Temple-Inland’s Analysis of Remote and Industry Environments
Business and Management
Submitted By alenar
Temple-Inland’s Analysis of Remote and Industry Environments In order to support strategic planning and gain a thorough understanding of Temple-Inland’s remote, industry and operating environments, various analytical frameworks can be applied as the second step of the competitive research and analysis processes. The goal of this research is to gain information about the packaging industry and it’s external factors such as main competitors and external stakeholders. First as an introduction, Temple-Inland’s industry is defined and explained in regards to it’s remote environment, the paper packaging industry.
The industry will be explained in relation to time frame and geographic scope of Temple-Inland’s operations. Next, external issues are identified that affect the paper packing industry and Temple-Inland itself. In order to identify these external issues, a STEEP analysis has been used to illustrate the most relevant remote factors. 12 factors will be examined and each fall under the category of socio-cultural factors, technology, economy, ecology and political regulatory forces. Each one of these factors is assessed and then appropriately placed into an Issues Priority Matrix based on its impact on the company and significance of the factor in the industry. Subsequently, Porter’s five forces will be used as another analytical tool that identifies the structural characteristics that determine Temple-Inland’s competitiveness and profitability in the packaging industry. The forces that will be analyzed include competitors and rivalry, suppliers and relative power, buyers and relative power, possible new entrants and barriers to enter/exit, substitute products or threat of substitutes, and other significant stakeholders. Porter’s five forces analysis will also include the drivers of change such as regulatory influences and technological change and why they are most significant for Temple-Inland as well as the corrugated packaging industry. Finally, Key Success Factors (KFS) that determine success in the packaging industry are identified and explained. These factors are applied to a Competitor Strength Grid using the weighted factors matrix tool and compare Temple-Inland to International Paper, a competitor in the packaging industry. Although Temple-Inland is a leader in the packing industry as its third largest company, it is essential to use analytical models such as a STEEP analysis, an Issues priority matrix, Porter’s 5 forces model and a Competitor strength grid in order to gain a accurate evaluation of it remote, industry and operating environments.
The packaging industry is a group of companies whose similar products and services process the enclosing, storage, sale, use and distribution of a variety of products. Pulp, old corrugated containers, and used paper are manufactured into a plethora of paperboard containers. The primary activities of the packaging industry include: “coating and laminating paperboard, manufacturing corrugated medium and liner-board, manufacturing industrial converting paperboard, manufacturing recycled paperboard, and manufacturing unbleached and bleached packaging paperboard” (IBISWorld, 2011, Industry Definition). “The Paper Packaging industry excludes containers and packaging companies that are diversified with substantial operations in paper and either metal, glass or plastic, classified in Containers & Packaging; and manufacturers of cardboard stock, classified in Paper Products” (The New York Times, 2011, Market Information). The packaging industry currently is a 23.7 billion dollar industry with an average of 473.4 million dollars in profit annually. 72 businesses vie for market share. The Paperboard industry is mainly focused domestically. Above 99 percent of the industry’s overall revenue is generated from domestic sales, with less than 1 percent of paperboard consumed overseas. The reason for this being that paperboard is not very cost-effective to transport, this allows the industry to have a degree of protection from foreign imports. Although even with the aforementioned benefit, the industry is declining on the whole. Falling industrial production within the United States is a main reason for this trend. With less industrial production comes the decrease in paperboard demand. Since paperboard is primarily sold to cardboard packaging industries, the demand for paperboard has decreased with it. Currently revenue is declining at an average annual rate of 1.3 percent from 2006 to 2011 although economic reports stay hopeful for the coming year with an expected 2.6 percent increase in demand. At the moment, the packaging industry is leaning towards horizontal integration. Possible outcomes include the consolidation of like companies to further monopolize the industry. This is proven by the fact that “Temple-Inland” itself has been bought by a larger company, International Paper (now with 24.4 percent of the market share (IBISWorld, 2011, Industry at a Glance).
Two major factors influence the industry’s overall demand: The state of the economy, and customer preferences Demand for consumer goods is dependent on the general state of the economy, and factors such as: Household income, consumer sentiment, business sentiment, consumption expenditure and consumer spending. When economical growth rises, so does corporate profit, business sentiments are uplifted, consumer income increases, and consumer expenditure grows. This causes consumption expenditure to rise, increasing demand for goods, products and their packaging. Advertising also has a serious positive effect on industry growth, as much of the advertising displays require paperboard. As with consumer expenditure, advertising expenditure also rises in correlation to a growing economy, and vice-versa.
“The earliest recorded use of paper for packaging dates back to 1035, when a Persian traveler visiting markets in Cairo noted that vegetables, spices and hardware were wrapped in paper for the customers after they were sold.” (The Origins of Paper Based Packaging, 2006) Of course during this early time in our history, only natural materials were used to form packaging products. Some commonly manufactured examples of packaging during this time would be: Containers made from animal-hide, wooden boxes or barrels, ceramic jars, and woven bags. These products made up the majority of the packaging industry until the use of iron and tin plated steel were introduced in the early 19th century. The introduction of the aforementioned tin allowed for the creation of canned goods. Paperboard on the other hand was not commonly used until the late 1800’s when animal driven and water powered mills were popularized.
The industry highly benefits from its geographical scope when the necessary resources are in close proximity to the manufacturing sites (paper/pulp mills.) With increasing distance to resources, the manufacturing of container-board costs increase exponentially. Temple-Inland has strategically placed their mills next to areas of dense timber in order to reduce these costs. The mills are scattered around the Eastern United States with 9-12 “Box Plants” in the South Western part of the country. Business transactions are done mainly within the United States, although some outsourcing is done with Northern Mexico and Puerto Rico. The reasoning behind the restriction is that with increased tariffs and shipping costs, Temple-Inland cannot afford to send their products overseas.
To properly examine a company’s external environment it is important to do a STEEP analysis which asses all the external factors surrounding an industry’s remote environment. This analysis will look at socio-cultural factors, technology factors, economic, ecology and political factors and break them into smaller categories. After identifying and describing all the factors they will then by placed into an issues priority matrix to see visually which ones are of greatest priority to Temple-Inland.
1. Cultural Conditioning:
Our population is culturally conditioned to be consumers and to buy products, which require all sorts of packaging; hence our Industry of Paper Packaging is something became a necessity due to the cultural conditioning of the world population to be consumers. Temple-Inland is located in America and since their industry heavily depends on consumerism this statistic that was found is very good for their Industry, as scary as it may be: “at the end of 2007, America’s consumer debt, excluding real estate debt, was at $2.5 trillion dollars, with credit card debt alone a staggering $972 billion. This debt might be attributed to many factors, but we suggest one cause is consumer overspending and purchasing of exorbitantly priced products” (Rucker, Galinsky 2009, p. 1). This is something that is not a negative issue for our company but more of a positive however it cannot be taken for granted. The Paper Packaging industry as a whole needs to be aware of the cultural conditioning of our population and watching closely for any forecasted trends that would cause this to change because demand from consumers is the main driver of our industry.
2. Demographic makeup:
Factors such as race, ethnicity and religion aren’t demographic factors that affect our industry however age is definitely an affecting factor and this is for two reasons. The first reason is that no matters ones ethnicity, race or religion they are a consumer and consumers will always keep the paper packaging company afloat, however young people especially families definitely tend to buy more than the elderly increasing product demand. The other reason that race, religion and ethnicity don’t matter yet demographic make-up such as age of the population does because the Paper Packaging industry although they have been trying to cut-back on labor it still is a highly labor intensive market and needs young to mid-range fit individuals to keep it running. “The level of investment required has intensified; in 2006, $1.58 worth of labor was required for $1 of capital investment” (IBISworld, 2011, Operating Conditions, para. 1).
3. Lifestyle of consumers:
The lifestyle of all consumers definitely is what drives demand for our industry therefor it is a serious factor to take into consideration. If the lifestyle of the majority of America wasn’t so lavish and focused on consumerism our industry wouldn’t be a very profitable one, however many people in todays day and age are highly trained and accustomed to the fact that purchasing new products all the time is the norm, and products always need packaging which is why our industry is a very profitable one. The proof that lifestyle of the consumer drives demand in our industry is that when there was a recession and our industry suffered because people adjusted their lifestyles to consuming less new products. Here is an excerpt about the price of wood pulp and how it is driven by demand and only suffers when demand from the consumer is lacking: “the price did dip during the recession. Worldwide consumption of most goods dropped due to the recession, and paper products were no exception” (IBISWorld, 2011, Business Environment Report).
4. Industry Spending on R&D:
Research and development in the past ten to twenty years has begun to be a very important part of the Paper Packaging industry. One of the most recent focuses of research and development in this industry has been on reducing resource consumption and incorporating recycled materials in the production of our products. The largest costs in the industry are purchases “…material costs are expected to account for 47.9% of revenue.” (IBISworld, 2011, Competitive Landscape, para. 5) The fact that materials are responsible for the large part of the cost in paper packaging is why industry spending on research and development has begun to gain importance. Research on reducing consumption and integrating recycled materials will help the industry to try to bring down their overall product cost and therefore increase overall profit.
5. Focus on technological efforts:
Technological efforts to increase efficiency and cut down on costs were a big trend for the larger companies in the years up to 2008, including Temple-Inland. There was much investment into current and more up-to-date machinery and equipment yet once 2008 there was the recession and demand for the Paper Packaging industry fell. Now “…due to very weak demand conditions, technological change has stagnated since 2008.”(IBISworld, 2011, Industry Lifecycle, para. 3) Technological efforts are no longer being focused on and are of lower priority. The large decrease in demand and the lack of available funds has put technological efforts on the backburner for now.
6. Productivity Improvement-Equipment processes
As mentioned previously the Paper Packaging industry is a labor-intensive industry, however there has been a recent shift and firms have made significant cut-backs in labor, this is due in large part to the use of other technology improving the production process. Also mentioned previously material costs in this industry are extremely high therefor the use of new technologies such as “microspheres” has increased the quality and durability of their products. Due to improvement in processes “firms have also reduced labor intensity and raised the overall mechanization, accuracy and productivity across the industry. Technological changes have… increased the use of alternative materials in pulp and cardboard production. “ (IBISworld, 2011, Operating Conditions, para. 4) Cutting down costs of both labor and materials makes productivity improvement-equipment processes a very important factor in the paper packaging industry.
7. Disposable and Discretionary Income:
The Paper Packaging industry relies solely on demand and due to the lack of disposable and discretionary income in today’s economy because of the recession Temple-Inland’s industry is at high risk. Temple-Inland was actually acquired by another company in 2010 due in large part to the fact that the economic conditions are so unfavorable for consumers today. Here is a quote from IBISworld that backs-up the fact that it is due to the economic conditions that our firm was bought by International Paper Co., “Weak demand conditions between 2008 and 2010 caused companies to exit the industry or be acquired by larger firms. Over the five years to 2011, the number of paperboard mills decreased 3.3% per year.” (IBISworld, 2011, Industry Life Cycle, para.2)
8. Transports and Trade:
The Paper Packaging industry’s demand is mostly based on local and domestic factors rather than global and international factors. Since paper packaging is usually quite bulky and light as well it makes it hard to transport and therefore exporting the products our industry makes is actually uneconomical. This puts our industry at a very high risk compared to other industries that don’t solely depend on domestic demand and can rely on income from exporting. “Less than 5% of paperboard and cardboard packaging is imported or exported.” (IBISworld, 2011, Products & Markets, para. 7) Transport and trading of our industry’s products is not a very important issue for our company however the lack of it does really hurt the Paper Packaging industry in competition with substitutes yet there is not much to do about this issue therefor it is of low priority to both the industry and our company.
In the United States manufacturing companies such at automotive and electronics that use paper packaging used to be our industries main source of revenue. However, they are currently not producing as many of their products in the United States any more due to lower costs of labor and land by shifting production offshore. “As such, demand for paperboard has declined over time due to the strong penetration of imports in downstream industries.”(IBISworld, 2011, Products & Markets, para. 7) This shift to offshore operations is a large threat to our company Temple-Inland and is a reason that the Paper Packaging industry is in a declining state.
10. Sustainable Development and Recycling:
Since the Paper Packaging industry gets essentially all their materials from natural resources ecology is a very important factor in this industry. It is indisputable that land, water and air resources are of top priority to Temple-Inland and all companies in the paper packaging industry. Since these resources are so important this industry needs to make sure that land, water and air resources are sustained in order to have continuous access to operate their companies. This makes sustainable development and recycling a top issue and one that has been relevant for the industry when considering technological changes. “Technological changes have reduced resources such as water, energy and chemicals, and increased the use of alternative materials in pulp and cardboard production” (IBISworld, 2011, Operating Conditions, para. 4).
11. Environmental Protection Laws
Environmental protection laws could definitely be categorized as one of the top issues in the Paper Packaging industry, this is relevant for those in the industry, leaving the industry and attempting to enter the industry. The Paper Packaging industry faces high costs due to the stringent environmental guidelines that are put in place by the government. “Regulation is mainly concentrated on the industry's environmental effect on natural resources. The major regulation with respect to paperboard conversions is noise pollution, while pulp-making regulation is dominated by effluent and solid waste emissions and treatment” (IBISworld, 2011, Operating Conditions, para. 7). The level of environmental regulation is very high and this trend is only increasing due to the global population attempting to be more environmentally friendly and ecologically aware. Temple-Inland constantly has to look out to make sure they are following these laws however, they are mature and aware of them so it is an issue of medium priority.
Political Regulatory Forces:
Government regulation is another issue of high priority to the Paper Packaging industry, this is due largely to the fact that this industry relies heavily on the environment and has to be closely watched over to ensure that no part of the ecosystem is substantially harmed by the company’s existence. “Government regulation is projected to intensify, with an emphasis on reducing greenhouse gas emissions and preserving energy” (IBISworld, 2011, Industry Outlook, para. 2). Another reason that governmental regulations are an factor of high priority is because they cause the Paper Packaging industry to have very high barriers to entry. Regulations don’t seriously affect Temple-Inland because we already are aware of them and are a mature company in the industry so we don’t have any entrance regulations.
Issues Priority Matrix
Impact on Company Significance of Factor | | High | Medium | Low | High | - Sustainable Development and Recycling- Economies Disposable Income- Productivity Improvement-Equipment processes | - Environmental Protection Laws- Offshoring- Focus on technological efforts | -Political Regulations- Industry Spending on R&D | Medium | | - Cultural Conditioning:- Lifestyles of Consumer- Demographic makeup | | Low | | | - Transports and Trade | |
Temple-Inland is part of the Paperboard industry in the U.S., which produces paper packaging for a variety of industries including: agriculture, food production, and manufactured products. There is no single company dominant in this industry, however there are some visible top leaders. Temple-Inland, like many of the leaders in this industry, is a vertical integrated paper packaging operation that includes seven mills and 59 converting facilities.
Porter’s Five Forces is a highly regarded and is the most widely accepted model for understanding the competitive advantages of a firm. “This Model provides a general view of the firm, it’s competitors, and the firm’s environment”(Laudon, 2011, p.81). It “helps strategic managers to link remote factors to their effects on a firm’s operating environment” (Pearce, 2011, p. 91). Porter’s five forces are: Industry Competitors, Suppliers, Buyers, New Entrants, and Substitutes. Often the government is included as a sixth external force because the regulations and assistance programs they set up can greatly restrict or support an industry. “The collective strength of these forces determines the ultimate profit potential of an industry” (Pearce, 2011, p.92).
Industry Competitors hold the most weight of the five forces. “The corrugated packaging industry is highly competitive with 1,250 box plants in the United States” (Temple-Inland, 2010, p. 6) plus numerous others around the world. In the paper packaging industry Temple-Inland is the 3rd largest company, accounting “for 13 percent of total industry shipments in 2010” (Temple-Inland, 2010, p.6). Temple-Inlands direct competition includes: International Paper, the world leader in paper and packaging products; Rock-Tenn Company, is the 2nd largest U.S. based paper packaging firm with a 14.5% market share; Packaging Corporation of America, “is the fifth largest producer of containerboard and paper packaging in the United States” (Packaging Corp.A, 2010, p.2); and various other small firms. Due to the competitiveness of this industry, growth is usually done through mergers and acquisitions often during poor economic conditions. These acquisitions allow the larger vertically integrated companies who have ample capital resources to purchase both small and large competitors and increase their operational capabilities. Recently, International Paper has purchased Temple-Inland for 3.7 billion dollars (U.S.) in an acquisition, which increases International Paper’s market share, opens a new market of wallboard products to them, and stops competition from one of their top rivals. The level of competitiveness between companies in this industry is moderate because the companies are highly competitive yet still able to make a good profit.
In the packaging industry sources of raw and recycled fiber can be difficult to obtain due to environmental and government restrictions and difficulties securing long-term fiber agreements. “In 2011, material costs are expected to account for 47.9% of revenue” (IBISWorld, 2011, Competitive Landscape) in the paper and paper product industries. Temple-Inland’s suppliers fall into two categories; those who supply virgin wood and recycled fiber for corrugated packaging and those who supply gypsum for their wallboard operation. Temple Inland gets all of their gypsum for their wallboard operations from one supplier through a long-term agreement at market prices and a small amount from it’s own quarry in McQueeney, Texas. Forty-two percent of Temple-Inland’s virgin wood fiber for 2010 was acquired through long-term fiber supply agreements with the balance coming from various land and timber owners, and producers of wood by-products. In 2010, Temple-Inland filled forty-three percent of their fiber needs by purchasing recycled fiber from numerous suppliers on the open market at market prices. Temple-Inland’s suppliers of virgin wood and recycled fiber are numerous and are purchased at market prices, giving the suppliers a weaker level of power. Temple-Inland believes their long-term and short-term supply agreements “will be sufficient to supply [their] principle raw material needs for the foreseeable future” (Temple-Inland, 2010, p.3).
The commodity nature of the paper packaging industry gives Temple-Inland and other manufactures little control of the market price or demand for their products; therefore the buyers of this industry hold much of the power. A large portion of buyers in this industry are billion dollar organizations that distribute food and beverage products throughout North America. Some of Temple-Inlands featured food and beverage clients are: Nabisco products (such as Oreo and Chips Ahoy! cookies and Ritz and Triscuit crackers), Jell-O, Bacardi, and Coors. Temple-Inland also has clients in other industries including agriculture and manufacturing. Two other notable clients of Temple-Inland are Lexmark printers and Delta faucets. These organizations purchase packaging containers and displays in large quantities, thus giving them even more power over the manufactures. Temple-Inlands clients also so hold power because they are such large companies with immense capital resources that there is a risk of them integrating backwards. One of Temple-Inlands clients, Coors, has already done this in the past when they “ integrated backward into metal can manufacturing to gain bargaining power in obtaining the balance of their can requirements from otherwise powerful metal can manufacturers” (Gamble, 2011, p.46). Buyers also hold power because of their ability to encourage new entrants and substitute products into competition with the paper packaging industry.
The threat of new entrants into the paper packaging industry is low because of the many barriers to entry that exist. Competition in this industry is intense which makes it difficult for new companies to obtain the needed fiber supply, required financial backing for start-up and to gain a substantial customer basis. The presence of sizable economies of scale in the industry also deter new entrants because while the existing “companies enjoy cost advantages associated with large-scale operations, [new entrants] must either enter on a large scale (a costly and perhaps risky move) or accept a cost disadvantage and consequently lower profitability” (Gamble, 2011, p.52). During times of economic hardship and weakening demand “companies with economies of scale and multiple locations have the ability to downsize operations and restructure in order to improve profitability” (IBISWorld, 2011, Cost Structure Benchmarks) and continue to exist. The paper packaging industry is in a declining stage of the life cycle; therefore the industry is less lucrative to potential entrants because the industry is no longer growing and the demand for products is actually dwindling. This dwindling demand is due to many factors including changes in customer behaviour and technological advances in substitute products.
The threat of substitutes is ever growing stronger as new technological advancements produce new products that cost less to produce, have a lighter weight, carry more, and are more environmentally friendly. “Although corrugated packaging is dominant in the national distribution process, [Temple-Inland’s] products also compete with various other packaging materials, including products made of paper, plastic, wood, and metals” (Temple-Inland, 2010, p.6). To combat substitution the packaging industry had spent much effort, time and money on research and development to integrate recycled materials into production and to lower energy consumption make for a more environmentally friendly product.
The paper packaging industry is mostly made up of vertical integrated company whom own both pulp mills and converting plants. The pulp and paper industry in the U.S. is heavily regulated for environmental and health reasons, by the U.S. Environmental Protection Agency’s Cluster Rule. Temple-Inland is “subject to federal, state, and local provisions regulating the discharge of materials into the environment and otherwise related to the protection of the environment” (Temple-Inland, 2010, p.9). Currently there are no significant ongoing assistance programs such as tax credits or grants for mill improvements for the corrugated packaging industry.
The competitiveness of the corrugated packaging industry is average. The current players in the industry are making a healthy profit, with only moderate competition from outside forces and a low threat of new entrants. However, these outside forces such as substitutes, the economic downturn, and environmental friendly movements have pushed the industry into the declining stage of the life cycle. If the industry continues to invest in research and development and adapt to technological advances there is a strong profitability potential in the future.
As an industry goes through the natural life cycle there are many forces from both the immediate environment and the macro-environment, which persuade and pressure industry participants to act in certain ways. “The most powerful of the change agents are called driving forces because they have the biggest influences in reshaping the industry landscape and altering competitive conditions” (Gamble, 2011, p.58). 1. Regulatory influences and government policy changes. Government policies have an overall negative affect on the corrugated packaging industry. Strict U.S. government and environment regulations not only increase both the cost of production and the consumers’ cost of final goods but also makes U.S. firms less competitive with their global counterparts.
2. Technological change and manufacturing process innovation. The strict regulations by the U.S. government have led the industry to create more environmental friendly products, causing technological changes. Technological advancements have allowed the corrugated packaging industry to increase their production of products made from recycled materials and renewable resources. Changes have also been made by utilizing waste products and other by-products as biomass fuel to generate energy. 2. Changing societal concerns, attitudes, and lifestyles. During the recent economic downturn final consumers reacted to hard financial times by purchase less new products, this had a result of decreased demand for packaging. Changes in consumers wants have not only increased the demand for environmentally friendly products but products with less packaging. 3. Emerging new Internet capabilities and applications. Easily navigable websites such as eBay and Amazon.com have popularized the online shopping market; this has stimulated the demand for simple packaging designed for shipping merchandise from retailers to the consumer. 4. Entry or exit of major firms. International Papers acquisition of Temple-Inland has greatly changes the chemistry of the corrugated packing industry. Through this acquisition International Paper has greatly increased their market share, making them an even more dominant leader in the industry. 5. Reduction in uncertainty and business risk. The packaging industry has moved into the declining stage of the life cycle, mainly due to many of the above driving forces. In the declining stage, the major players of the industry are already established and the market size has been determined. There are few high-risk situations and unforeseen issues, which are normally characteristic of a new emerging industry.
The driving forces for the most part are collectively worked together decreasing the market demand, reducing profitability and pushing the industry into the declining stage of the life cycle. There are some driving forces, which are creating new markets in both the eco-friendlier and the online shopping industries. Without a large infusion of financial and research resources these new markets may not be able to save the corrugated packaging industry from substitutes. Research and development will play a vital role in the coming years. As shown by recent consumer behaviour and government regulations developments are need to be made in the eco-friendly markets for the industry to continue on.
The packaging industry differs from other industries because in general, these companies offer the same products and therefore customers are looking for a value rather than visual features, performance or taste and traditional marketing strategies does not usually influence them. Customers prefer volume purchasing and even the slightest difference in price may play a role when choosing their supplier. Following five major Key Success Factors were identified and ordered according to their importance with the help of IBIS World. (IBISworld, 2011, Competitive Landscape, para. 3-9)
1. Economies of scope
As mentioned above, price plays the most important role in this business.
The final price of packaging products consists of cost of materials, production costs and shipping costs. a. Guaranteed supply of key inputs at the lowest cost - Price of wood pulp
“Because wood is widely available around the world and easily traded, wood pulp does not face any supply concerns that would spike the price. Instead, demand drives price changes. (IBISworld, 2011, World price of wood pulp, para. 1) The price did dip during the recession, a 25.1% drop in 2009 to an average of $615 per metric ton (/MT) from $820/MT the year before, due to a drop in paper demand. Worldwide consumption of most goods dropped due to the recession, and paper products were no exception.” (IBISworld, 2011, World price of wood pulp, para. 2) However, according to report originally done by Freedonia, industry will grow at a level of 2.5% in the US and Reuters reports forecasts that the global growth will reach 3.4% through 2012. (Reuters. 2011. High Growth Reported for the World Corrugated Boxes Market. para 4) (Findarticles.com. 2008. Corrugated and folding carton demand to reach $39.9 billion in U.S. by 2012. para. 1) Assuming this scenario is most likely to happen, price of wood pulp will increase along with industry growth. source: http://clients.ibisworld.com/charts/bed/1_1_990033_BEDScores.png
b. Automation - Production Costs
Materials cover only a part of the final costs. They have to be processed and that costs something again. Obtaining the right technology, servicing and operating it does not come cheap and it is always reflected in the price of the final product. Temple-Inland recognized challenges and opportunities hidden at this stage and they started to reduce costs of Mills in 2003. Since then, they reduced the costs by five percent and increased Mill productivity by thirteen percent. All of this resulted in overall greater efficiency. (Temple-Inland. 2011. Corrugated Packaging.para. 6-7)
2. Quality of products Quality plays important role even in industry such as packaging. Whenever customers order packaging products, they expect them to meet their expectations. If, for instance, a grocery store orders a boxes which are suppose to carry a load of twenty-five kilograms and it breaks under twenty kilograms, then it becomes completely useless and the whole purpose of the product is lost because it did not do what it was built for. As Kevin Howard, the principal consultant of the Packnomics said “The lowest cost packaging material can be very expensive in terms of damages, presenting a poor quality image to the consumer, and perhaps resulting in higher-than-necessary logistics costs (transportation, handling, storage, materials, damages). (Quality Inspection Tips. 201. The importance of packaging optimization for importers. para. 4) To ensure quality as well as to promote themselves companies such as National Packaging Industries often apply for ISO 9001 quality certification. (Packaging-Gateway, 2011, National Packaging Industries - Corrugated Cartons and Corrugated, para. 9) (International Organization for Standardization. 201. Selection and use of the ISO 9000 family of standards. para. 4-5).
3. Government lobby
As it was already mentioned in the question two, packaging corporations closely work with government to meet high environment standards. In return, government applies protectionism policy on imported packaging products. As a result of it, over ninety-nine percent of packaging products in the US were originally made in the country. (IBISworld, 2011, Industry at glance, para. 1) The second reason why US government made this decision is that there were some quality issues regarding imported products as explained in point two.
4. Economies of scale & Paper Mills Network Larger scale mills can achieve cost competitiveness with major domestic producers (IBISworld, 2011, Competitive Landscape, para. 6) But even here, companies face a trade-off between the scale of their mills and their geographical location. They have to find a balance between the amount of products they produce and distance to customers because if a large mill reaches a high production and therefore saves money on productions costs, company will still have to pay more for shipping if the mill if too far from its customers.
5. Contracts with key customers. “Our goal is to deliver total value that meets customer needs and exceeds their expectations -becoming a long-term, trusted advisor and preferred supplier. Our customer-focused approach means we understand their business and deliver superior products and services that add value to our customers’ business, and their bottom line.” (Temple-Inland, 2011, Commited to our customers, para. 1) As Temple-Inland's mission tells, loyal partners are especially important in this industry. Not only do they buy the products in the long term, but they also help to develop custom products that will satisfy their needs. KeySuccessFactors | Weight | InternationalPaper(1-10) | InternationalPaperWeightedScore | Temple-Inland(1-10) | Temple-InlandWeighted Score | EconomiesOfScope(pricing) | 0.35 | 9 | 3.15 | 7 | 2.45 | Quality | 0.20 | 10 | 2 | 10 | 2 | Governmentlobby | 0.15 | 7 | 1.05 | 5 | 0.75 | EconomiesOf scale&Paper millsnetwork | 0.15 | 9 | 1.35 | 7 | 1.05 | ContractsWithKeycustomers | 0.15 | 8 | 1.2 | 6 | 0.9 | Totals | 1.0 | 43 | 8.75 | 35 | 7.15 |
Using competitors strength grid we were comparing two packaging companies, Temple-Inland and industry leader that just acquired Temple-Inland recently, International paper. Scores in the table above are subjective but should closely reflect real state of these companies. Pricing is the first and the pretty much decisive factor in this industry. International paper earned high grade because it benefits from large network of suppliers all around the world, which helps them to push prices to the bottom while maintaining a good quality of their products. They have rich history and quite large network of resellers and mills around the US. All of this helps them to save the money and succeed. Temple-Inland has very competitive prices, however is still limited to domestic supplies and domestic production and that is the main reason why it earned seven points.
In terms of quality, companies are neck-and-neck, they deliver the highest possible quality products and they deserve 10 points for that.
For the government lobby we gave International Paper seven points, because even though it co-operates with the government on environmental issues and employs thousands of people in the US, the fact that it has international background, and imports supplies from overseas disqualifies it against domestic, only-in-the-US operating companies. On the other hand, as the major player in the industry, and a company that turns into monopoly within the industry, it has a strong position in negotiations with government. Temple-Inland however did not use its position on the market. The company used to be number two but it got into trouble after losing lawsuits caused but its daughter company Guaranty Financial Group Inc. Temple-Inland was accused of loading bank with risky securities and it was found guilty. Not only did it cost the company hundreds of millions of dollars, but its good name was damaged too. With thousands of employees and relatively stable history and strong position on the market, it could probably negotiate far better conditions with government, instead government let International Paper to buy them, which directly supported monopolization of the industry.
International Paper has one of the best networks of paper mills and retail stores in the US. Looking at their map, they have covered the whole are of the country and they also built larger units with lower density in locations where their major partners and distributors are located. Temple-Inland has its branches mainly on the east coast. They have several mills on south in Texas and couple in California. Central part of the country as well as north-west are not covered at all. This surely increases the costs of shipping whenever they send their products to customers in this areas, but most likely, Temple-Inland only operates locally and leaves the rest of the country to its competitors. More is not always better.
Contracts with key customers is a factor necessary for survival and operation in this industry. International Paper is ahead of Temple-Inland mainly because it benefits from the fact that they produce food packaging along with corrugated packaging. This brought them many good deals and partnerships that they could build on. They have almost twenty different brands in stores today and are further growing. Temple-Inland had some good partnerships in past but none of them were ground-braking, and none of them could push company further.
After an in-depth analysis using various analytical structures, several conclusions can be drawn about Temple-Inland’s remote, industry and operating environments. The domestic paperboard and packaging industry have been vital to general consumers globally since it was first introduced in the late 18th century. The industry produces a plethora of paperboard container systems from corrugated boxes to packaging linerboard. Although the Industry is in decline, it remains a key player in the domestic market. After identifying the external issues affecting Temple-Inlands overall industry by doing a STEEP analysis it is apparent that a couple factors are of high priority both in our industry and to Temple-Inland itself and are identified in an issues priority matrix. These factors include competition from imports, sustainable development and recycling and disposable income within the economy. Porter’s five forces model identified many opposing factors that balance themselves out in the big picture and result in moderate competitiveness in an industry that is declining. The competitor strength grid reveals that companies operating in specific and large industries such as corrugated packaging have to have a strong foundation that is built over time because it will eventually bring increased market power and future growth. In such a mature industry the loyalty of customers, brand image and new opportunities do not show immediate success but rather in the long-term success. Overall, Temple-Inland
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Team MemberName | Activities Undertaken in Preparing Paper | Hours of Effort | Ian Young | Question 1: Establishing the context for the assignment | 4 Hours of group work + 4 hours of individual work: 8 Hours total. | Jolene Sanderson | Question 2: STEEP Analysis and Issues Priority Matrix | 4 Hours of Group meetings + 8 hours of individual work:12 hours | Laura Scot | Question 3: Porter’s Five Forces of Competitiveness | 4 Hours of group work + 8 hours of individual work: 12 hours total. | Stefan Mesaros | Questions 4: Describe the factors that determine success in your industry. | 4 Hours of group work + 5 hours of individual work:9 hours total | Alena Renton | Introduction, thesis, conclusion, compile/edit/turnitin | 2 hours of group work + 6 hours of individual work8 hours total |
Grading Rubric for E&IA Assignment Section: 001 Date: October 18, 2011Team Name: Temple-Inland | Overall comments and feedbackGrade: Evaluated by: Norine Webster | Content | 50% | Evaluation: | Demonstrates understanding of content with important insights into company situation | | | Content is comprehensive and accurate | | | Thoroughness/focus of research to support content | | | Relevant application of theories, concepts, and examples to support key points | | | Demonstrates effective critical thinking processes and use of criteria | | | Assignment components | 10% | Evaluation: | Addresses all assignment requirements | | | Organization | 15% | Evaluation: | Sufficient information in introduction | | | Transitions are present and provide logic and flow | | | Focus on most important ideas and concepts | | | Conclusion brings together key points of paper | | | Clarity and Writing Style | 15% | Evaluation: | Demonstrates adequate formal writing skills, as required by academics and business. Tone is appropriate and colloquial language is avoided. | | | Demonstrates satisfactory vocabulary, word choice and sentence structure | | | Writing is concise, written in active voice and conveys meaning | | | Follows rules of grammar, usage, and punctuation. Spelling is correct. | | | Mechanics | 10% | Evaluation: | Follows APA format guidelines for paper | | | Meets APA requirements for references and citations | | | Demonstrates attention to detail with effective layout, use of headings and white space | | |