By offering much more than corrugated boxes, this independent box maker has been able to adapt to evolving packaging needs.
Full steam ahead. If you want to understand the business operating philosophy of John Tatum, ceo, Heritage Paper (HP), Livermore, Calif., these three words sum it up nicely. He’s always pushing forward. Don’t insult him by calling HP a traditional sheet plant. More accurately, it’s a full-service packaging provider that is blessed with a location that allows it to keep growing.
Moving is a theme that runs throughout his independent box making career, which began in 1982 when he started Pioneer Packaging in Oakland to provide boxes to the moving and storage industry. But as the years went by he realized focusing on this industry alone was very risky long-term; he needed to diversify. So in 1989 he purchased Bay Corr Packaging, a money-losing, small sheet plant in Livermore. This move not only allowed him to expand his customer base, but also meant he could reduce the emphasis on selling to the moving industry.
“The moving industry is down 50 percent from where it was in the 1980s,” states Tatum, noting that for the past four years home building has taken a beating. Unless consumers can’t pay their mortgages, they’re not moving, he adds. And those that do move now buy their boxes at packaging stores.
Bay Corr Packaging became HP, which was by the mid-1990s a profitable sheet plant doing $20 million annually. Although the company was doing well, Tatum saw that too much of its business was being made by integrated companies. When they got busy they let their lead times go out to four weeks or more. Customers need boxes in days, not weeks. Tatum knew he had to invest in his manufacturing capabilities.
“I knew the integrateds wouldn’t let us grow,” he states. “They had to serve their own customers. They just wanted to be booked up.”
Needs a Steady Supply
In 1999 Tatum spent $7.2 million adding new equipment and erecting a brand new building. Six months later he realized he couldn’t rely on a steady quality sheet supply from integrated box plants; he needed his own source of consistently flat corrugated sheets. Serendipity played its role when industry veteran Joe Escobar contacted him about starting a sheet feeder. He thought it was a great idea. Today, along with Robert Mann Packaging, Packaging Innovators, and Capitol Corrugated, HP owns CalSheets in Stockton, Calif. Escobar was the first president of CalSheets. He is now retired and serves as an HP consultant.
Tatum was always asking his customers one simple, straightforward question over and over: What do you need from us? The answer came back to him in spades: packaging supplies. Many of his box customers had asked to buy stretch film, tape, and bubble wrap from Pioneer Packaging. So in 2003 he started a new division called Packaging Supplies as a one-stop shop. Tatum was continuing to move forward. But he admits this latest move wasn’t easy.
“Most people [in the packaging industry] have failed to be manufacturers and distributors,” he says. “Why? Because most corrugated sales people want to be an expert in corrugated only while a packaging supply person just wants to work on supplies. So you have a division; both aren’t selling effectively. People think they have to know packaging supplies like they know corrugated. Since they are so many items, they give up.
“So now we’re hiring people and training them in both areas [boxes and supplies]. The real plus in selling packaging supplies is if a customer needs to reduce the packaging cost of, say, sample shirts [currently packaged in a corrugated box] we can keep them as a customer by sliding the shirts into plastic bags with a bagging machine instead cutting the cost in half. We offer other solutions with Packaging Supplies.”
Can You Do More?
Seven years ago, HP customers started asking the company to provide fulfillment services. So it wasted no time in helping them package and ship out their products. Today, HP’s fulfillment division brings in $500,000 a month in sales.
“If a [box buying] customer has two hours of fulfillment work, it is hard to hire for two hours,” states Tatum. “So instead we can bring the product to our warehouse, pack it, and ship it out.” A proponent of promoting from within, he put Chuck Roberts, who had been with HP for four years as a box salesman, in charge of fulfillment sales and operations.
Four years ago, HP bought EBCO, a print and promotion company, and Twenty20 Marketing, a full-service marketing company that’s also involved in trade shows. Tatum has found it useful to offer his smaller customers, especially those in the wine industry, marketing options they might otherwise not afford.
As HP kept growing (annual sales are currently $50 million), Tatum realized that he needed management support. So 12 years ago he brought in Michael Musgrave, now vice president and coo. He started him in the quality control department, followed by management positions in various departments and plant operations.
Reflecting on HP’s growth, Tatum admits he would have been able to expand even more quickly had he delegated earlier versus trying to do it all himself.
“But with delegating, you need to be a certain size to pay people’s salaries,” he states. “Fortunately, we never lost a person we wished we had kept. Still, I need to run the company better and train better. We’re now training our own young people from the start. Most have been promoted internally or from employee recommendations. Some have grown up here.”
Better training leads to salespeople who recognize and react quickly to growth opportunities. For example, in California pallet wraps that tell customers what’s sitting on the pallet are an exciting growth opportunity. Instead of putting graphics on each box, a pallet wrap can sell the whole pallet. These wraps sit two to three feet up from the bottom of the pallet so consumers can easily see the advertising and then reach in and grab a package (or two). They’re very popular for use in the food and wine industries and have been a nice growth niche for HP.
Post Great Recession, HP’s 160 employees have to be more diligent than ever about listening to client’s needs (HP has about 600) and then meeting them. For example, recently Mark Wong, one of the company’s three designers, devised a telescoping Clif Bar energy bar display that could shrink as bars were sold.
“Looking at the competition in this marketplace, it’s very hard to find a company that can offer so many solutions,” states Tatum. “We have the infrastructure. We tell potential clients, ‘If we can just be a partner we will grow in this relationship.’” PBP
Journey to Higher Quality Printing
Four years ago, Michael Musgrave, vice president and chief operating officer, Heritage Paper, walked into CEO John Tatum’s office and uttered five simple words that helped to start the independent box making operation on a new printing adventure: Our sample maker has died.
This machine had been producing a lot of small production orders, not samples. It couldn’t keep up with the growing demand. A small digital press for small orders was the answer, Musgrave concluded. He decided on a large format press from Vutek. Its cost was considerably over the initial budget Tatum had agreed to.
“Mike told me it would open new markets, allowing us to make signs and banners [in addition to point-of-purchase displays],” says Tatum. “Then I found that it did header cards, large pallet wraps, and small quantities of high end boxes in litho.”
The Vutek printer was productive for almost three years, making a lot of small orders on three shifts. But rising demand was outstripping its ability to supply product.
Musgrave saw this day coming. When he told Tatum the bad news about this machine he knew he had better have an answer to the inevitable question: What do we do now?
In spring 2011 Tatum and Musgrave attended a demonstration of the Hewlett-Packard Scitex’s FB7500 printer at the company’s Customer Experience Center in Atlanta. Tatum was so excited by what he saw that he wanted to buy the printer on the spot; instead he waited a few weeks to make the purchase.
In addition to higher printing speeds (six times faster), Heritage was impressed by the FB7500’s ability to use less ink. So although this printer cost three times the old machine, the company was able to justify the extra expense. In addition, Heritage can run several thousand high-graphics wine cases on its new printer and still maintain a cost advantage over its competitors; with the old machine, after a few hundred cases this advantage was lost.
It installed the FB7500 in July 2011 and is using it to serve customers who need point-of-purchase displays, small gift boxes, and high-end graphics boxes. What about pallet wraps? With the Vutek, the company was making seven an hour; the FB7500 prints 35 an hour. When sheets go into the FB7500, which was made by Scitex in Israel, the printing head carriage doesn’t travel as it did on the Vutek, which created a “lawnmower” effect known as banding. Instead, the bed on the FB7500 moves underneath the sheets, a difference in its favor, says Tatum.
“A key for us was that it’s a modular machine, so we can continually upgrade without starting over again,” he states. He sees the pros of digital printing as no tooling and short set-up times (about a minute) thanks to prep being done ahead of time.
“You can take a sample to a customer and say, ‘This is what you’re going to get,’” he adds. “Digital is perfect for any box order of 10,000 or less with the need for great graphics. You have to have people who can do the artwork but you can change it at no extra cost.” Heritage is currently printing bar codes on the FB7500 on a trial basis.
Musgrave says Hewlett-Packard has brought numerous potential printer customers to HP to check out FB7500 (now upgraded to the FB7600 model). And the machinery manufacturer is working hard to improve this printer. Musgrave says he would like to see further refinements, including more vacuum to hold corrugated sheets in place. He would also like to see greater tolerance for surface variation.
“With corrugated sheets, you have some fluctuation,” he states. “So the printer needs a more robust guard that isn’t tripped so frequently.”
Tatum’s enthusiasm for digital printing does have a downside, he admits.
“At times I have been so focused on digital printing that I’ve had to rein back our salesmen,” he states. “They have to sell boxes, too. So now we’re recommitting to the basics of the [box selling] business.”
Making Boxes in a Sustainable Way
“If I were a salesman I would want multiple products to sell,” says John Tatum, ceo, Heritage Paper (HP).
Over the past 20 years he has done an excellent job of backing up his talk with diverse product offerings. In the process, HP has evolved into much more than a traditional sheet plant. About half of its business is making corrugated boxes. Twenty-five percent of these boxes are sold to the wine industry, 10 percent to the food display business, 45 percent to the food business, and the rest to industrial manufacturers. Its 130,000-sq-ft plant in Livermore, Calif., also operates a wood shop that makes crates for high-value goods; it brings in about $2.5 million annually. It also operates a 150,000-sq-ft warehouse in Lathrup, Calif., for distribution and fulfillment.
Key HP converting equipment includes a reconditioned, two-color, 38 by 90 in. S&S flexo folder-gluer, a three-color, 66 by 125 in. Ward flexo folder-gluer (with diecutting), and a two-color, 85 by 185 in. jumbo press. In addition, for 10 years it has been running a Lantech plastic wrapping machine that has eliminated the finished box damage that comes from traditional plastic straps.
Tatum is a big proponent of green initiatives. He learned from a persistent fellow member of his local Rotary Club that he could install solar panels at his plant with no money down and a 15-year option to buy and own them. Currently he is saving $20,000 a year in energy costs. After 15 years are up (in 2023) he can buy the panels and start saving even more. Today he can legimately claim that 90 percent of the energy used to make boxes at HP comes from the sun. Customers have the option of having this fact printed on their boxes.
“We’re trying to do our part to keep sustainable efforts going,” he says.