Kinleith ready to roll

By Mark Reynolds

Carter Holt Harvey's giant Kinleith pulp and paper mill - one of our nation's biggest export production machines - lies idle.

But don't panic. The plant has simply been switched off for a few days to install the final components in what has been a three-year expansion and rebuild programme to make it more internationally competitive.

At a cost of more than $320 million, the Kinleith upgrade is one of New Zealand's largest-ever private sector industrial investments. But more significantly, the Kinleith refurbishment encapsulates in one project all of the aims of New Zealand's sweeping economic reform programme that began in 1984.

The upgrade would not have gone ahead without the cuts to import controls, abolition of export subsidies, control of inflation, financial market liberalisation and even the labour market changes that are the hallmarks of the decade-long reform programme.

Kent Blumberg, who heads Carter Holt's pulp and paper operations, remembers why the project was conceived.

"The big thing that was really going on in the early 1990s was that we were waking up to the fact that tariff barriers were disappearing and imports were going to be a reality," said Mr Blumberg.

New competitors, like Australia's Visy Group, were lining up to grab a share of the newly liberated New Zealand packaging market.

"We had been sitting in a nice cosy little economy that was all cost plus and none of us was terribly good at what we did.

"We didn't know how much we had to do until the world started showing up at our doorstep."

And for Carter, re-examining the way it did business at Kinleith was not just about protecting its home patch.

"Not only did we have to compete against imports, we were also going to have to compete in Asia, because any growth we were going to have was going to have to come out of that region," said Mr Blumberg.

When Carter Holt executives looked at what they had at Kinleith in the early 1990s they did not like what they saw. In terms of efficiency and quality, its four-decade-old facilities for producing linerboard and pulp were among the bottom quartile of plants in the world.

For a company whose packaging products were critical to New Zealand export industries, that was deeply unsatisfactory.

A decision was taken to spend $313 million on a series of upgrades, including improvements to reduce the pulp costs to the lowest quartile in the world, and have linerboard operations at least comparable with the top 50 per cent globally. The revamp would ultimately lift total production by 30 per cent to 600,000 tonnes.

But crucially, said Mr Blumberg, the upgrade was about improving quality.

"We had to do cost reduction to stay in the game, but cost reduction doesn't buy you growth.

"What we had to do was look at the bundle of products and services we could deliver to our customers, and what they wanted."

Part of that was a realisation that rather than being all things to all people, the mill could only do things properly by focusing on a narrower range of options - for example, producing paper suitable for agricultural or dairy products that might be kept in coolstores for months on end.

"It meant finding out what customers needed, and working back to the manufacturing process from there," said Mr Blumberg.

"There is a parallel for the whole country in that. It is a recognition that you need to nurture a relationship with some key customers, or you will quickly find yourself isolated from your markets."

That realisation has changed the whole culture of Carter Holt, just as it has changed the culture within many New Zealand companies.

"For us, it really came down to respecting the people who work with us, overestimating their interest and intelligence and assuming that our people cared about what they did.

"Because of that we can give staff information about customers now and they lap it up. A lot of the operating efficiencies we have introduced have come from the plant floor."

Extra has also been spent on training and education, to make sure employees had the resources to follow through on their ideas.

Breaking down traditional barriers between staff and management was not an easy task when the refit was seeing a third of Kinleith's 950 workers lose their jobs to new technology.

Mr Blumberg said: "The way I look at it is that unfortunately to compete we have to produce with fewer people. But of the total dollars we put into our products, most goes to some other business in New Zealand.

"By dint of the expansion we will be spending a lot more in New Zealand than we used to - about 25 per cent more dollars a year.

"So while on some specific things we are spending less, and certainly that includes people, overall there will be more money going into the New Zealand economy."

While 60 per cent of Kinleith's output will be directly exported (a flip-flop from 40 per cent before the upgrade), about 40 per cent will be used to package New Zealand's other industrial and agricultural exports.

"The boxes we make get wrapped around products like apples, kiwifruit or meat, so when we are done the customers for those should be able to benefit from the lower costs of our producing them," said Mr Blumberg.

All going well, the Kinleith plant will be restarted next Wednesday, and it will be at design production levels by October. That is about three months behind schedule. Delays were caused by earlier startups not meeting quality specifications.

The company believes the quality problems have been sorted out, thanks to the help of a 30-strong team of experts from the company's majority shareholder, International Paper of the United States.

"Being able to tap into that expertise has been a great asset, and again is one of the things that the company did not have in earlier years," said Mr Blumberg.

"Now it's time to look up and ahead to what we can do in the future."