time spent hearing about best practices and plant visits where we experienced best practices. On two consecutive days we spent the morning in general sessions focused on the business of maintenance. John Kravontka of Fuss & O’Neill Manufacturing Solutions started with the basics of maintenance from reactive to preventative to predictive. With each he showed the connection between preventative maintenance and profits. This session was dovetailed by WestRock’s Nezam Hussein with a presentation on machine reliability that provided multiple takeaways in the form of examples and methods for building a professional business unit in the maintenance department. The second classroom experience of each morning was the breakout session. In these smaller meetings, Les Pickering of Quadrant 5 Consulting introduced us to practical methods of organizing the department and improving response time to machines. Craig Gast of WestRock walked us through the process of building a budget to fit the company’s maintenance philosophy. Finally, I led a discussion on
how to develop the maintenance team, and how to measure and report performance to its customer in production. We experienced best practices and the curveballs of everyday manufacturing on both afternoons as we traveled to three production facilities. In each we were graciously hosted on a tour of the facility, followed by a two-hour intensive machineside session guided by experts in the particular machines. Each of these AICC member companies contributed in large part to the success of this pragmatic forum, so I will take a moment to recognize them here. The three companies that opened their doors and provided safe access to their machines were Scott Larsen and his team at Akers Packaging, Ron Lemar and his team at Rex Carton, and Brian Eggleston and his team at WestRock–New Lenox. The machineside sessions focused on best practices for care of and prevention on equipment common to the industry. We chose both equipment that was new and involved emerging technology, and well-maintained productive equipment that is older than its operators. This reflects the real-world experience of the participants. These machineside sessions were masterfully led by: • Steve Nerney, Steve Daniel, Brett Bergstrom, and Ed Nemeth of MarquipWardUnited • Thibaut Lambert of Bobst • Tom Allen of Fosber • Craig Gast of WestRock • Les Pickering of Q5 A recurrent theme that was heard again at this forum was the difficulty of finding,
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Leadership
retaining, and keeping pace with the continuing education needs of maintenance personnel. Even when the resources are available, it is difficult to send these essential personnel away from the plant for any length of time. Consequently, those companies that invested the time and resources to allow these men and women to attend the forum will see a healthy return on their investment. Whether they apply the up-close specifics of machine health learned machineside, or the algorithms for preventive maintenance and budgeting, or even the simple wisdom that was shared, then the bar of performance expectation was raised.
Nezam Hussein shared one bit of practical wisdom that rang true with me: “As a professional maintenance person, I should have a two-week backlog of projects. If I am leaving the plant today without a plan for what I will be working on tomorrow, then we are doing something wrong.” It was gratifying to participate in and witness this important gathering focused on serving people who are key to manufacturers’ capability to keep promises to their customers. Every manufacturer has someone on point to ensure machine capability, and the range of skills and professionalism varies
widely. It is crucial that every community have a physician—be it a medicine man, a county doctor, or a triage center. For machine health, the maintenance professional is equally important. From my discussions with the participants, it is clear that the attendees have gained skills, insights, and resources to improve performance in our “first responders.” Scott Ellis, Ed.D., is a partner in P-Squared (P2). He can be reached at 425-985-8508 or scottellis@ psquaredusa.com.
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Sustainability
75TH-ANNIVERSARY EDITION OF THE FIBRE BOX HANDBOOK FEATURES TONS OF UPDATES BY DENNIS COLLEY
F
ibre Box Association (FBA) is proud to announce the 75th-anniversary edition of the Fibre Box Handbook. The corrugated industry’s go-to reference standard has been completely redesigned with extended materials and updated content. The Handbook was last published in 2005. The Fibre Box Handbook was first published in 1919 as a handy reference to the railroads’ new requirements for corrugated boxes. Over the next 70
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years, 18 more editions of the Handbook were published. During these years, the contents of the Handbook were gradually expanded, but the core of the book remained unchanged. Changes in industry regulations beginning in the 1970s prompted a redefinition of the Handbook, and the 20th edition included a major redirection—complete revision of existing material and expansion of the contents. A subcommittee of the FBA Technical Committee has once again updated the entire book to produce the new 75thanniversary (23rd) edition of the Fibre Box Handbook—a full resource for those who use corrugated or work in the corrugated industry. The new edition is more extensive—30 percent more content—and has more detailed statistics, new and updated images throughout, and updated tables. Inside you’ll find a wealth of information about corrugated’s history, its diverse applications, a range of common box styles, rules and regulations governing its effective use, testing procedures ensuring optimal performance, and even corrugated’s stellar role in the environment. Specific examples of changes in the 75th-anniversary edition include: • Extended historical timeline. • Completely rewritten and expanded section on corrugated sustainability. • Additional box styles. • Additional tables, including a flute profile table and test methods matrix
showing comparable test methods among different internationally recognized test development organizations. • Complete 2015 edition of Item 222, and two additional Items, 220 and 299, as published by the National Motor Freight Transportation Association (NMFTA). • Additional content on producing individual boxes on demand, direct printing, new Limited Quantity label information for hazmat packaging, NMFTA package certificate changes, Global Food Safety Initiative (GFSI), and more. The 75th-anniversary edition was published in May in conjunction with FBA’s 75th-anniversary Annual Meeting. It’s the association’s hope that the Handbook will continue to provide designers, engineers, buyers, sales personnel, students, and all corrugated packaging employees with the knowledge necessary to succeed in the corrugated industry for at least another 75 years. The new edition is available in print, digital, and bundled (both print and digital) formats. It can be purchased now on the FBA website at www.fibrebox.org. Dennis Colley is the executive director of the Corrugated Packaging Alliance and president of the Fibre Box Association. He can be reached at 847-364-9600 or dcolley@fibrebox.org.
What does the country’s largest sheet feeder use to keep its customers happy ? THE SCHWARZ GROUP’S PRiORiTy iS CONTiNUAl iMPROVEMENT TO MEET ANd ExCEEd THE NEEdS OF iTS HUNdREdS OF CUSTOMERS. THE
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YOUR ASSOCIATION AT WORK
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RESOURCES
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HUMAN RESOURCES
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BOXSCORE TIPS, TRICKS, AND SOLUTIONS TO BETTER BUSINESS
YOUR ASSOCIATION AT WORK AICC Members Connect in New Ways BY VIRGINIA HUMPHREY Many of the best ideas for AICC come from members. Recently, James Proefrock, database administrator at Niagara Sheets, asked for an IT discussion group on LinkedIn. He said, “This group will benefit professionals who support IT within AICC member companies. We all share common ideas that would be specific to the corrugated and paperboard industries, and I believe the AICC group would be an excellent place to collaborate.” How could we say no to that? The group is available to AICC members only, so you are in a safe place to ask questions and find the answers you need. To access this group, visit www. linkedin.com, and type “AICC Member: IT Professionals” into the search field. To request membership, click “Join,” and your request will be reviewed by the group manager.
Additionally, AICC has groups for sales, production, suppliers, designers, independent boxmakers, emerging leaders, marketing, and finance on LinkedIn. There are many opportunities to connect with fellow members in your area of expertise to help you and your company troubleshoot issues and learn from one another. My rule of thumb is, if it takes me longer than 10 minutes to figure out how to do something, I need to ask someone for help. Now, we all have a new place to go to ask for it. Do you have an idea for a group on LinkedIn? Contact me at vhumphrey@ aiccbox.org, and let us know how we can best help you connect. Virginia Humphrey is AICC director of membership. Should you have any questions about making the most of your membership, contact her at 703-535-1383 or vhumphrey@aiccbox.org.
BOXSCORE www.aiccbox.org
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Good for Business
RESOURCES NOTE per client, the art on this piece will need to be replaced. I have an email out to the contact. Stay tuned.
The Paper & Packaging Board – How Life Unfolds™ Campaign The Paper & Packaging – How Life Unfolds™ campaign from the manufacturers and importers of paper and paper-based packaging highlights the important role paper and packaging play in our lives, helping us accomplish our goals at home, at school, and in the workplace. • The Paper & Packaging – How Life Unfolds™ initiative represents a unified effort by the paper and packaging industry to help stem the decline in paper usage and increase demand for packaging. • The consumer-focused Paper & Packaging – How Life Unfolds™ campaign reminds people of paper and packaging’s continued relevance in their lives. The marketing initiative uses a storytelling approach to remind consumers of the creativity and warmth of a life with paper products, highlighting the products’ functional and emotional role in our lives. The campaign generates appreciation for paper and packaging’s ability to make our daily routines both possible and meaningful.
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BOXSCORE September/October 2015
• The campaign offers consumer-friendly information regarding recycling and re-use practices, and shares the industry’s sustainability story. • The campaign will spend $20 million in paid and earned media from July through December, collected from manufacturers and importers from four industry sectors: printing and writing, Kraft packaging paper, containerboard, and paperboard. • TV ads, print ads, digital ads, and engagement on Facebook, Twitter, LinkedIn, YouTube, and other social media will follow the campaign’s July 8 launch. Cramer-Krasselt in Milwaukee serves as the campaign’s first advertising and public relations agency. • Positive results from this unified initiative will help bolster sector-specific programs and messages. An econometric model and an attitude and usage study will measure the impact of the campaign on the industry. • Paper and packaging is a $132 billion industry in the U.S.,1 offering more than 375,000 jobs2 and creating more than 5,000 products from paper and papermaking byproducts.3 The industry
accounts for 2.6 percent of the U.S. manufacturing gross domestic product.4 • Since 2000, the U.S. has seen a 56-pounds-per-person decrease in annual consumption of packaging paper and paperboard. In the same time period, annual per capita consumption of printing and writing papers has decreased by 108 pounds.5 • Global paper and paperboard consumption is projected to increase by 10.8 percent by 2021.6 • The Paper and Packaging Board oversees the program. The board is composed of a five-person operational staff and is governed by a board of directors composed of 12 industry representatives from each of four industry sectors, as well as four regions of the country. The board includes an importer and a small company manufacturing between 100,000 and 250,000 short tons of paper annually. • The board was established by the U.S. Department of Agriculture (USDA) Paper and Paper-Based Packaging Promotion, Research, and Information Order. The Paper and Packaging Board establishes and guides promotions designed to expand demand for paper and paper-based products. Manufacturers and importers of these products participate in the Paper Checkoff, an industry-funded promotion program established by the USDA in 2014. For additional information, visit www. howlifeunfolds.com.
1. U.S. Census Bureau, Quarterly Financial Report (QFR): Manufacturing, Mining Trade, & Selected Service Industries 2. Bureau of Labor Statistics 3. www.epa.gov 4. U.S. Bureau of Economic Analysis 5. AF&PA and U.S. Census Bureau 6. RISI World Pulp & Paper Forecast, Oct. 2014
Good for Business
HUMAN RESOURCES How to Bring Your Business Back to Its Core BY DAVID HASSELL The term “human resources” is paradoxical at best. Humans are living beings of the highest order. They have complex emotional, physical, and mental systems that must be understood and nurtured in order to facilitate their self-actualization. Resources, on the other hand, are valuable company assets that must be maintained, catalogued, and put to use in a way that proves their worth, or they are quickly replaced. According to Gallup’s latest national employee engagement report, only 31.5
percent of U.S. employees are engaged and thriving. The other 68.5 percent aren’t lazy. Their disconnectedness stems from feeling unsupported and disempowered at work. They don’t feel valued; they have no clear direction and purpose; their accomplishments are unrecognized; and they are often blamed for things beyond their control. The 31.5 percent who are engaged are those who actively care about the health and success of the company—even during difficult times. These are the people whom managers want to hire. But those employees know their value and won’t be treated like cogs in a machine. Cogs show
up and do the work, but they don’t propel companies forward, offer extra support to management, or innovate the next multibillion-dollar idea. To capitalize on human potential, businesses must treat people as if they matter. ‘Thank You, Salad Bowls’ Treating employees as assets instead of people dehumanizes them and strips them of any motivation to contribute their unique strengths to the company. One of my valued employees shared one of the most influential experiences from his days working for a restaurant. The franchise’s incredible success was
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HUMAN RESOURCES based partially on its ability to develop a teamwork system in which everyone contributed equally. When an employee replenished items to the service line, the manager would say, “Thank you, salad bowls” or “Thank you, forks” instead of acknowledging the performer by name. The manager was trying to equalize employees so that they operated as a group of homogeneous machines rather than unique individuals. In the process, he made employees feel devalued and unfulfilled. True fulfillment in the workplace starts by engaging with team members, valuing their opinions, and supporting their efforts so they will feel engaged with their work.
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Rehumanizing Business Setting goals toward profitable outcomes is a necessary part of any business strategy, but the focus should be primarily on supporting employees. When people feel that their efforts are cantilevered by management’s desire to see them succeed, they will be naturally aligned with achieving that success. Here are five simple ways to demonstrate deep commitment to employee success: 1. Ask questions. What are your triumphs? Where are you stuck? Do you feel recognized and valued? How is your energy? These questions make people feel more human and nurture an organic desire to contribute.
HUMAN RESOURCES 2. Give feedback. Recognizing triumphs and guiding growth must be hallmarks of every organization. Employee appreciation boosts morale, and mentorship allows people to develop skills that increase their effectiveness and ability to achieve goals. 3. Create space and grant trust. Provide people with opportunities to problem-solve on their own. Giving employees autonomy demonstrates trust and helps them feel fulfilled. When employees know that a leader has their back, they show up in amazing ways. 4. Invest in personal goals. Leaders worry that outside projects draw focus away from work, but in reality, they make people feel motivated and fulfilled. 5. Change the language. It’s possible that the historical paradigm of “human
resources” has exceeded its useful life. Using new language lets us create a new paradigm. Consider renaming your Human Resources Department “People & Culture” instead, and relate to your employees as whole human beings rather than simply tools or resources. Unlike resources that have static predictable and fixed properties, human beings increase in value through support and recognition. When people are treated as assets, they will be unable to access their highest levels of performance and will be unwilling to contribute in a way that leads to growth and success. When people feel valued as people—instead of cogs—there is no limit to what they can accomplish.
David Hassell is the founder and CEO of 15Five, Web-based communication software that elevates the performance of managers, employees and entire organizations by initiating weekly conversations that quickly uncover achievements, challenges, and risks. The Young Entrepreneur Council (YEC) is an invite-only organization comprised of the world’s most promising young entrepreneurs. In partnership with Citi, YEC recently launched BusinessCollective, a free virtual mentorship program that helps millions of entrepreneurs start and grow businesses.
Point of View
Q
What do you see unfolding in the world of digital printing? What changes are on the horizon for the industry? What trends are emerging? How will your company react to it?
In the new world of digital printing for corrugated, design, and engineering, I see higher press speeds of 8,000 per hour and large sheet size footprint. Testing of liner coatings and inks is already underway in Europe. The trend, in my opinion, for digital printing will be slow to the corrugated finishing converting market. Industry machinery retooling costs are a very big concern with the added operational technology expenses and risk. Digital printing technology on a corrugated substrate will eventually be a big, positive game changer. MarquipWardUnited will react accurately and precisely to our industry’s needs. — Bob Henschen, after market sales executive product support manager, MarquipWardUnited
While still in the early stage, digital printing of corrugated packaging is growing rapidly. Some of our traditional suppliers are migrating digital print into future converting equipment, and the pioneers in digital print are adding converting systems and automation in an effort to own the space going forward. Digital web will soon take on preprint, making digital suitable for much longer runs than the current post-print applications. In a few years, digital print will simply be a method within corrugated production rather than something unique. Our company will continue to be differentiated by our ability to sell and deliver on the many advantages of digital. — Richard Brown, president, The BoxMaker
From a sheet plant perspective, it is very interesting to see how digital printing will impact the short-run process. … Ultimately, I think it will settle out as a way to proof the production runs our customers are looking for. I think digital printing will put bigger pressure on the printing plate industry to become more efficient and find ways to reduce costs. Viking Industries will look for partners that employ digital printing to add it to our offerings. We will monitor the results to see if it is trending as more of a use for printing proofs, or if it becomes a need and advantage to employ as a production piece of equipment. — Richard G. Croce, vice president, Viking Industries Inc.
Cost reduction, pH and viscosity control, the quantity [and speed] of changes that you can realize, and the scrap reduction through the process in digital printing are advantages, mostly because you can easily recover the investment made. Once you’ve made the design, you can easily repeat the image, and with good quality; that is also a major advantage when you want to acquire new customers. The most relevant change [to the industry] is that now [companies] must reduce their costs and really make their assets work to be more efficient with their own resources. My company has been acquiring equipment [that allows us to] offer our customers this kind of technology. We have also been analyzing our processes in order to reduce costs. We want to be an integral company capable of offering anything our clients need—as fast and as cheaply as they want us to do it—without affecting the quality of our products. — Hugo Orlando Maldonado Vasquez, corrugated manager, Papel Cartón y Derivados
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The world of packaging as we know it is changing, and it is being driven by brands. Five significant changes are gaining momentum as brands shift strategies by appealing to the individual buyer and crafting particular messages for a demographic vs. one message for all. These changes include: 1. A shift to social media and the use of cellphone messaging as tools to drive buyer behavior. 2. The rise of QR codes and virtual reality to augment messaging and information on products. 3. The use of vibrant graphics on what used to be mundane packaging used for delivery. 4. The requirement by brands to reduce or eliminate inventory. 5. Most importantly, the shift to versioning to target specific markets or demographics. What this means is a shift to shorter runs with vibrant graphics and variable messaging and data to suit the market’s needs. It also means moving your shorter analog runs to digital to improve profitability while making additional room to win more, longer-run analog print for additional revenue. It becomes a balance, and digital becomes a complementary play to analog to boost profits. — Tom Wittenberg, sign and display marketing segment manager, the Americas, Hewlett-Packard
I see an increasing number of print service providers offering digital printing of packaging and displays to brand owners and package designers. This enables new specialized marketing activities and package development workflows, which raises the question: Where does that leave the traditional converter? Digital printing technology has already changed many of the segments that were previously very specialized, such as screen printing, reprographic, large-format photographic, book printing, etc., and if not causing these traditional businesses to close their doors, digital has driven convergence and consolidation. The packaging industry should take note, since change, which is inevitable, can be a blessing or a curse, depending on how they are positioned to offer new digital services and maintain a strong relationship with the brand owners. This can also provide them a competitive edge over more traditional converters. — Randall Paar, manager, marketing–display graphics, Canon
The industry has seen significant changes in the past 20 years as industrial packaging volume has been replaced with retail-led volumes and use of corrugated in Internet sales. Increasing consolidation across the industry has seen volumes become centralized among the main players who, in turn, have equalized in their capability and operations. This has commoditized much of the product range as box plants compete for the same volume, products, and service offerings on the same equipment base. As with any industry, innovation leads to disruption and opportunity—this is what digital represents in corrugated for coming years. The technology, print systems, and workflows now exist in industrial digital equipment. It will be interesting to see how the corrugated industry maneuvers into position to realize this latest wave of opportunity into full production based on single-pass, inkjet systems. — Sean Moloney, global product manager, CorrStream, SUN Automation Group
I am very interested in the advancement of digital printing on corrugated products and how our industry can utilize this as a cost-effective solution for targeted regional display campaigns or primary packaging for customers. As the speed of digital printers and their ability to increase the resolution of the images they are producing increases, I see this becoming a larger part of our product offering to customers, as opposed to litho labels or flexo printing. — David W. Saraney, regional sales manager, Jamestown Container Companies
November/December Point of View: In the coming year, where will you focus your professional development? Please send all responses to boxscore@theYGSgroup.com.
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Member Profile
INDEPENDENT II: BUILDING ON A LEGACY BY TARYN PYLE
COMPANY: Independent II— A Corrugated and Packaging Company RE-ESTABLISHED: 2006 JOINED AICC: 2007 PHONE: 502-315-2525 WEBSITE: www.independent2.com Overview of Independent II’s 240,000-square-foot manufacturing and warehousing facility, located in Louisville, Kentucky; a hub for food and beverage production, e-commerce distribution, and traditional and innovative manufacturing.
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espite a rich legacy to draw from, no one at Independent II is sitting on their laurels. Rather, they’re focused on moving forward and making the next 25 years as productive and rewarding, as two previous generations have been. Finn MacDonald is a third-generation corrugated box man, and he’s now vice president in charge of operations for Independent II, a company founded in 2006 but built on the foundation of two companies before it. Building on a Legacy It was in the early 1960s when Phillip Miller, MacDonald’s grandfather, first moved to Louisville, Kentucky, and took up corrugated box manufacturing. “He came down here and thought it would be a good business environment,” says MacDonald. “For the accounts he was beginning to foster here, he felt he could do the following: provide a dedicated service and get our customers what they needed—not when we want to give it to them—but when they needed it.”
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MacDonald’s father and brothers-in-law were all involved in the business. The family chose to sell Independent Boxmakers to Chesapeake Corp. and his father, Neil MacDonald, became vice president of sales. “He became very strong in sales, and he felt he could take his entrepreneurial spirit and make a go of it on his own as an independent,” says Finn MacDonald. So in 1981, Neil MacDonald founded Independent Container Inc.; a company that would be in business from 1981 to 1995. In 1986 they were recognized as the 14th fastest-growing company on the Forbes 500. “We continued to sell our dedicated service” says Finn MacDonald. “Independent Container defined itself by finding just-intime solutions for customers in the food, furniture, and heavy appliance industries. All those clients had different demands and very, very crazy schedules.” During their 14-year run, the company grew from a single plant location in Louisville to a three-plant operation with facilities in Indiana and northern Kentucky.
LOCATION: Louisville, Kentucky
At this time furniture manufacturing was a vibrant industry, and house furnishings were constructed and shipped from small communities throughout the region. The industry had not yet gone global or become outsourced. A year of great transition for the company was 1995. Neil MacDonald chose to sell the company and he undertook the only endeavor he was not successful in—retirement. Founding Independent II During Neil MacDonald’s retirement years, the phone kept ringing. Past customers wanted him to solve their problems. They asked him where they should go to get what they needed when they needed it. For years, Neil MacDonald tried to help them ... then his entrepreneurial spirit took over. “If you’re an entrepreneur, you eventually say, ‘Don’t call anyone else; let me figure it out.’ That’s really where the vision for the next Independent began,” says Finn MacDonald. “That was avery unique
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Member Profile
Independent II works with customers locally and nationally to design, manufacture, and deliver packaging that “protects and sells.” The company produces a mix of “brown” and “branded” items that are shipped and shopped across the country.
moment where my father was able to put together a team of trusted and capable individuals who he had worked with for 25 years to operate a company along with a customer base that literally was asking for us to start-up by demand.” So Independent II began staffing around the needs of the customers that they started with. It was a recipe for rapid growth, a growth that MacDonald says was far quicker than anyone had anticipated. Sustaining Growth MacDonald says his task now is sustainability—“growing forward the Independent way.” Independent II is building and staffing for the future by stressing the values and successes created by earlier generations. MacDonald has had the challenge of recruiting key salary and hourly members to join a company that remains heavily led by members who have worked together since the 1980s. He’s found success by hiring a mix of emerging
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talent, experienced professionals, and even the next generation of many longtime employees. “During rapid growth, your plan is not always [focused on] the future, it is on the day-to-day, so for me the goal is sustainability—smart growth,” says MacDonald. Great relationships and great people are the key. “When dealing with people—employees and customers alike—we are blessed to have the relationships we have. Everyone has worked hard at building them and Independent has been able grow and attract new customers because we’ve been able to find and retain very unique people dedicated to serving our customers’ needs.” Taryn Pyle is the director of marketing and communications for AICC. She can be reached at 703-535-1391 or tpyle@aicc.org.
Automatän’s AutoFeed Robotic Prefeeder in operation at Independent II
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PRIMED FOR MODERN PRODUCTION Digital printing is headed for the big time, but are box plants ready to commit? BY ROBERT BITTNER
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n 1977, the first prebuilt, fully functional personal computers hit the market: the Tandy TRS-80 Model 1, the Commodore PET, and the Apple II, which were purchased by eager hobbyists but only a few forward-thinking businesses. At that time, most people weren’t interested. Their big question was, “Why in the world would anyone need a computer?” It would take six to eight years before “home computing” began to enter the mainstream. Today, digital printing is on a similar trajectory. While a number of box companies have embraced its potential, many are Photo courtesy of Hewlett-Packard
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“I think there’s a large market out there for digital printing. But you have to figure out who the customers are and how to get to them.”— Brian Suarez, general manager, Inter-Continental Corporation
still wondering, “Why in the world would I need a digital printer? What difference could it make for my business?” Yet for any converter facing shorter runs or increasing requests for faster turnaround and easy, affordable customization, digital printing can make a dramatic difference. WHAT IS DIGITAL PRINTING? Mark Swanzy, chief operating officer of Xanté, a major supplier of leading-edge technology for graphic publishing, explains, “Digital printing for corrugated box companies refers to methods of printing from a digital-based image directly to the corrugated flat sheet, die-cut sheet, or folded and glued RSC (regular slotted case). An image is sent from a computer directly to the printer using digital files. That might
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be a PDF or an image created in graphic software such as [Adobe] Illustrator or InDesign. It eliminates the need for the printing plate used in flexographic printing, saving time and money.” The advantages are many. “Without the need to create a plate, digital printing has brought about fast turnaround times and printing on demand. Shops can affordably add four-color capabilities and print customized, variable material on demand. Box printers can also run customized or rush jobs on digital printers while simultaneously running other existing presses, increasing production capabilities and profits. With digital printers, box printers can accommodate manufacturers’ requests for lower volumes needed for multiple SKUs, meet just-in-time
Are You a Leader? Leaders don’t have a specific title, they have a mindset that sets them apart. The AICC Emerging Leaders Program, developed for those in the industry 35 or under, offers interactive training, peer and industry mentors and a network to help participants grow. Contact Virginia Humphrey, Director of Membership, 703.535.1383 or vhumphrey@aiccbox.org for more information about becoming an Emerging Leader or Industry Mentor.
shipping demands, and have the flexibility to change printed information as needed.” Some industry suppliers have been focusing on digital printing technology for nearly a decade. The segment seems poised for a breakthrough. Yet it has not yet been as widely embraced as some developers had hoped. “Digital printing is an exciting challenge for me,” Swanzy notes, but he is clearly puzzled about why more box plants are not embracing the technology. “We’ve sold quite a few printers to box plants. But many of the plants that like the results of digital printing aren’t investing in digital printing equipment just yet. Most have really focused on upgrading their plants with more traditional types of equipment.” Adding a digital printer is a commitment —in most cases to a specific company responsible for installation, training, maintenance, software and hardware updates/ upgrades, and supplying consumables such as ink, as well as to a specific software/ hardware configuration. The printer may require a dedicated dust-free, climate-controlled room and specialized power lines. And it will almost certainly require a close look at existing and potential capital: While Xanté’s entry-level setup is around $100,000, they also offer options over six figures. Prices for larger and more capable printers, such as Hewlett-Packard’s T400, are higher. For that investment, converters get printers that, among other advantages,
can handle much larger jobs and a wider variety of corrugated. “Buying a digital printer is a big deal for customers,” says Robert Seay, business development director at Hewlett-Packard, whose printers are in the $3–6 million range, depending on options. Because this is such a large investment, “it takes time to go through the thinking process. In fact, many customers go through a three-, six-, nine-month process to understand their true problem and consider the available solutions. All told, [purchasing and implementing a digital printer is] about a two-year cycle. It’ll take a year till a customer says they’re serious about doing this. Then it’s five to six months till we ship their equipment. There’s a month-plus of training, and a ramp-up period as everyone gets up to speed.” For Xanté’s entry-level printer, the process can be much more streamlined. “After we open up the crate, within two hours we’re printing,” says Swanzy. “The printer is so easy to operate, a high-school kid could do it. Plus, it runs on 110 power, so there are no special power requirements.” Given the minimal requirements for an entry-level professional setup, Swanzy is uncertain why there has not been faster buy-in when it comes to digital. “I’m surprised more box plants are not making small capital investments in digital to begin learning about the digital-print
workflow and how it can expand the kinds of services they can offer their customers.” He is convinced, though, that ease of use may be what finally helps digital printing reach its tipping point. “We’ve had two or three box brokers buy our printers because they were tired of being told ‘no’ by the box manufacturers when they wanted some of the benefits of digital. So these were people who had never printed anything before. We were able to help them buy box-design software and train them on how to make and send files and print to the printer. It was fairly simple.” NEW MARKETS Despite some initial ambivalence from box plants themselves, everyone seems to agree that their customers love and want digital options, especially for short runs and individualized packaging. “Customers really embrace it,” says Brian Suarez, general manager at Inter-Continental Corp., a corrugated converter in North Carolina that specializes in short-run jobs. “I think there’s a large market out there for digital printing. But you have to figure out who the customers are and how to get to them.” One market that seems ripe for business is mom-and-pop pizza shops. “They all get generic pizza boxes with a generic drawing on the front,” Suarez points out. “I can go to the local pizza guy and Continued on page 48
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Catching the Wave: Digital Print and Folding Carton needed prototypes and one-offs,” rather than small jobs or limited, customized production runs for folding carton. “Right now, everything we do is offset litho, and the break-even point seems to be somewhere around 2,500–5,000 cartons.” Consequently, they get few requests for smaller runs. When they do, Tucker notes, “we contract it out with a digital company.” They also considered their production space. “Our printer is really pretty robust. It can handle being in the standard pre-press environment, the same place where we have our plate-making and our digital proofers. But it’s a big machine. It requires a lot of square footage.” It also requires a dedicated staff member to oversee the graphic design as well as the outputting. Finally, they looked at their unique corporate culture and how digital printing might best serve it. “American Carton Co. is owned by Harris Packaging, a corrugated-sheet plant,” Tucker points out. “With this device, we can print directly on both paperboard and corrugated and get the most use out of it.” At this point, Tucker is satisfied with prototype-only digital printing, but that may change before too long. “It has been a real advantage for us to be able to produce prototypes in-house rather than go outside for them,” he says. “And customer response has been good. We weren’t sure how busy we’d be with this printer, but it’s very busy.”
Continued from page 44
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Photo courtesy of Xanté
“Applying digital to a folding-carton production environment is the wave of the future,” says Trent Tucker, general manager of American Carton Co. “But trying to figure out when to jump on board is difficult.” American Carton is currently testing the waters with a Fujifilm Acuity LED 1600 digital printer devoted exclusively to prototyping. “We use it for our customers to support their needs for prototype packaging at trade shows, for products they need to display in their booth. That means we are typically producing fewer than 50 cartons.” In addition, prototypes are being printed and used by American Carton’s own sales reps. “We can create a prototype and take it into a cold call to give customers an idea of what we’re capable of doing. It’s a good conversation starter and a good leave-behind.” For any company looking to bring digital printing in-house, it pays to consider customer needs and current market focus. A full-featured production printer capable of producing finished folding cartons may be the best solution for your business. But it is not the only solution. “We did a fair amount of research upfront,” Tucker says. “We even investigated some production machines, but they didn’t seem to make sense for us. We kept hearing that our customers
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Continued from page 44
show him a box with his information and logo printed on it and explain how he’s missing out on advertising himself if he uses the generic.” Because digital is so easily customized, Suarez could print 100 boxes each for, say, 25 locally owned pizza shops in his region—or beyond—and do it as efficiently as one run of 2,500. And if each of those restaurants wanted to sell advertising from other local businesses on their pizza boxes, digital printing would make that easy as well. “Another place where I think there’s a market is your high school booster clubs,” Suarez says. “Most clubs have trays at the concession stands for events. You can tell the booster club to get sponsorships and advertisers who will let them put their logo/information on trays for cups and
food. That way, the club would get that item paid for by them, and I’ll run off 500 or 750 for the season for them. Of course, if you have four different high school booster clubs, that doesn’t mean four different runs. It’s one run, with four sequential changes. I think there’s a market out there for that stuff.” It takes very little to convince customers that digital is the way to go for such jobs. “Prototyping and mockups are so much faster,” notes Xanté’s Swanzy. You can quickly download a potential customer’s logo from the Internet, and “within 10 minutes you could print a box, take a picture with your smartphone, email it, and show them what it’s going to look like.” Even so, is it worth even that little effort for runs of 500–2,500? Maybe that
sounds like the kinds of jobs you would happily refer to someone else, so small they aren’t worth the hassle of running traditionally or the bother of acquiring digital technology. But as Swanzy points out, “Today, a customer may only want 150 or 250. But if you can tell them ‘yes,’
“Without the need to create a plate, digital printing has brought about fast turnaround times and printing on demand.”
COUNTLESS OPPORTUNITIES. ONE SOLUTION. As demonstrated at the previous two AICC Design Océ Arizona® Lab competitions, the Océ Arizona series UV flatbed 400 series printer printers provide packaging and display designers a fantastic advantage in producing high-quality prototypes and short-runs – quickly and cost effectively! The excitement doesn’t end there. The Océ Arizona Series printers are also an excellent solution to create a wide range of other applications. Come see the possibilities and learn how you can set your business apart from the rest at GRAPH EXPO @ booth #1213 CSA.CANON.COM/APPLICATIONS Canon is a registered trademark of Canon Inc. in the United States and elsewhere. “Océ” is a registered trademark of Océ-Technologies B.V. in the United States and elsewhere. Océ Arizona is a registered trademark of Océ Display Graphic Systems, Inc. in the United States and elsewhere. All other referenced product names and marks are trademarks of their respective owners and are hereby acknowledged. The absence of product or service mark names and logos anywhere in the text does not constitute a waiver of any trademark or other intellectual property rights pertaining to that name, mark or logo. © 2015 Canon Solutions America, Inc. All rights reserved.
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“Companies that continue to ignore digital risk giving up the ability to shift with current market demands for specialized and just-in-time printing.”
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then maybe they’ll come back to you when they have a 25,000–50,000 order.” LOOKING AHEAD No one is suggesting yet that digital will ever replace traditional flexographic printing. It typically has a higher cost per piece than more traditional flexographic printing methods. Although it can be perfectly good for corrugated, Seay notes that print quality is not yet good enough to replace all folding-carton printing. For example, according to Suarez, digital cannot yet deliver the variety of options— specialty inks and laminations—that traditional equipment offers and some customers demand. However, companies that continue to ignore digital risk giving up the ability to shift with current market demands for specialized and just-intime printing. Seay also points out that as run lengths continue to drop, more
make-ready is going to be required, which can put a real burden on converters. “Digital will only cause that to accelerate,” he adds, leading to even faster turnaround time, lower order quantity, and a desire for brands to reduce their finished-goods inventory. Swanzy’s experience with box brokers raises another cautionary flag for those who are reluctant to investigate digital. “Digital printing makes it easy enough for customers themselves to do their own printing,” he says. “The longer box plants take to bring this technology in, the more it will force customers to do the printing themselves.” Robert Bittner is a Michigan-based BoxScore columnist and a freelance journalist. He can be reached at rmbittner@ gmail.com.
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AICC ’s
FirstPak Independents Band
Together to Compete Nationally, Globally By Steve Young
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IN
the late 1990s, a unique brand of business-school consultant appeared on the scene to counsel packaging buyers on conquering all the inefficiencies of their purchasing operations. “Single source!” was their battle cry, and thus began the corporate bidding process by which independent converters with one or two local plants were frozen out of contention because they could not serve a large buyer’s needs in all their manufacturing locations. The large integrated companies, with plants all over the place, were seen in this context as the only option for supply chain efficiency. Seeing this, Fred Edelman, then- president of Art Kraft Container Corp. in Tullytown, Pa., and at that time a member of AICC’s board of directors, brought to AICC the idea of forming joint selling groups—groups of independent companies from different markets who could join together to serve large national or regional customers in all their manufacturing locations. “We had to find a way to stay in the game, to be considered as viable suppliers across all market areas,” he said. “When you think of it, there are just as many, if not more, independent company locations as there are integrated, and we have unique advantages in speed of service and selection of raw material suppliers when looking after a customer’s needs.”
The question was, however, how to do it legally and within the context of the antitrust laws of the United States and Canada. Paul Vishny, AICC’s general counsel at the time, came up with the plan: Petition the U.S. Department of Justice and the Canadian Competition Bureau to issue what’s called a “business review letter”—a document that, according to Vishny, says the proposed business arrangement, if followed according to the letter’s guidelines, would not run afoul of the antitrust laws. “At the time, we realized that we had to go to the government and get a clearance,” Vishny says. “I went to the Department of Justice and met with them to be sure it would not raise any issues with them.”
Fred Edelman, at podium, then-chairman of AICC’s marketing committee, announces the establishment of AICC’s FirstPak program at the 1999 Spring Meeting in Boca Raton, Fla. AICC’s then-Executive Vice President Steve Young unveils the logo.
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AICC’s FirstPak brochure was sent to all members to explain the program and how members can use it to their advantage.
He went on to say that to minimize any potential conflict with antitrust laws, members’ groups were made up of “people from different parts of the country so that it would not result in close competitors going after customers.” AICC’s petition to these government bodies, therefore, was drawn up to include several operational tenets, including: 1. AICC members may cooperate to serve a single customer with multiple locations. 2. Information about price, terms, and delivery will be controlled by a single member company, the so-called “lead member” of the group. 3. Members of the group are understood to be noncompeting, meaning they are not located in the same market area. 4. The lead member may share pricing information to the extent that the lead member assembles the bid information for presentation to the customer at its central purchasing location. 5. Specifications, design, tooling, manufacture, fulfillment, and delivery are all set and negotiated by the lead member and communicated to the participating members of the group.
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Once the business review letter was received, AICC was faced with a communication challenge: How would the Association refer to this program when communicating with its members and with the box-using community? “‘Department of Justice Business Review Letter’ did not exactly go tripping off the tongue,” says Nick Griffin, president of Griffin Communications and a member of AICC’s Marketing Committee. “Plus,” he adds, “referring to the Department of Justice would have chased people away!” So the name “FirstPak” was coined and trademarked, derived from the AICC Marketing Committee’s desire for end users to think of independents first for all their packaging needs in all their locations. And it was this last point—location—that made the FirstPak appear so compelling and that formed the main marketing message of the FirstPak campaign to AICC members and packaging buyers. Griffin explains that AICC’s Marketing Committee looked for “multiple ways” to promote this new member benefit. “First, we developed a map of all AICC member locations in the United States and Canada— later expanded to include Mexico,” he says. “The map was the primary feature of the communications piece, which said, ‘There are three factors to consider when selecting the best corrugated supplier for your needs: Location. Location. Location.’” The “location” message resonated with AICC members as well as with corrugated users. Members received a visual reminder of the expansive North American network of more than 600 independent converting locations that could provide a “one-stop shop” for packaging buyers. The location map and message theme was carried to industry shows such as SuperCorrExpo and, at that time, the Corrugated Show in Paris. In addition, it was also presented to customer venues such as PackExpo and other packaging-related trade shows.
Members Respond: Forming Their Own Groups Many members initially thought FirstPak meant that business would simply fall out of the sky with little effort on their part. That was not the case. In contrast, several of the member companies banded together and aggressively—and successfully—pursued multilocation customers. One group in particular reported a collective increase of business in the seven-figure range. “We were a founding member of the Packaging Alliance Network (PAN), a FirstPak group founded in 1999,” says Larry “LJ” Hudson, vice president of sales and marketing for Jamestown Container Cos. According to Hudson, there are currently 11 members of the PAN group in the United States and Canada. The value of the group, he says, is that it has enabled independents to compete on a national scale. “Jamestown Container was at risk of losing customers due to the transfer of business from the local economy to areas outside of our geographic reach,” he explains. “We could not participate in a local customer’s growth if it included locations or markets outside of our service area.” In response to our questions, Hudson writes that the logistics and working arrangements are dictated by the customer’s requirements. “Most often, there is a ‘lead’ member who interfaces with the customer during our pursuit of the business and coordinates all of the activities for the other participating group members,” he says, adding that companies that join the group are carefully vetted to ensure quality standards that customers have come to expect. In the early years, he writes, the FirstPak/PAN group was primarily a “defensive” organization, and it served that purpose well. In the last few years, however, Hudson said the group has also “pursued select, complex opportunities”
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where the FirstPak approach offers the best service model for the end user. He sums up the value of the FirstPak model, saying, “while Jamestown Container’s primary focus remains regional, we are no longer limited by the logistics required to properly and profitably service multilocation packaging customers.” FirstPak 2015: How Is It Going? Consolidation in the industry has sewn doubts in customers’ minds about the viability of their suppliers and thus has given independents an opportunity. The typical market areas have changed, and it’s not uncommon for members to be shipping across the country to customer
locations elsewhere. Here is where many members believe the FirstPak program has gained new relevance and gives them a unique opportunity to transform their businesses. What’s more, the diversification of the membership base with folding carton and rigid box members gives converters even more latitude in meeting customers’ needs in multiple packaging media and substrates. Given these marketplace changes, are AICC members utilizing the FirstPak model? Nick Griffin weighs in, saying, “Information is difficult to gather because, while participants promote the FirstPak advantages to customers, most do not wish to openly discuss their customer arrangements.” Thus, AICC has no formal way of accurately assessing the number of its members who currently
participate in business relationships based on FirstPak. However, AICC believes that today, 16 years after its introduction, the FirstPak legal structure is utilized by multiple AICC members, whether as informal “farm out” arrangements or in partnerships as sophisticated as the PAN group cited earlier. As a result, AICC’s FirstPak remains a vital business tool, able to benefit two or more members wanting to jointly pursue and serve customers with multiple needs in multiple locations. Steve Young is president of AICC, based in Alexandria, Virginia. He can be reached at 703-535-1381 or at syoung@aiccbox.org.
Know-how makes your business, our business. Providing equipment financing to the corrugated industry for over 15 years. At People’s Capital and Leasing Corp., we offer: • Capital access for new/used equipment • Corrugated industry expertise • Comprehensive financial resources Our industry knowledge and understanding of your business can give you an edge in the marketplace.
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BOXSCORE September/October 2015
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P O ES KE!
LET THEM
A C E K T A C A E YOUR
? O O T , T I T A E ND
E V A H OR,
A
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BOXSCORE September/October 2015
R
BY CH
ER
. KRAM
ER A ISTOPH
L
et’s face it, you’ve been running the company a long time. Maybe you started or bought into it, or were lucky enough to inherit it. Maybe you’ve been the person most responsible for its success. Do you ever lie awake at night and wonder why no one cares as much about your business as you do? You may have tried to motivate some of your key people by promising them bonuses, with little impact to the business in the end. You may be thinking what life could be like if you could just take some chips off the table. Perhaps you have thought about selling the company, or have even been down that road. You may have concerns—the process, taxes, your corporate culture, and what will happen to your people if you sell to a big public or, God forbid, private equity fund. Maybe your concern is about your legacy and the reputation you have built over the last 30 years. Or it may be more about what people will say about you if you “sell out.” Well, what if I told you there was a way to sell your company, possibly tax-free, and not disrupt the corporate culture one bit? What if I told you that you could sell your company to a “friendly” buyer, one who would not steal your sensitive information if the deal goes south, who would keep everything intact and actually push for a generous benefit program? A buyer who would encourage and even require employee engagement. There is a way to accomplish all of this, and the way to do it is through an employee stock ownership plan, or ESOP. In short, an ESOP is a vehicle to sell your company on a tax-advantaged (tax-free) basis to your employees. You end up with many of the benefits of a sale to a third party—and if you structure it right, a whole lot more. Your employees end up with a long-term benefit that will usually far exceed any other retirement savings they could
possibly accumulate on their own, and the opportunity to impact their own financial future each and every day. Before I get into the details, let’s quickly review a partial list of the pros and cons of other ways in which you can try to exit your business: SALE TO A THIRD PARTY PROS • You will generally get most of your money upfront. • You will generally be free to do what you want in a short period of time. • You may get a premium price, depending on your niche. CONS • Potentially risky and protracted process (i.e., exposing your deepest, darkest secrets to a buyer that may back out). • Payment of capital gains tax at least, and potentially higher rates if you are a C corporation or the buyer shifts the purchase price that results in ordinary income. • No control over what happens post-transaction. • Usually results in disruption to corporate culture or displacement of employees. SALE TO A FAMILY MEMBER PROS • None I can think of. • OK, maybe you preserve your home life. CONS • Offspring will rarely take company to the next level. • Kids generally don’t have your skill set, so getting paid is risky. • Talented executives may resent you for it and separate from the business. • No tax advantage unless you gift some or all of the company to them—and gifting the business doesn’t get you any cash.
“When put into practice and used to full advantage, an ESOP is a living, breathing retention-, motivation-, and wealth-building tool that can literally transform an organization.” SALE TO YOUR MANAGEMENT TEAM PROS • They are familiar with the business and see its potential. • Streamlined, less risky due diligence. • They are motivated to make the deal work. CONS • Management teams generally don’t have any money. • No tax advantages. • Could sour relationship if deal craters. • The decision-making process (which ones and how much?). In many cases, one of the above strategies will be the best alternative for you to exit. But in many other cases, these strategies leave something to be desired. In some cases, they can be disastrous. So what, then, is this ESOP alternative, and how does it work? Succinctly put, an ESOP is a taxadvantaged vehicle to exit your business. At its most basic level, it is a structure, vehicle, trust, or legal entity that is memorialized in a document. When put into practice and used to full advantage,
BOXSCORE www.aiccbox.org
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an ESOP is a living, breathing retention-, motivation-, and wealth-building tool that can literally transform an organization. From the seller’s or owner’s perspective, the ESOP provides maximum flexibility. The ESOP can purchase all or part of the equity of the owner, either now or in the future. As such, an ESOP can be an incredibly effective way to buy out a partner or shareholder when there are different goals and objectives. Some owners sell a minority interest to the ESOP, use it to motivate employees, and sell the rest later when the value has gone up. Other owners sell 100 percent to the ESOP in one transaction to maximize the full effect of the tax advantages. Before we illustrate what is possible with an ESOP through a few examples, let’s review the primary advantages—and disadvantages—of using an ESOP as an exit vehicle. ADVANTAGES 1. The transaction can be structured as completely tax-free to the seller. Yes, you can sell your stock to an ESOP, and never pay any tax on the gain. Now, of course, there are a number of strings attached to this, but it’s perfectly legal and has been vetted and approved by the IRS over the last 42 years. The first requirement is that your company has to be organized as a C corporation. (If you are an S corporation, you can always revoke the S election to facilitate the transaction). Next, the ESOP has to buy at least 30 percent of the company. Lastly—and here’s where it gets a little tricky—you have to reinvest the proceeds into “qualified replacement property.” QRP is basically stocks or bonds of U.S.-based companies—i.e., no mutual funds, international, or real estate holding companies. If you are satisfied with a deferral of tax, you can simply reinvest the proceeds into your favorite stocks or bonds and ride off into the sunset. As long as you hold the stocks or bonds, you will preserve the
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BOXSCORE September/October 2015
deferral, and if your investments outlive you, you will never pay the tax. Pretty nifty, right? But what if you don’t want to hold the stock you bought for another 30 years? Well, when you go to sell it, or “rebalance” your portfolio, you will trigger the gain and have to pay the tax. So, what’s the solution? If you want the transaction to be taxfree, buy what’s known as a floating-rate note—the ultimate form of qualified replacement property. Basically, it’s a 40- or 50-year bond, so it is almost guaranteed to outlive you—unless you are a 30-something, in which case, why are you selling the company? The rate on the note “floats,” which means it usually sells at or near face value, as opposed to most bonds, whose value rises or falls as interest rates change. Since it sells at about face value, you can use it as collateral and borrow up to 90 percent of the face amount. You’ll receive interest on the bond but owe interest on your loan—they are usually structured for these amounts to offset one another. Thus, you can “monetize” upward of 90 percent of the value of your company and never pay tax on the sale. Assuming the bond outlives you, your estate will get a stepped-up basis to the face amount of the note, and thus gain is eliminated. 2. The company gets to deduct interest payments and principal payments on funds used to effect the purchase. The mechanism for this to be true is that most ESOPs are structured whereby the company loans money to the ESOP— either from funds on hand or money borrowed from a bank. These funds are then used by the ESOP to buy the stock from the selling shareholder. Alternatively, the seller “loans” funds directly to the ESOP by agreeing to sell stock to the ESOP in the form of seller notes. The ESOP obtains cash from the company in the form of contributions that it then uses to repay the borrowed funds. Since these contributions, subject to certain
payroll limitations, are tax-deductible by the corporation, any debt used to fund an ESOP purchase is effectively repaid with pre-tax dollars (i.e., fully deductible). 3. After the company is 100 percent owned by the ESOP, the company becomes 100 percent tax-free. That’s right, 100 percent tax-free. In other words, the company can use the 40 percent corporate tax it used to pay—or distribute to the shareholders in the case of an S corporation—and use it to reinvest in the company. Alternatively, it can pay down debt faster, make bigger contributions to the ESOP, make acquisitions, or do just about anything it wants that enhances value. In other words, 100 percent ESOP-owned companies have a huge advantage over their competitors, thanks to Uncle Sam—and when was the last time the government gave you any help, much less an advantage? 4. Employee motivation and behavior improves when they have a stake in the outcome. As if the advantages referenced above weren’t enough, consider that a number of studies show that ESOP companies outperform their non-ESOP counterparts in just about every measure. The main reason for this relates to tying employee behavior to performance. When you show employees how they make a difference and back it up with real economic benefits that they can see, the results can be incredible. The ESOP world is full of examples of rank-and-file employees retiring from their ESOP companies with much greater account balances that they would have had from a 401(k) match or other retirement plan. DISADVANTAGES Like the old economics adage says, “There is no such thing as a free lunch.” So, what’s the catch? Well, first and foremost, you can’t easily sell your stock to an ESOP and simply walk away. Why? Because the
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ESOP itself does not start out with any money of its own, which means that you as the seller, or potentially the company, or both, will generally have to borrow money to get a deal done. Thus, you will generally get repaid over a period of time. While you will get a fair rate of interest— or in some cases a very substantial rate of return if the transaction is highly leveraged— you are going to have to be willing to stomach some amount of debt. Second, all employees will participate in the ESOP according to their W-2. Thus, an employee making $100,000 will get twice as many shares allocated to their account as a person making $50,000. So, if your goal is to get a disproportionate incentive into the hands of a few key
people, a supplemental plan (like phantom stock or stock appreciation rights) will have to be implemented. Third, you will have third-party oversight in the form of the IRS and Department of Labor, as an ESOP is a qualified retirement plan under the Employee Retirement Income Security Act (ERISA). If done correctly, this is not an overly burdensome issue, but it cannot be ignored. Similar to the rules that govern your 401(k) plan, an ESOP will have eligibility requirements, vesting, etc., and you can’t discriminate or exclude specific people in an ESOP in favor of others. In closing, approximately 9,000 companies across the United States have adopted ESOPs. Many have been in existence since
ERISA was passed in 1974. If you are thinking about exiting your business and you haven’t considered an ESOP, it might be a good idea to learn more about it. As it relates to your employees, you can “let them eat cake.” Or, if you are openminded, don’t like to pay taxes, and are willing to stick around for a few years after a transaction, you really can have your cake and eat it, too, through an ESOP. Check next month’s issue for a more detailed dive into how an ESOP actually works in practice. Christopher A. Kramer is managing director at Strategic Equity Group. He may be reached at 714-380-3300 or ckramer@ segco.com.
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BOXSCORE September/October 2015
Reduce your maintenance Reduce your costs Increase your production Rotary Die, Flat Bed Die and Printing Plate Storage and Cleaning Systems BCM has the most unique solutions to your storage problems. They can take advantage of space in your plant you previously thought unusable.
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BOXSCORE www.aiccbox.org
63
The Associate Advantage
HOW’S YOUR FOLLOW-UP? BRIAN KENTOPP BOBST NORTH AMERICA INC. CHAIRMAN BRIAN.KENTOPP@BOBST.COM
KEITH R. UMLAUF THE HAIRE GROUP VICE CHAIRMAN KUMLAUF@HAIREGROUP.COM
JEFF PALLINI FOSBER AMERICA SECRETARY PALLINIJ@FOSBER.COM
ED GARGIULO EQUIPMENT FINANCE CORP. FIRST ALTERNATE EGARGIULO@EFC-FINANCE.COM
KEVIN WIDDER AUTOMATÄN IMMEDIATE PAST CHAIRMAN KWIDDER@AUTOMATAN.COM
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BOXSCORE September/October 2015
M
y wife and I were about to undertake the project of finishing our basement. Being a prudent consumer, I wanted several qualified contractors to bid the project. After calling five companies, I scheduled an appointment with the first three that called back. Following our meetings, one gave me a price on the spot, one never responded, and one emailed me an estimate nearly two weeks later. Guess who got the job? Just by making one five-minute call. What fascinated me most was, only one contractor called back to discuss his proposal and ask for my business. How can salespeople afford not to follow up? Conducting my own research, each one said they could use more business, yet they didn’t know the status of the majority of the bids or proposals they sent out. I sensed that following up regarding their proposal was not their typical M.O. Instead, here is what they said: “I thought you were using someone else.” “I didn’t think you were ready to buy.” “I thought you felt the price was too high.” “I didn’t want to pressure you.” While these contractors formulated their own conclusion, they never bothered to confirm whether their assumptions were true! They were operating under the
false assumption that “the prospect will call when they are ready.” If you take a moment and look at your account base, how much business does that equate to? Now ask yourself, “How much of it am I willing to give to my competition?” Since your competitors are not paying you commission, here’s your opportunity to visualize a simple, efficient, three-step follow-up system that will bring in more sales. Once you shift the focus and energy toward making it about the prospect, it will immediately relieve you of the unnecessary pressure to look good and perform. Either you are A) making the sales process about you and how much you gain (money, sales, status), your fear of rejection, looking bad, or hearing “no,” or B) you are making it about the customer and how much value you can deliver to them. Now, the cold calling process is no longer focused on the salesperson’s fears, but on the customer and the advantages your product can produce. Make the selling process about the prospect and the value you can deliver, rather than what you stand to gain if you sell. Once you can do so, the sale then becomes the natural byproduct of your selfless effort and good intentions. This article was written by Keith Umlauf.
S I M P LY A C U T A B O V E
International Corrugated Packaging Foundation I N T E R N AT I O N A L
PACKAGING
CORRUGATED
F O U N D AT I O N
NEW YORK WEEKEND EXPECTING ANOTHER ‘SELLOUT’ With 46 executive couples already registered as of this June 30 writing, ICPF is expecting another early “sellout” of ICPF’s eighth annual Holiday Weekend in New York, scheduled for Friday, Saturday, and Sunday, December 11–13, 2015. To ensure space is available, I encourage those considering joining the event to register as soon as possible. The holiday weekend will begin with a Friday evening reception overlooking Times Square. On Saturday, participants will attend a late morning performance of the renowned and ever-changing Christmas Spectacular at Radio City Music Hall. The program will feature the Rockettes during their 90th anniversary. Saturday night, participants will be treated to a reception and dinner at 45 Rock Plaza looking out at the special holiday scene of the Rockefeller Center ice-skating rink and its iconic nine-story Christmas tree. The weekend offers free time for additional socializing, touring, shopping, and dining. In advance, ICPF wishes to thank this year’s participants as well as the sponsors, who include Bobst North America, Corrugated Technoloies, Inc., Equipment Finance Corporation, Gerber Innovations, Kiwiplan, MarquipWardUnited, MidAtlantic Packaging, Pratt Industries, and Smurfit Kappa. An additional special thank-you to Andy Pierson (Mid-Atlantic Packaging) and Mary Donohue for serving as 2015 ICPF New York co-chairs and for all their work in successfully promoting the event.
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Event registration is $2,950 per corporate participant (accompanying spouse or guest is included free of charge). Over half of the registration fee ($1,500) supports ICPF’s operations and educational programs. Call 703-549-8580 or visit www.careersincorrugated.org for more information and to obtain a registration form. Smurfit Kappa U.S. Pledges $150,000 Smurfit Kappa became ICPF’s most recent corporate partner by pledging $150,000 to support the foundation’s educational and student outreach initiatives. “Smurfit Kappa U.S. has been well aware of ICPF’s work with universities and students across the country for a long time,” says Guy Sanders, Smurfit Kappa Bates vice president of packaging. “Our Texas operations have been in contact with the University of Texas–Arlington (UT–A) new packaging program that was created by ICPF, and through ICPF we hired our first UTA packaging student intern this past summer. We are now planning to develop a much broader countrywide initiative that will incorporate the many resources available through ICPF.” With approximately 43,000 employees at 350 production sites in 33 countries, Smurfit Kappa is one of the leading providers of paper-based packaging solutions in the world. Reported revenue in 2014 was €8.1 billion. Smurfit Kappa has a paper mill and more than a dozen packaging and recycling facilities in the Southwest and California that include the newly acquired
Texas-area operations. For more information, visit www.smurfitkappa.com. Unicorr Pledges $50,000 This past summer, Unicorr also became an ICPF corporate partner by pledging $50,000 to support ICPF operations. “Unicorr is looking forward to using ICPF’s special resources to assist in our recruitment of packaging engineering, business, and related graduates who we can develop into impactful team members for the future,” says Hap Perkins, Unicorr’s president. “Of particular interest to Unicorr is ICPF’s work with universities in the Northeast.” Founded in 1946, Unicorr Packaging Group prides itself on integrity and its manufacturing design and service excellence. With two plants in Connecticut, a plant and a warehouse in Massachusetts, a plant and warehouse in Vermont, and a plant in New York, the family-owned and operated business is among the largest converters of corrugated products and protective packaging in the Northeast. Unicorr provides a full complement of capabilities and a wide product offering to its customers, including graphics, labeling, and specialty gluing. For more information, visit www.unicorr.com. Richard M. Flaherty is president of the International Corrugated Packaging Foundation. For more information, visit www.careersincorrugated.org.
ShowMore + SayMore=Sell More
Video THATWorks Nothing tells a compelling story quite like high caliber video. It lets you show more, say more, even use others — like your own customers — to help say it for you. Video can carry a sales message, convey an image of quality and provide product instruction and education in multiple ways, through multiple forms of media.
Writer/producer/directors Dwayne Shrader & Nick Griffin bring decades of video and packaging experience to every project. Because we’re communication specialists first, we understand your business and your needs. And because we’re video professionals, we know how to use today’s leading technologies to best tell your story.
Griffin Communications offers a variety of production options and can deliver the end result in a variety of formats including web page videos, DVDs, trade shows, smart phones, tablets and more.
Assoc. of Marketing & Communications Professionals 2014 MarCom Gold Winners for K AICC Hall of Fame Jack W. Schwarz K AICC Salute to Paul H. Vishny
Call Nick Griffin at (410) 296-7777, email NickG@Griffcom.com or visit GriffCom.com to learn how video can work for you.
The Final Score
WHO’S AN INDEPENDENT? … CONTINUED
A
t a recent industry meeting I was amused to hear more than one representative from larger, vertically integrated companies tout their “independent outlook” as a form of street cred—a sort of “virtue” important to their success in the industry. I’ll paraphrase, but the line goes something like, “We’re not a big, impersonal integrated company; we’re more like an independent.” I think it’s a testament to every successful independent entrepreneur that being “independent-minded” is a goal to which most every company in our industry seems to aspire. So what does that mean? In the last issue of BoxScore I raised this question: “Who’s an independent?” The reason was we once had crystal clarity on this question, namely, that an independent was a company that didn’t own a paper mill. Fundamentally, “independent,” as used in this context today, means privately held. These days that is more of a defining distinction than anything else, but it’s not absolute: Georgia Pacific, the third-largest player in our industry today, is a division of the privately held Koch Industries. During a lively discussion earlier this year at an AICC board of directors meeting, the subject of “independent” came up. If a privately held, entrepreneurial company grows, expands, and acquires assets that integrate them vertically into their supply of raw material, whether sheets or paper, do they somehow become less “independent”? Does the outlook of its ownership change in philosophy or direction? On the face of it, I’d say no. Majority decision-making and ownership remain in the realm of the owner or owner group, be it family, partnership, or even an employee-owned company (see feature on Page. 58). Others have a different view, saying that once a customer-service-oriented converting company acquires mill assets, that its entire focus—and with it its marketplace behavior—changes. This “behavior” aspect seems to come up often in this conversation. I hearken back to something Dick Troll used to say. Dick was a founder, past president, and former executive director of AICC. He used to say, “You can’t run a box plant in Biloxi from Wayne, New Jersey.” Dick’s argument was based on the simple fact that the corrugated business—more so, I think, than the folding carton and rigid box business—is a local business, and therefore the local managers of a plant in Biloxi, Mississippi, know what’s best for their plant and their customers, and “headquarters” should back off. A typical shipping distance of 100 miles means local focus, and with that comes an intimate understanding of the market, its players, and the customers. Making the right decisions at this level is therefore critical to the company’s success, and independents, with their independent owners, do this best. Does vertical integration necessarily negate this local focus? That’s a question that will be debated for some time, but it is a fact that our industry is changing in ways AICC’s founders didn’t imagine in 1974, and vertical integration among independents is part of that change.
Steve Young President, AICC
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BOXSCORE July/August 2015
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