Wonders Of Wood: Transformation In The Forest Products Industry

Stefan Weisenberger

I am always somewhat annoyed at analyst reports claiming that the mill products industry is less affected by digital transformation than other industries. My experience at a recent executive advisory council with some of the most innovative companies in this industry shows this is not the case.

First, not all transformation is digital nor driven by buzzword technologies like blockchain or machine learning. As a chemical engineer by education, I am amazed (and somewhat excited) by the transformation that has hit the paper industry from a very different direction.

Forest products and papermaking have never been a place for complacency. We always had painfully small margins and fierce competition – with a few lucky exceptions in specialty niches. Technology has helped to push the limits, and Industry 4.0 and machine learning and its advances help us be even smarter, even more automated and intelligent.

In my opinion (and I probably should not say this as an employee of a tech company), mill products companies have undergone a rather evolutionary digital transformation. There are good business cases, but I would not call it a revolution.

Diversification

The essence of the transformation in paper stems from the tree and the forest as a renewable raw material and a sustainable alternative to oil and petrochemistry.

As an example, Sappi has outlined its strategy to reposition itself from an integrated paper company into a “profitable and cash-generative diversified wood fiber group.” Let’s makes this more tangible.

Sappi’s diversified product portfolio is way beyond wood fiber. I would call it forest-based advanced materials, specialty chemicals, and, as Sappi puts it, “adjacent fields.”

Channel innovation and disintermediation

Even the “classical” paper side is undergoing a fascinating transformation. ARC nicely outlined the disintermediation and market redefinition that Sappi has achieved – evolving from a B2B-based company with a few paper distributors and paper traders, into a more direct-sales business with a multitude number of customers. And technology was the enabler for it to scale.

The new barrier

If you are concerned about the circular economy or recyclability of packaging materials, Sappi’s integrated barrier materials, within its “functional paper” portfolio, is very interesting.

Classical packaging materials that provide a barrier against grease, vapor, or mineral oil consist of multi-layered materials or require additional coatings, making them very difficult to recycle.

Sappi’s products now provide this function just with paper, which won it the German packaging award. Tree huggers and green folks, take note.

Your chocolate tastes like a tree to me

How about you? Would you like to have your cake (or your chocolate) taste like a tree? Well, very likely it does, as vanillin, from the cured vanilla bean, is a major ingredient in chocolate and other delicacies.

As Borregaard (“the world’s most advanced biorefinery”) explained it nicely in its vanilla video, a tree is 15% fiber (specialty cellulose), 25% sugar (bioethanol), and 30% binding materials (lignin and vanillin).

There is not enough vanilla to meet the world’s demand. The vanilla orchid in Madagascar does not scale production to meet the globe’s hunger for the ingredient, making it very expensive. Luckily, there are alternatives.

Pure, petrochemically synthesized vanilla appears on an ingredients list as artificial flavoring. Genetically modified bioconversion vanilla is somewhat more tricky to classify. And then there is extraction from the tree.

Why is this noteworthy?

It’s another nice example of creating a market under interesting conditions – between artificial and natural flavor. It’s also quite far from the core of a forest product company.

And, it’s probably a significantly more profitable business than manufacturing newsprint, considering that in 2015 “a string of giant food companies, including General Mills, Hershey’s, Kellogg’s, and Nestlé, vowed to eliminate artificial flavors and other additives from many foods sold in the U.S.”

Are these isolated examples?

Bio and forest industry company UPM claims to make “versatile use of renewable wood biomass” to develop innovative (and profitable) businesses like biofuels, biocomposites, and biochemicals. Its data underscores how far its transformation has already come. Based on how much it changed from 2008 to 2106, UPM has adopted the branding “The Biofore Company.”

But not every company in this industry becomes a biorefinery. Many others innovate around existing products, adding superior capabilities and more versatility.

The forest-based future

To win the game against fossil-fuel-based materials, the new forest-based materials must be superior not just on sustainability, but also on quality and cost. I am quite optimistic that the innovators in the paper industry will make this happen.

Digital technology will play a significant part in this as well – to strive for higher quality at lower cost, to become more versatile by considering multiple possible what-if scenarios, and to be smarter about meeting customers’ needs with innovative ideas using new materials.

We will tear down these walls

Finally, a diversified forest-based innovation company will make use of advances from industries like agriculture, chemicals, oil & gas, and consumer products – and of course mill products. It must future-proof its processes by building them on a versatile, modern, multi-industry platform.

A digital core will help tear down the walls and boundaries holding you back. Learn more about SAP S/4 HANA.

This article originally appeared in SAP Community.


About Stefan Weisenberger

Stefan Weisenberger is a Director at SAP, responsible for the Industry Strategy, Industry Solution Definition & Portfolio Management for the Mill Products & Mining Business Unit.