Fair is fair. In our premiere Industry Roundtable held during last year's Winter Management Meeting of the Association of Industrial Metallizers, Coaters & Laminators, five leading converters spoke out on some tough issues facing their businesses. This year, it's the suppliers' turn.

The panelists gathered before a packed house at the AIMCAL conclave in Phoenix March 16. The roster included Mark Panozzo, president of the Converting Systems Group of Davis-Standard LLC (Fulton, NY); W. Michael Reed, account manager with Glatfelter Engineered Products (Greensburg, PA); John Norder, business manager for packaging/converting in North America, Rohm & Haas (Elgin, IL); Tom Gray, business manager with SKC Films (Covington, GA); and Ron Schmidt, director of OEM Sales with Maxcess Intl. (Oklahoma City).

Converting: What are the key challenges and opportunities facing your industry today?

Panozzo: Many of our customers say they're now looking for payback on their equipment in two years or sometimes even less. Yet at the same time, their performance expectations for that equipment continue to increase. So, it's a real challenge to meet the performance, the order cycle time, equipment flexibility and cost constraints to meet our customers' ROI expectations. On the other hand, that breeds a nice opportunity in that our customers' ever-changing markets are creating better opportunities for new equipment.

Reed: Like many converters, we're constantly battling the rising cost of raw materials, energy and shipping. It's certainly made a significant impact on our cost of manufacturing and the margins we're getting on our products. Likewise, being in the paper industry, you're constantly faced with the cost of meeting environmental regulatory guidelines.

Norder: The challenges we face are primarily that of availability and cost of key raw materials. We've seen the impact of the higher oil and natural gas prices in the cost of operating our plants and moving goods throughout the world. Our opportunities are in helping our converter customer become more efficient, how to help them run better and faster.

Gray: Balancing between differentiated products and commodities products is the challenge. Commodities are now in a nosedive, especially in the thin-film market, particularly PET films. The packaging market continues to erode in pricing due to competition globally. This is a huge challenge for the domestic PET-film suppliers. SKC is up to the task in that we have developed many new, differentiated products. Another challenge, I think for all film suppliers, is trying to find low-cost manufacturing. It doesn't necessarily have to be in the States; it can be partnering globally to make that happen.

Schmidt: The key challenges we face are I'm sure the same for most companies: internal cost containment, global competition and getting our message to the right people. In opportunities, more demanding consumers means when a new consumer-product innovation occurs, typically that will create a requirement for new machinery or modifications to existing machinery, which create substantial opportunity for all machinery builders.

Converting: How is your company positioning itself to meet these various challenges?

Norder: One area is raw materials, where we've able to use the excellent visibility that Rohm & Haas has upstream to feedstocks and their movements. We're using our global purchasing leverage to look at our worldwide requirements across the regions, and leverage that volume, to deliver the best price and keep material available to us. Secondly, customer service by trying to improve our customers' operations and make everyone more efficient; providing technical support to optimize running conditions; and training operators in the plants. Thirdly, we made some structural changes, moving R&D people into the commercial group, to become more responsive to the marketplace.

Gray: SKC is vertically integrated, so what that provides for our customers is security of supply. With Hurricane Katrina and the lack of supply, our raw material flow was uninterrupted. That also helps us be low-cost as well using the global market for resins. On the developmental side for customers, we're focusing on product differentiation and invested a lot in people. The trend may be downsizing, but we're doing just the opposite; we're expanding.

Panozzo: We want to understand what our customers are willing to pay for, and what they're not willing to pay for. We're in strong pursuit of a lean organization, and that means driving out costs that don't add value. We're shifting resources from historical manufacturing to technology. That's not to say that we're getting out of manufacturing; we are committed to it. But understanding what we're really good at; and focusing on that element of it.

Converting: Mergers and acquisitions play a role in all industries. What do you see in the future for consolidation?

Schmidt: M&As are almost always viewed with dread and great apprehension. I know because I've lived through many during my 29 years in this industry. But if planned, implemented, managed and monitored properly, sometimes it can literally mean the difference between dying, surviving or thriving. I think the future holds more of the same.

Reed: Change is certainly the norm in the paper industry, which hasn't been characterized by a lot of discipline in the past. Historically, it's overexpansion when times are good, and when times are bad, then companies shut machines down and close mills. We're now seeing major capacity going offline, but also it's creating very good opportunities to have mergers and acquisitions, to pick up key pieces of equipment or locations that fall in line with our core competency.

Gray: In polyester films, there have been a lot of mergers and acquisitions, but SKC has taken a different route. We have yet to participate in any joint ventures, M&As in the films group, and yet we grew to be the fourth-largest polyester film manufacturer in the world and continue to grow. As far as the market going forward, M&As will happen more in China. There are literally more than 50 PET-film suppliers in China right now, and more popping up in different parts of Asia. The question is: Can they make money? I don't think that small corporations in our business will survive in this type of market.

Panozzo: Having just completed a merger in May 2005, I would certainly agree that consolidation had been part of our past, present and future. We did that to simply build critical mass be-cause we felt having a relatively small operation in New York was not adequate to continue to grow with our good customers. Having said that, I think M&As have to pass an acid test. You have to be sure that there are good synergies, that you add value to your organization.

Converting: Share some of your investments and product developments that will provide converters with greater future opportunities.

Gray: Globally, there's plenty of capacity in thin films now. What are tight in our markets are thick films. Most companies in our industry are focusing on changing our asset bases. Easing the pressure on thick-film market demand by having new capabilities on our thin-film assets, broadening the range of gauges and products. At SKC we're working on the display [flat-panel screen] market, which is expanding. What's important is that this is a good thing for thin-films customers right now; the fact that the products are highly demanding in quality. The capabilities film manufacturers are putting in now to meet the demands of a display market, are going to benefit the rest of the products that go through those assets.

Schmidt: Our entire business model revolves around helping customers improve quality, increase productivity and lower their costs. If we can't do that, we don't get the sale.

Panozzo: That's really the nature of most of our developments. It really starts with a customer need. Recently, a thin-gauge cast film producer complained about always taking film off the machine to slit and rewind it. In response, our new S4 winder will allow our customers to avoid that offline slitting on thin-gauge cast film production by winding 20-in. wide rolls, six across, at 2,000 fpm. That type of performance was not available a few years ago.

Norder: We're working in three product areas. 1) We've developed a full line of solventless adhesives to expand the envelope, allowing these high running speed, low-cost materials to work their way into a broad arena of applications. 2) We've introduced a second-generation line of water-based, acrylic laminating adhesives that provide good moisture, heat and chemical resistance at high running solids. And 3) we've introduced high-solids, solvent-based systems that allow converters to run at higher line speeds, reducing operating costs.

Converting: Many converters have felt the squeeze between powerful suppliers and powerful customers, driving margins down. Price increases from suppliers have been difficult to pass onto customers. What can suppliers do to assure that their converter customers remain strong?

Schmidt: We've focused on cost containment as a normal course of business for the past several years by developing a smarter generation of products, realized efficiencies in our plants and cost reduction by purchase consolidations and inventory rationalization. We must be accessible to our customers 24/7.

Gray: Polyester suppliers continue to invest in state-of-the-art assets, which provide higher quality at lower cost to customers. This remains the trend in our business. We must work closely with each other to drive out cost in the whole supply chain and be quick to new product development to gain an advantage in the markets we support. To do this, we must open our lines of communications so there is no waste on either side.

Norder: Again, communication and cooperation between converters and their suppliers is key. Understanding what's required of the finished product, what type of coating capabilities or limitations exist, working together to map the requirements and avoiding over-engineering to keep costs down.

Converting: Any last words?

Norder: Although the name may be new to some, Rohm and Haas has been a supplier to the converting industry for many years. We have a number of products that were industry firsts, and we continue to develop leading-edge chemistry that will allow our customers to be on the leading edge. Rohm and Haas is committed to providing our customers a sustainable future through new chemistry, such as high-performance, water-based acrylics and bio-based adhesives.

Reed: The main message I would like to get out to the industry is that Glatfelter is a totally integrated manufacturer of specialty release papers. We understand the papermaking process and the specialty coating end. We also have more options for optimizing our products because we are our own supplier of base substrate for most of our liners.

Schmidt: Over the past four to five years, we appear to have lost our excitement in this industry. I remember when attending a trade show meant companies would bring their latest innovation and would display it for all to witness, and it would cause quite a stir. Competitors would go back to their drawing boards and come up with yet another innovation to meet and exceed their customers' expectations. Somehow we need to regain our edge. As an industry, one of our goals must be aggressive product innovation.

Gray: SKC Films is no longer just an Asian player. With our $350-million investments and state-of-the-art manufacturing facility in Covington, GA, we have become a global leader in the films market. We have succeeded in our goals to produce the highest quality products and still meet the cost pressures from abroad. Our focus on the display markets has the spill-over effect on raising the quality on all our products. Six Sigma investments in training will continue to pay huge dividends for years to come. It is an exciting time in the polyester industry. We are providing films never thought possible such as high-shrink, ultra low-shrink, sealable, peelable, biodegradable, embossable, multilayer coextrusions, twistable... Think of a property, and we'll try to develop it.

Question 1: Schmidt: By actively pursuing additional product and company acquisitions. We have a global reach and are actively penetrating the Asian, Indian and Eastern European markets. We are leveraging technology across all of our brands. And we also see incredible value for our customers in our extensive sales and service organization—essentially offering a local contact for every customer.

Question 2: Reed: Glatfelter has been focused on the market areas that are the best fit for our company and our manufacturing assets. We figure that's the best way to position ourselves and become a market leader.

Norder: The adhesive industry is obviously highly competitive and highly fragmented. There's a lot of attractiveness for the big companies to those niche markets as a way of growing their portfolio without becoming more competitive or aggressive in their current market segments. We think that the market is ripe for continued M&A activities. We saw before the downturn in 2000, quite a bit of activity. Of course, Rohm & Haas is a prime example of that, as is some of the expansion we saw in flexible packaging from converters such as Amcor and Alcan. Now we're starting to see after a bit of a lull that activity raising up again. Small companies are joining forces to become larger and have more critical mass. There are a lot of combinations going on out there for these investment bankers to build up more sustainable businesses that have a higher value.

Question 3: Reed: At Glatfelter, one of the key value propositions that we offer our customers is our integration in our pulp and papermaking facility and silicone release liner operation. At our plant in Spring Grove, we literally bring in trees in one end and ship silicone liner out the other end. That allows us to offer our customers a couple of key properties: Control over the quality of the whole process from start to finish, and it also insulates us from some of the price spikes associated with raw materials and energy costs.

Panozzo: And also to beware of companies that have a lot of legacy costs that are very difficult to shed. I think our consolidation met those criteria.

Question 4: Panozzo: As an equipment supplier, we have a responsibility to deliver equipment that helps our customers gain a competitive advantage. In some cases, this involves creating converting equipment that is tailored to a unique process and/or product. We have often collaborated with our customers in developing unique and proprietary machines. In other cases, it requires advancing equipment productivity, for example higher output, reduced changeover time or reduced waste, without increasing cost to improve our customers' return on investment.

Reed: Glatfelter has traditionally tried to partner with our customers to find ways to take cost out of the construction. This may sometimes require a redesign or a switch to a product that is more of a standard, but by bringing these options to our customers, we're able to provide options for reducing the total cost.

Norder: And also to beware of companies that have a lot of legacy costs that are very difficult to shed. I think our consolidation met those criteria.