Direct Cost Improvement in Pulp and Paper

BCG’s Direct Cost Improvement Program helps companies create a continuous and sustained cost-conscious culture.

Most pulp and paper players already have addressed the "low hanging fruit" of sourcing and fixed costs. Additional one-off programs to reduce fixed costs can’t bring all the improvements required by today’s competitive pressures. The next level of cost reduction needs to address the direct cost base through a cross-functional approach that aims for continuous improvement.

BCG’s Direct Cost Improvement Program provides a set of pragmatic tools by which forest products, paper and packaging companies can reduce direct costs across the entire value chain. Companies using the program have achieved an EBITDA increase of 2-3 percentage points by improving areas such as sourcing, wood supply, operations, sales, and product management.

The program brings together teams that focus on important cost drivers. The wood supply team, for example, works to optimize material flows to end users, while product managers work with customers on low-cost product development. The teams collaborate to identify cross-functional opportunities.

BCG’s team of cost improvement experts has completed more than 500 continuous improvement projects in forest products, paper, and packaging companies in the past three years. The results have often been significant. In one case, BCG helped a paper company achieve a 21% relative improvement in EBITDA, with 90% of the planned efficiency potential to be achieved in the first two years of the program.

Ten Critical Factors for Success in Direct Cost Improvement

  1. Clear rationale and targets
  2. Committed senior management
  3. Clearly defined scope
  4. Ownership in organization, engaging mill management early
  5. Management of the technical and cross-functional experts
  6. Early performance transparency
  7. Willingness to kick-start the momentum
  8. Management of cultural aspects and people behaviors
  9. Creation of simple solutions, sufficient for impact
  10. Transparent communication
Process Industries & Building Materials