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Strategic
planning in the rapidly changing nonwovens industry : The challenge
of growth
The
world nonwovens industry is under stress, even though demand for
its products continues to rise strongly. Many factors are combining
to force change and the industry is going through a period of intense
restructuring and consolidation. As a consequence, many businesses
are having to rethink their corporate and commercial strategies.
In many cases new strategic business models are required to ensure
continuing competitiveness in the new market conditions. Success
in repositioning a nonwovens business depends on understanding the
background factors and choosing a strategy that is consistent with
both the new market opportunities and the distinctive capabilities
of the business.
What are the key industry and market trends?
According to John Starr, over the last 5 years the world nonwovens
market has grown from $7bn to $9bn. This period has also seen many
mergers and acquisitions and the emergence of Asia/Pacific as an
important area for both consumption and production. A few large,
key world players are emerging, most notably BBA, PGI and Johns
Manville. These are becoming the “super-suppliers” to
a set of “super-customers”, such as Kimberley Clark, Proctor
& Gamble and Johnson & Johnson in consumer markets but also
large car producers, cable manufacturers, medical suppliers, filtration
companies etc in industrial markets. Super-suppliers are tending
towards the following characteristics: having a broad range of technologies,
capable of supplying globally, willing to source cheaper products
or those it cannot make itself, investing in customer-focused R&D,
organised around specific market segments. Freudenberg, for example,
is now organised into three divisions focused on interlinings, filters
and technical nonwovens respectively; it used to be organised into
spunbond and staple fibre divisions. At the same time there is emerging
a group of high quality regional suppliers who focus on either low
cost production on state-of-the art machinery, on specialist products
or on supplying the smaller market segments.
Globalisation
breeds size
Consumer nonwovens markets are rapidly becoming global with a tendency
towards the same product specifications in every national or regional
market to match global branding. New product launches can be simultaneous
around the world. Companies wish to leverage their global presence
by way of global purchasing deals; only the larger suppliers can
respond to this successfully. There is a need for continuous product
innovation by nonwovens suppliers in step with the product and marketing
strategies of their major customers. Smaller nonwovens companies
are often very innovative, but without strong links with larger
customers it is often difficult for them to focus their development
efforts efficiently.
Product sourcing - Which
way to go?
Rapid market growth and product proliferation is producing a dilemma
for nonwovens producers: whether to invest in own-manufacturing
or whether to buy in products from other companies. Investment in
state-of-the-art machinery is very expensive and it increasingly
runs the risk of techno-obsolescence as even newer machinery is
quickly developed and market needs change. Outsourcing brings its
own problems: is there a big enough supplier? how can innovation
be guaranteed? how can confidentiality be maintained? There is also
pressure to integrate forward to produce value added end-use products
as final customers seek to simplify their supply chains.
Composite products lead to organised supply chains
There has been a recent explosive growth in the number of companies
offering both spunbond and meltblown nonwovens and laminates combining
both types. These products can be engineered to have characteristics
demanded by consumer markets: cloth-like aesthetics, thin structures,
performing specific single or multiple functions (eg breathability,
transfer, surge control), low unit cost. High efficiency turnkey
production lines are now available from machinery manufacturers
who are taking advantage of the expiry of patents; this breakthrough
technology is now available to anyone who can afford it. There is
a similar trend towards more complex products in the staple nonwovens
sector; customers want to be supplied with a finished product, which
is often a composite or laminate requiring several manufacturing
and value adding processes starting from the original nonwoven roll-goods.
Customers increasingly want their suppliers to take over the organisation
of this supply process; this leads to opportunities for vertical
integration, for installing equipment to make composite products
and for outsourcing. It is increasingly necessary for businesses
to understand the supply chains they operate in and how to optimise
their positions in them.
New raw materials are
emerging
The wide availability of best nonwovens technology will produce
an increased emphasis on the development and use of new raw materials
as a source of competitive advantage. The supply of increasingly
higher quality and cheaper viscose, polyester and polypropylene
fibres has so far been a major factor in promoting the growth of
the industry but new materials are now required if the pace of new
end-use product development is to be maintained. Metallocene technology
in polypropylene promises better aesthetics, stretch and wider performance
capabilities. Meltspinnable superabsorbents have a huge potential.
New elastomerics are being developed. Bicomponent and splittable
fibres can be engineered to produce microfibres for increased performance
with reduced weight, crimp for highloft, internal bonding etc. Novel
polyesters (such as PTT, with stretch characteristics), polyamides
and cellulosics (such as lyocell, which fibrillates) could also
be important. Companies developing, controlling access to and exploiting
technologies and materials such as these could generate significant
competitive advantage for themselves. The formation of collaborative
relationships with materials suppliers (especially fibre producers)
will become increasingly necessary.
What role for smaller companies?
The emergence of global suppliers has reduced significantly the
market share of independent nonwovens suppliers, but it has also
created a market space for existing, and new, smaller companies.
Such businesses usually offer a narrow range of nonwovens technologies
but provide greater flexibility in product and service within it
than the larger players, for whom they may supply specialist products
or components or service a specific geographical area. They often
service product/market areas which are of little interest to the
majors because of their small size or speciality. They can be the
source of fast-track innovation using their flexibility. They often
develop significant skills and versatility in adding value to nonwoven
webs by processes such as coating, laminating, impregnating, dyeing,
slitting, packaging etc. The challenge for every smaller company
is to identify that role in the industry and its supply chains and
markets for which it is uniquely qualified by its skills, experience
and industry contacts.
China
The great unknown China is the big challenge over the next decade
for the major companies in the industry. Its importance as both
a consumer and a supplier of product will continue to increase despite
current setbacks in its economy and retrenchment in its textile
manufacturing industry. India is important in these same respects.
There is, however, considerable mistrust of sourcing from China
and elsewhere in Asia but supply from there is rapidly moving away
from cheap, low quality copies of first-world products. The best
technology is available to Asia as elsewhere and companies like
DuPont, BBA and PGI are investing directly in China to ensure that
they understand the business culture there and identify and exploit
as quickly as possible the opportunities that are available. Many
commodity businesses will be shaken out in the aftermath of the
current phase of acquisition and consolidation. Many of these will
need to be relocated in low cost countries such as China if they
are to survive. The nonwovens industry in developed countries could
learn from the history of the textile industry in this area and
respond to growing markets by concentrating on added value products
and letting commodity products go to low cost sources sooner rather
than later.
How should nonwovens companies
respond?
There is a clear need for good strategic planning against this background
of significant change. There is a clear need for nonwovens companies
to take a well-considered approach to deciding on their future strategies
and action plans. In the past two years DRA have carried out strategic
planning consulting assignments with five nonwovens companies operating
internationally. These projects have covered a wide variety of web-forming
and value-adding technologies, all the high volume end-use market
sectors and many speciality product/market combinations. There are
Some Common Strategic Issues In all these consulting projects we
have used a system of segmenting the company into strategic business
units (SBUs), and into strategic product/market segments (SPMSs)
within each SBU, for purposes of analysis. Within this overall approach
we found in all these projects that we have had to investigate and
resolve issues in the following areas in helping the company to
decide on future strategies: Choosing an appropriate product/market/customer
focus and a basic method of competition (choosing the business model).
The different levels of maturity of SBUs and SPMSs and the different
strategies they require. New product development (NPD). The structure
of supply chains, where value is added and retained and who the
major decision-makers (channel captains) are.
Deciding on product/market/ customer
focus
 Many
nonwovens businesses have become unfocused over the years; they
have too many products, markets and customers. Market pressures
are now leading companies to become more focused and to have a clear
view of how they will compete in the future. We have developed two
models to help companies to achieve a tighter market and business
focus. The first is shown in Exhibit 1.
This shows how every nonwovens business (SBU) can be classified
as being one of three generic types. The first type (production
based) is focused on a particular technology (eg spunbonding) as
indicated by the heavy point at the apex of the triangle. It makes
a few different products (eg roll-goods types) and services many
end-use markets (eg wipes, hygiene, medical). The triangle therefore
broadens out progressively through products towards customers and
markets.
The second type of business (product based) concentrates on a particular
type of product (eg filter media), it uses several production technologies
(eg spunlacing, thermal bonding) and serves many end-use sectors.
The triangle diagram therefore has a focus at the product/end-use
level, indicated again by the heavy point.
The third type of business (customer/market based) concentrates
on a particular end-use sector (eg hygiene) and supplies a number
of products using several production technologies and often includes
outsourcing in its activities. We find that discussion of this simple
model, using fairly crude data on the market and on sales and margins
by product and customer, can quickly lead to a high degree of strategic
insight for our clients about their current business and how it
should be evolved into the future.
Value disciplines - How to compete
Closely allied to this is a model of how a business actually competes
now and how it should compete in the future based on three alternative
value disciplines. (i) Operational excellence: a low cost producer
based on best technology, lean manufacturing and high capacity utilisation.
These tend to be high volume, low margin businesses. (ii) Product/service
leadership: a problem-solving business using several technologies.
Often low volume, high margin businesses with surplus capacities.
(iii) Customer/market focus: concentrating on supplying the continuing
product and service needs of a particular customer set or market
segment. Again, we find that the discussion of this model with clients
using crude market and company data can lead rapidly to the identification
of key strategic issues. In applying both these models we carry
out a strategic analysis of the company, its SBUs and SPMSs which
includes consideration both of the markets the company is in and
of its relative competitive strength in those markets. This latter
involves a clear definition following a detailed discussion of the
company’s distinctive capabilities, core competences, strengths
and weaknesses.
Some parts of the business are more mature than others - and
need different strategies
In carrying out this kind of analysis we find that a company’s
SBUs and SPMSs can typically be classified into one of the three
levels of maturity. At the heart of any nonwovens business there
is usually 60-80 per cent of its sales which come from a small number
of generic or speciality nonwovens intermediate products sold to
a few customers with whom special, and often long-term, relationships
have been established. These generate the bulk of the business’s
sales and profits and provide financial stability. The strategic
issues for this type of business usually involve finding ways of
holding on to and evolving important relationships by cost reduction,
product evolution, improved service etc. Some of them ultimately
evolve into businesses in their own right (the highest level of
maturity) and the significance of nonwovens often recedes to that
of being just one of the material components of fairly standard
value added products, such as surgical procedure packs and interlinings,
which have quite specific functional end-uses.
The strategic issues for these products usually concern how to achieve
the economies of scale necessary to compete against more focused
competitors. Mergers and acquisitions to service better the target
end-use market segments and to achieve wider geographical market
reach are often an important way forward for businesses of this
type.
New product development - The future of the business
At the other end of the maturity scale is the third type of activity,
new product development (NPD), which we find is badly targeted and
managed by most companies. The key to success here is to focus the
vast majority of scarce NPD resources (people and money) on to problems
which specific customers have identified now and want a solution
to quickly. Solving non-problems, or producing solutions to problems
before they are needed are both very wasteful in resource and demotivating
to NPD staff. A good NPD programme will have the following characteristics:
A clear distinction is made among three different technical activities:
true NPD, the technical evolution of existing products and production
trouble-shooting. Different budgets (and ideally staff) should be
applied to each of them. An outline cost-benefit analysis will be
carried out on each potential project comparing the likely resulting
pattern of sales volumes and margins with the likely pattern of
expenditure and the probability of success. Clear priorities are
allocated to the possible projects; the top priority classification
should contain as few projects as possible. The potential strategic
impact of success of these projects individually, and together,
should be assessed. NPD projects should have clearly defined budgets,
timescales and milestones which should be reviewed monthly.
Are you optimising your supply chain positions?
There are two generic types of supply chain in the nonwovens industry:
processing and assembly. Some chains have elements of both. Pressure
from ultimate specifiers and end-users is forcing more, and better
organised, supply chains to be created in many product areas. Nonwovens
producers are at the very early stage in these chains and likely
to have little commercial power unless steps are taken to avoid
this. Successful action requires a clear understanding of the supply
chain and the power structures within it. In particular, it is important
to identify the real decision-maker in the chain and how he can
be influenced. Successful strategies of supply chain membership
often include: *Forming trust-based, long-term, collaborative, developmental
relationships with both suppliers and customers
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Agreements on the types and pace of the required cost reductions
and improvements in products and services
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Location of production near to the customer’s point of use
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Sharing systems (and sometimes staff) with suppliers and customers
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Back-selling to the ultimate specifier or end-user
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Strong protection of intellectual property
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Component branding
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Value pricing.
DRA have developed methods of analysing supply chains and how they
create value which can be used both to understand a company’s
current position in its supply chain and how they could be improved
and to plan entry into new supply chains.
The opportunities are there to be grasped
Not many industries, particularly those which are textile-related,
can match the past high growth rates of the nonwovens sector. The
fundamental market drivers for nonwoven products continue to grow
worldwide: GDP, disposable income, agricultural production, demand
for improved hygiene and better healthcare etc so that strong market
growth can be expected to continue. The industry is shaking out
but the survivors, those with the right strategies, can look forward
to a profitable future.
Source: David Rigby Associates
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