Any initial apprehension Orange County Container employees might have felt after Europe’s SKG purchased the independent box maker has been replaced by excitement about multiple growth opportunities.
Working for a company that has just been acquired can be nerve-racking for one key reason: the future quickly becomes unknown. But ever since Smurfit Kappa Group (SKG), Europe’s leading corrugated packaging company with worldwide sales of $10.8 billion in 2013, purchased independent box maker Orange County Container Group (OCCG) in September 2012, any initial fear of what the future would hold has dissipated. It has been replaced with excitement about future growth possibilities. OCCG started up in California in 1981, expanded into Tijuana, Mexico, in the late 1990s, and then grew eastward across the U.S.-Mexico border. No wonder why by the summer of 2012 it had caught SKG’s eye as a great acquisition opportunity.
“Before the acquisition we had pretty limited purchasing power with our suppliers,” says David Nelson, vice president of paper operations at the company’s recycled containerboard mill in Forney, Texas. OCCG bought this mill in 2008. It operated as Corrugated Services (CS) until the purchase. The mill’s buildings in Texas occupy 400,000 sq ft on a 160-acre campus. CS started supplying OCCG with board in 1997. The mill makes 85,000 tons a year of recycled medium on a 98-in. machine.
“After the acquisition we had a comprehensive review with [SK’s] purchasing people in Latin America and Europe and discovered several opportunities to increase our purchasing power in specialty chemicals and felt paper,” states Nelson. “The synergies amount to $1 million a year in savings. We’re still working to increase those savings.”
And then there’s the value of SK’s Paper Production Technology (PPT) group in the Netherlands. In November 2012, four executives from the Forney mill visited PPT group. Then in early 2013 the group, which is composed of 15 SKG executives (most with 20 or more years of experience), visited the mill and developed a synergy plan: 200 pages of recommendations.
“The PPT group was unexpected and a pleasant surprise,” says Nelson. “Before we would attend TAPPI technical seminars and work with our vendors. Now we had internal resources that allowed us to redesign process flows.”
The mill, which employs 275, now has access to SKG mill knowledge in such specialties as stock prep, water treatment, boilers, and process automation. The PPT group is all about focusing on applying existing technology to increase productivity, reduce costs, and improve quality, stresses Nelson.
Small and Large Capex Projects
The synergy plan specifically consisted of no-capex quick wins and small and large capex projects. Quick wins included how to arrange drying conditions to minimize stickies and a shower upgrade to improve machine cleanliness. Small capex projects involved automated paper testing and improving doctoring at the wet end. A couple of larger capex projects will focus on considering a dry-end upgrade of the board maker’s medium mill by 2016 and installing a wastewater treatment plant. This plant project is already underway and came about when the PPT group measured the mill’s water quality and found it was three to five times more polluted than a board mill’s should be.
“We lacked the data as to what [installing the plant] would do for us,” states Bill Baker, director of sales and marketing. “But the PPT group had done this before [at one of SKG’s mills].”
“It was important that we act on these recommendations,” states Greg Hall, ceo, SKOC. “We need to be open to suggestions and act on them.”
If he had any doubt whatsoever about the PPT group’s experience with board, Nelson became a total convert when it told him it could improve the medium made at the Forney mill by 30 percent. He was happy to lose a 150 British pound bet when it proved that it could be done. The PPT group donated its win to charity.
“These guys are as good as they say they are,” he states.
Satisfying Internal Demand First
The resulting tonnage increases from all these projects are aimed at satisfying the internal demand of SKOC box plants. In the last three years SKOC invested heavily in its box plants and until recently found itself struggling to keep them supplied with board. When the CS mill opened 40 years ago, 98 percent of the tons went to independent box plants in Texas, Oklahoma, and Kansas. But now it serves box plants not only in these states but in Mexico and the West Coast.
“We’re starting to hit our stride now but will be faced with [meeting internal demand] for a while,” says Baker. He cites the growth at SKOC’s Juarez, Mexico, box plant, where a few years ago its box making capacity stood at 20 to 30 million sq ft a month; now it can make 98 million sq ft a month, thanks to Mexico growing at 4 percent to 5 percent annually in recent years. In addition, Mexico’s maliquadoras have recently seen a lot of onshoring (manufacturing that went overseas now coming back to North America). Onshoring is growing because manufacturers who moved their operations overseas are realizing that box delivery timing is critical. A better understanding of the total cost of a product once it has arrived at the buyer’s door (landed cost) and dealing with rising labor costs overseas have aided the onshoring trend.
Hall is looking forward to additional aid from the SKG as it wants to continue to grow SKOC in North America.
“”We plan to spend $1 billion on acquisitions over the next three years,” he states. “We need to grow for our global accounts and to meet our footprint.”
Upgrading the Forney Board Mill
The Smurfit Kappa Group (SKG) is making it clear to the executives of Orange County Container Group that it isn’t going to stop spending money on improving the company’s operations anytime soon. This is epitomized in the plan to install a surplus shoe press (from SKG’s board mill in Townsend Hook, England) on the Forney, Texas, recycled linerboard machine from Over Meccanica. This machine started up in 1996 and now produces 250,000 tons a year. Its press pit was designed for 450 tons/day. That caused the mill major headaches because it was overstressed. When the new pit is installed it will be able to handle up to 850 tons per day. There are also long-range plans to rebuild the mill’s medium machine by installing a new head box.
In November 2013, the mill installed a Lorentzen & Wettre Autoline 4000 automatic system for paper testing. It measures and calculates more than 50 different properties, most of them according to international standards. In 8 minutes it can measure a profile at 20 positions.
By the end of this year the SKG will have spent approximately $45 million on small synergy projects.
“This mill produces [100 percent recycled] linerboard that’s as good as the best virgin paper around,” states Bill Baker, director of sales and marketing. “Fossil fuel use is low, half of a typical U.S. mill, and we make electricity very efficiently. Our medium mill uses a cogeneration system and our closed recycled water system uses close to 20 gallons per ton versus a typical mill that goes through 40 gallons per ton.”
Forty-eight percent of the board produced at the mill goes to Smurfit Kappa Orange County box plants. Eleven percent is swapped for heavier or lighter board; another 11 percent is sold to Bates Container, an independent box converter located in nearby North Richland Hills, Texas, and 29 percent is sold to independent box plants in Texas, Missouri and Southern California.
How SKG Has Impacted One Box Plant
Who knew that two box plant closings in Mexico could work out so well?
In 2012, Smurfit Kappa Mexico decided to shut its corrugator plant in Juarez, Mexico. Orange County Container Group (OCCG) was running a sheet plant that it had bought from Central American box maker Corrmix in 2009. So when Europe’s Smurfit Kappa Group (SKG) bought OCCG in September 2012 to become SKOC, the natural move was made: combine the two operations into one corrugator plant. The merger within an acquisition went smoothly because both groups of employees had many years of experience making boxes.
OCCG was attractive to the SKG because of its plants along the U.S.-Mexico border and its California operations. In addition, the Juarez box plant is in one of the three largest states in northern Mexico. Forty percent of this plant’s approximately 150 local customers are medical device and candy producers, 30 percent serve the electronics industry, and 20 percent to 30 percent cater to the auto industry. In addition, two of the 215,000 sq ft plant’s biggest clients are water heater producers.
Recent growth is coming from the local aerospace industry, notes Greg Hall, ceo, SKOC. Many companies are moving new lines of business to Juarez, which he calls “the shop floor of America.”
“Maliquadoras have been in Juarez since the 1960s so the local workers here are trained on how U.S. companies work,” he states. “They’re no longer assembly plants; now they’re full-grown manufacturing plants with full-blown research and development departments.
“At our Juarez plant we regularly have multiple deliveries a day. We’re producing for the U.S. market so we have to have product available at all times. Customers want to integrate with their suppliers so they’re taking advantage of what we have to offer to a greater degree. Also, they’re giving us more access to their forecasts because they don’t want any inventory on the floor.”
A big advantage this box plant has over its competition centers on its services: it is the only local box maker that makes boxes for local manufacturers. Its competitors ship boxes in to Juarez and the surrounding communities, says Eduardo Lopez, operations manager. It also has its own fleet of trucks in Juarez.
“We’re not the cheapest guy in town but how we get our boxes to customers is a service that distinguishes us,” he states. He adds that when boxes are coming from outside of Juarez they have to go through customs, which operates within certain hours. When an end user needs boxes urgently it isn’t going to be happy to hear that the boxes have been delayed because customs was closed or the boxes were “red lighted” for further inspection.
“We took two plants and combined them into one in a short period of time,” says Hall. “And the cultures were already aligned. Now this plant is performing 42 percent higher than planned. With an injection of volume we’ve improved profitability and SKG will continue to invest in this business to ensure a successful integration.”
SKG plans to spend more than $1 million upgrading this plant with a new conveying system, a new double backer, and a new strapping and gluing machine. It also plans to replace the corrugator’s slotting section.
Making Boxes in Juarez, Mexico
SKOC’s Juarez, Mexico, box plant employs 452 in a 275,000 sq ft building that operates in three eight-hour shifts. Key equipment includes a 98-in. Marquip B- and C-flute corrugator, three flexo folder-gluers with up to four-color printing and inline diecutting, three rotary diecutters with up to four-color printing and bundle breakers, one flatbed diecutter, and three litho label laminators. It also has its own ink kitchen, allowing it to blend its own inks, and makes all tooling in-house.
The plant’s design lab consists of four structural design engineers and two graphic designers that use Arden design software.
“We don’t want to be a ‘me too’ [in design],” states Eduardo Lopez, plant manager. “We’re always asking if we can take cost and fiber out of a box.”
Thanks to the SKG acquisition, the design department has a lot more software tools at its disposal. These include Pack Expert, which calculates the effects of the supply chain on a customer’s packaging requirements by determining optimal stacking strength for a package. Paper-to-Box is SKG’s advanced software tool to compute the optimum board solution. Finally, SKG’s InnoBook provides the plant with thousands of box design solutions at the click of a button. It holds the collective power of more than 700 creative designers and allows the designers to say, “Let’s see what was already done about this problem.”