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Plastic or Paper?

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Plastic or Paper?

February 19, 2013 - 11:27

How a plastics industry veteran left his business comfort zone for a new world of box plants and board mills.

Jawed Ghias, president, Global Packaging Solutions (GPS), Otay Mesa, Calif., knows the ups and downs of plastics manufacturing well. Born in Pakistan, he worked in the industry for 22 years before arriving in the U.S. in April 1985 and finding a job as a mechanical engineer with Industrial Molding Corp. in Torrance, Calif.

His career progressed smoothly throughout the late 1980s and the 1990s. By 1998 he was doing very well as an executive with Compass Plastics and Technology, which was bringing in $40 million annually and had plants in Tijuana and Los Angeles that made plastic cabinets for televisions and computer monitors. But that same year storm clouds arrived. Compass started losing money thanks to excess television capacity from Korea (and a weakening Korean won). In addition, it made too many acquisitions too quickly.

 In 1999, Compass (now known as Ghias & Friends) was sold to General Electric. By 2001 Ghias & Friends was doing about $90 million in annual sales. But four years later Ghias was worried about the big picture trend in plastics and the poor management decisions being made by his superiors. Margins were constantly getting squeezed. He realized that working for a pure plastics company was now a very risky proposition. Ghias & Friends was buying about $4 million annually in corrugated boxes. Ghias had an epiphany. Why not diversify away from the plastics industry and open a box plant? The decision to do this set him off on a journey encompassing many hills and valleys.

In March 2006, Ghias started GPS, buying a 50,000-sq-ft building in Tijuana, Mexico, that had been making potato chips. He then bought a new 78-in. B- and C-flute corrugator from China (Hubei Jingshan) in September of that year, installed it in May 2007, and added some used converting equipment. A month later, GPS was selling $50,000 a month in boxes.


 

GPS Knows Bose


Today it is doing $7 million in annual sales and employs 130. Ghias hopes to do $9 million by the end of this year. The timing couldn’t have been better because in 2006 Ghias & Friend closed. The plastics industry Ghias knew so well had collapsed.

Approximately 60 percent of the box plant’s business comes from the electronics industry. This is really no surprise since it sits in a hub of electronic goods-making maquiladoras (Mexican manufacturing operations in a free trade zone). These factories import material and equipment on a duty-free and tariff-free basis for assembly and then re-export the finished products. Audio equipment manufacturer Bose is GPS’s largest customer. The rest of the company’s clientele (it serves about 90 customers) are in the food, beverage and agricultural business.

Eighty percent of its deliveries are accomplished in 24 hours or less. GPS tries to keep low inventories but for certain customers it has to store boxes (usually a week’s worth) and pay for the warehousing. Nowadays, manufacturing flexibility is paramount, Ghias stresses.

“Customers [in the television industry] will tell us, ‘I need 500 boxes right now,” he states. “We tell them we can supply them with boxes even if it means we have to pay overtime. We will take all emergency orders and fulfill them within 24 hours. We offer no surprises. If you need it, we’ll do it.”

He has no choice but to take this approach when competing with multiplant operations like Corrugados de Baja California. Helping clients save packaging costs through better structural design has helped GPS stay competitive. For example, its designers worked on redesigning and reducing the box size (from 26 to 24 inches) and partition set for an auto stereo made by Bose. This led to an increased cube size when the stereos were stacked on pallets.

Numerous GPS engineers came from India. So they relate to and take great pride in providing a company founded by Amar Bose, a Bengali American, with boxes for the company’s sound systems.

Key converting equipment at this plant includes a three-color flexo folder-gluer (with diecutter) from China, a two-color S&S flexo folder-gluer (with diecutter), two Bobst diecutters, and an 87-in. two-color jumbo Universal printer. All this machinery runs 20 hours a day, six days a week.

As GPS grew, word hit the street about how it was serving its customers. Box selling veteran Javier Barron, today GPS’s vice president of sales and marketing,  had worked for Crockett Container (since sold to Temple-Inland, which has merged with International Paper) and was an independent box salesman when he heard about Ghias’ entrepreneurial spirit and GPS’s success. One day in December 2008 he visited GPS’s box plant in Tijuana and introduced himself to Ghias, who happened to be there when he walked in the door. He told Ghias he wanted to work for him. Ghias was impressed and hired Barron on the spot.

Short Supply


By 2010, Ghias was seeing what all West Coast corrugators agree on: right now corrugating medium, whether it is semichemical or recycled, is in short supply in California.

“We decided we had to put in a [recycled medium] mill to support our box plant,” states Ghias. “We would sell the extra [on the open market].”

It purchases its kraft linerboard from Georgia-Pacific. When it first started making boxes it bought its medium from a number of suppliers but found it hard to establish relationships with the integrateds because they required cash payments.

“We can now tell our customers we don’t buy [medium] from the same suppliers as our competitors,” Ghias says. “We don’t have to wait, we make our own.”

Running his business as if he is going out of business keeps Ghias in business. Practically, that means keeping manufacturing costs low, making decisions quickly, and keeping emotions out of the picture. In the plastics industry he witnessed management teams freeze and vowed never to be a victim of indecision.

So when the demand for medium skyrocketed, Ghias didn’t hesitate to control his own supply destiny: The time was right to build a recycled medium mill in Tijuana. In fall 2010 he started checking out paper making machine auctions. He found an idle Sappi Fine Paper machine in Muskegon, Mich., bid on it, won the bid, and then learned that U.S. laws made disassembling it very costly. So he hired a consultant with a PhD in paper science from India, Aloke Chatterjee, who located a 110 in. Voith machine for sale in Somerset, England.

It was making laminated graphic paper, was in excellent shape, and came with many spare parts. This time Ghias was successful; in October 2010 he bid $800,000 and was the winning bidder. Just as importantly, lower labor costs in England made disassembling and shipping the machine to Mexico significantly less expensive. Mission accomplished. Today GPS operates the only recycled corrugating medium mill in Tijuana.

No Aid from Mexico


Buying and moving this machine from England to Tijuana, Mexico, cost GPS about $2.3 million. Mexico’s government didn’t aid him in any way, Ghias stresses. He was able to put it into a 110,000-sq-ft building he owned that until recently was making plastic television components. He added more dryers and wires and had the machine making its first 100 percent recycled medium on January 9, 2012. Today the mill employs 94.

“The most challenging part of the [mill buying] process was dealing with the consultant,” Ghias says with a smile. “He had a PhD in paper but he was doing a PhD on us with his silly mistakes.” By November 2011 Ghias knew he was better off without the consultant.  He let Chatterjee go that same month but notes that the experience made him much more knowledgeable about the intricacies of paper mill machines.

Today the machine makes about 1000 tons a month of recycled corrugating medium, running at 820 ft/min; 50 percent of this is consumed internally while the other 50 percent is sold on the open market. The objective is to make 36,000 tons a year, says Ghias.

While installing this machine GPS had no problems with Mexico’s environmental rules and regulations.

“The laws are there but Mexico is very flexible in bringing business in,” states Barron. “Obtaining permits is easier than in the U.S. If you’re within norms, passage is fast.”

Barron and Ghias see business in Tijuana picking up, as manufacturers of plastic moldings for televisions struggle and high-tech industries (aerospace, for example) replace them. They are also optimistic about Mexico’s growing packaging needs, pointing to an offer by Sonora, Mexico, government officials to build a board mill on free land.

“But we can’t do it now,” says Ghias. “We need investors. In a year and a half? Perhaps. We built this [recycled corrugating medium] mill just to survive [future supply fluctuations]. Going forward, we will pay our $3 million loan first and then go to the bank [for future financing]. Buying a machine is not a problem; bringing it in [to Mexico] is more money than you think.” In addition, whenever you build a mill in Mexico, a steady and reliable water supply is always a challenge that must be handled early in the planning process, he adds.

All of these challenges haven’t deterred Ghias from moving forward, “boots to the ground,” as Barron likes to say. He remains determined to find financially feasible solutions to accomplish his straightforward objective: Fulfilling a packaging niche as a growing independent. PBP