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Production and sales of corrugated packaging

6. Pricing capability in the corrugated packaging industry

6.1 SCA Packaging and introduction to the five cases

6.1.2 Production and sales of corrugated packaging

Corrugated board consists of a corrugated layer of fluting and flat layers of liner that are glued together during the production process to form a corrugated board. This first step in the production process of a

corru-gated box is called corrugation. The corrugation process is done with a corrugator machine (normally the main machine investment in a plant). The corrugated board that comes out of the corrugator is cut into sheets. Corrugated sheets can either be sold as they are, or further processed in a converting process to form boxes/packaging. There are several different converting machines in a box plant, where simple box designs might only need one converting step whereas more complex boxes require processing in several different machines. Generally, con-verting includes cutting, printing, gluing, folding, creasing, etc. An im-portant characteristic of packaging is the quality of the print on the box. SCAP uses a number of different techniques for printing; these will not be dealt with here. However, one frequently reoccurring cate-gorization is between post-print and pre-print. Normally, the packaging is printed in the converting stage of the production process. This is called post-print. Because of the difficulties in achieving finer print on an already processed corrugated board, packaging requiring finer print is often pre-printed, which means that the paper is already printed be-fore being processed in the corrugator.

The paper used to manufacture corrugated board (liners and fluting) is produced in paper mills belonging to the container board division. The finished liner/fluting is then either internally sourced for use in box plants or sold externally. Corrugation and converting is managed in box plants belonging to the corrugated board division. Box plants are rec-ognized by having a corrugating and converting capability. In addition to box plants, some production units are called sheet plants, which mean that they lack a corrugator and only do the converting from cor-rugated sheets.

SCAP’s products are to a large extent customized to the demands of the individual customer and there are, for most products, no direct stan-dards. However, some simpler boxes are standardized and stocked, of which the American box is the most widely sold. The lack of standards makes it somewhat difficult to speak of specific products. Instead, SCAP uses a product categorization that is related to the production process of different types of boxes. The most commonly used product categories are listed in Table 6.3.

Table 6.3 SCAP product categories.

Product category Description

Die-cut box More complex box often requiring more than one converting step Inliner box Simpler box often requiring only one converting step

American box Standard “brown box” that is kept in stock

Pre-printed box Packaging where liners are printed before entering the corrugator Post-printed box Packaging that is printed during the converting process

Corrugated sheet Corrugated board that is not processed further before sold Display Paper construction used for in-store display of consumer products

SCAP mainly operates in a business-to-business environment. SCAP’s customers are companies operating in both consumer and industrial markets that need packaging for their goods. Some examples of cus-tomer segments used within SCAP to describe the cuscus-tomer base are Fast-moving-consumer-goods (FMCG), Electronics, Automotive, In-dustrial, etc. Customer transactions are often managed in long term contracts, which stipulate price according to pre-defined parameters (often paper costs). However, a large share is sold and priced “per or-der”.

Because of SCAP’s decentralized organizational structure and the fact that different units have been acquired continuously since the 1960s, pricing practices differ widely across different plants and regions. How-ever, there are several characteristics of the pricing process in SCAP that are largely consistent across plants. The following presentation will fo-cus on a common description of pricing related activities, with the res-ervation that local differences can be extensive. This description serves as an introduction to the context in which pricing decisions are made in SCAP. Local variations will be addressed as the cases are introduced.

Pricing decisions are made at several different organizational levels within SCAP. The main bulk of pricing decisions is made at the indi-vidual unit by responsible officials. Lower level officials’ price smaller orders/customers while orders and customers that are strategically im-portant are priced at a management team level. Larger accounts that involve several production units are managed at either a national, re-gional or European level.

Most pricing decisions are made at each profit center or plant. As will be shown later in this section, pricing is not a well defined area of prtice in SCAP and therefore not a well defined process where pricing ac-tivities can be clearly separated from other acac-tivities more generally re-lated to sales or operations. Hence, the pricing process is embedded in the overall sales process and contains activities closely related to other functional areas within the unit. At the level of individual profit cen-ters there are three different types of pricing taking place.

1. Everyday pricing of new but non-strategic accounts – ordinary day-to-day pricing of new accounts that is routinely managed by responsible officials.

2. Everyday pricing of current accounts with established relationships – renegotiation of established contracts or prices is managed by responsible officials.

3. Strategic pricing (tenders, large key accounts, etc.) – novel and non-routine situations which often involve several members of the management team.

On a general level, the process leading up to the pricing decision and the closing of a deal with a new customer can be described as a se-quence of activities.

1. Customer assessment – Sales opportunities are identified, discus-sions with customers are initiated, and customer needs are specified in terms of a specification or inquiry.

2. Preliminary pricing decision – Mechanism and responsibility de-pend on the local approach.

3. Negotiation – Negotiation of final terms of the agreement.

6.1.3 Financial performance, products and local market