In recent years, the market for specialty papers has experienced a decline in demand and a growing emphasis on price. But Appleton Papers Inc., one of the industry's leading suppliers, has found a better way to compete: through improved customer service.

That approach might seem unlikely, in a business driven by customers' obsession with cost. But Appleton, with just over 3,200 employees, is no typical manufacturer. It has relied heavily on electronic data interchange (EDI), a technology usually associated with much bigger companies. It is 100-percent worker-owned. And the e-business portion of its IT department, consisting of just four people in the U.S., plays a much broader role in company affairs than might be expected. All of these factors have shaped Appleton's approach to communicating with customers.

With net sales of more than $1bn in 2005, Appleton is an old-line company with at least one big advantage. Formed in 1907 in Appleton, Wis., the company is the world's largest producer of carbonless paper, used in business forms. In fact, it is the only maker of the popular NCR Paper brand, which it helped to develop back in 1954, in partnership with The National Cash Register Co. Appleton makes a variety of related items as well, including thermal paper, security products and flexible plastic packaging materials.

As sole provider of the NCR paper, Appleton has a distinct edge over its competition. But the company is by no means assured of business. Customers have alternative sources of similar product, and rival suppliers pose a constant threat. What's more, the market for much of Appleton's product line is shrinking, as users shift away from specialty items or abandon paper altogether. Last year, the company saw declines in operating income from technical papers, thermal papers and coated stock (although net sales in some key areas increased). Meanwhile, manufacturing costs continue to rise.

Although it is nearly a century old, Appleton hasn't been stodgy in its approach to technology. It embraced EDI for communicating with customers in the early 1990s. The system then was tied to a mainframe, according to Kevin Pahnke, systems assistant specialist with Appleton. Around 2002, it migrated to IBM AS/400 hardware and the Gentran Server platform of Sterling Commerce. Sterling, which began life as a value-added network for EDI, has added over the years a broad range of software and services related to business-to-business communications.

It was a case of a paper company trying to eliminate paper. With the help of EDI, Appleton began transmitting manifest information electronically to carriers, along with pickup notifications and banking transactions.

EDI was a big improvement over manual processes, but it had its limitations. For one thing, it wasn't a real-time system. Messages traveled in batches, and were usually deposited with a VAN, which then provided the information to its intended receiver. The system was too slow and expensive for some customers, who wanted more flexibility in their communication methods.

A New Solution
Customers began asking for something more. They especially wanted an alternative means of exchanging data, says Pahnke. That's when Appleton began looking into a more advanced Sterling product, the Gentran Integration Suite for File Transfer (GIS).

Using a VAN with batch processing, it might take an hour and a half to transmit data to or from a customer, Pahnke says. GIS, which doesn't require a VAN in the middle, allows for buyers to submit orders directly within a minute.

That capability fits in well with changes in the industry. Appleton's customers, consisting of printers, merchants and paper converters, have themselves become obsessed with cost. A tiny difference in the price of materials can make or break a printer's job bid. Moreover, the pace of business is speeding up. Buyers like to wait until the last possible moment to place orders, says Pahnke. The absence of a traditional VAN means that they make later cutoff times.

	"It's clear that we made the right choice. I keep getting requests for new opportunities we wouldn't have been able to satisfy before." - Kevin Pahnke of Appleton Papers

Add to that mix an expansion of global commerce. A growing number of Appleton's customers are located outside the U.S. In a recent reorganization, the company created an international division for technical papers. (The other two divisions are for domestic sales of technical papers, and flexible packaging.) But the trend has created new worries about security. For a long time, says Pahnke, Appleton found it difficult to implement secure File Transfer Protocol (FTP) transactions with vendors and customers. The problem was especially acute when dealing with banks. It could only become worse when more accounts were located overseas.

Sterling's GIS helped Appleton to address those concerns. Pahnke says the tool met Appleton's requirements for both low cost and flexibility. At industry conferences, he had heard Sterling executives lay out "a road map for the future," and the vision seemed to square with that of Appleton.

Sterling was no stranger to Appleton's world. "If you take a look at the Sterling install base, it is hard to find an industry that we don't serve today," says Chris Johnson, the vendor's vice president of product management for business-to-business collaboration.

Appleton, he says, was a typical mid-sized manufacturer in the industrial sector, facing growing pressures related to operating cost, product price, competition and customer service. What made it unique was the company's position as the exclusive seller of a popular product - in this case, the NCR paper. As a result, the need to maintain a high level of service was especially acute.

Appleton's e-business team was also drawn to GIS by its ability to conform to the user's unique needs. It contains pre-built business processes that make it usable in an out-of-the-box fashion, says Johnson. But it can also be tweaked to conform to user preferences for message-routing and decision-making.

GIS for File Transfer is distinctly different from the old Gentran Server, Pahnke says. Unlike its predecessor, it wasn't designed solely for huge batch runs of EDI data. It also handles the movement of large files, and supports a variety of transfer formats and communications protocols. GIS is built atop a service-oriented architecture (SOA), the latest technology for integrating disparate software applications and hardware platforms.

GIS includes a high-level reporting tool that details which orders are moving through the supply chain, says Johnson. Depending on the content of a message, and based on a series of algorithms, the system can decide on the appropriate routing according to a company's internal processes, he says.

Small Group, Big Voice
Compared with many industrial manufacturers, Appleton is a small company, so Pahnke didn't have to go through an onerous approval process for the purchase. In fact, his department has a voice within the company that is far bigger than its size might suggest. IT works closely with customer service, an unheard-of situation in most corporate cultures. Instead of being relegated to the basement, "we deal directly with customers on a daily basis," says Pahnke. E-business staffers are also sometimes contacted by members of the sales force who are seeking to solve customer problems.

"They have an admirably lean IT staff," says Johnson. "They automate whatever they can."

Even the largest companies can be swallowed up by a major software implementation. But putting the new file-transfer system in place was a relatively simple task. "You can get fundamental GIS humming in just a few days' time," says Johnson. The inevitable configuration work didn't slow the project appreciably, he adds.

Appleton was bought out by its employees in late 2001, in an $810m transaction that was financed in part by $107m in worker retirement funds. The setup has had a big influence on the way the company spends money. "When you actually have an ownership stake," says Pahnke says, "you really want to control the cash." All purchases are scrutinized for the value they will bring to the organization.

The benefits of this system, the company says, are significant. Data accuracy is a major one. In the past, says Johnson, that last-minute flurry of orders at the end of each day could result in multiple mistakes. Now, with messages moving independently instead of in batches, a problem with one won't stall the others.

Appleton finds out about glitches faster than before. It doesn't have to wait until customer service receives a complaint, then takes it to IT for resolution. Instead, all relevant personnel are notified immediately by e-mail of any problems in a customer order. Many orders are received in Extensible Markup Language (XML), the latest standard for sharing data directly over the internet. Appleton checks them all for compliance with standard XML formats, highlighting any mistakes at the outset.

GIS integrates easily with Appleton's enterprise resource planning system. In a $23m capital project known as Project Venture, the company spent nearly two years, from December of 2002 to the second half of 2004, implementing ERP software. The vendor was J.D. Edwards (now part of Oracle Corp.) The system oversees nearly every step of the order-to-cash cycle, including order entry, pricing, distribution, inventory planning, invoicing and accounts receivable. Sterling's GIS can map directly from an XML document into the ERP database, Pahnke says.

The flexibility of GIS allows Appleton to swap messages in a variety of ways. The company has received large files from customers that lack EDI capability. It can also convert old technology into new. In at least one instance, a customer submitted a spreadsheet attached to e-mail. "It took our pricing department an entire week to enter information into the system," recalls Pahnke. The new system lets Appleton map spreadsheet data directly into the database, eliminating that delay.

Overall, says Johnson, GIS has saved Appleton at least one full day per month in data-processing time. At the same time, it has greatly reduced the company's error rate, in large part because no manual rekeying of data is required.

The system has side benefits for Appleton's customers as well. Because ordering is faster and more responsive, they don't need to keep as much buffer or floor stock on hand. And in the specialty paper business, speed is all-important. Even before it installed GIS, Appleton was taking orders from merchants, then shipping directly to their end customers. With distribution facilities throughout the U.S., the company can offer next-day service, Pahnke says.

A Delicate Balance
Appleton maintains a delicate relationship with its customers. As the sole source of NCR-branded paper, it must provide superior service. Even one unhappy account can have a serious impact on the bottom line. In the technical papers division, Appleton's five largest buyers of coated papers accounted for 42 percent of net sales of those products in 2005. They need real-time access to accurate information about pricing and other elements that make up the order cycle.

The proof of Appleton's success lies in its ability to retain customers. When contracts come up for renewal, the supplier can call on a history of service to dilute the impact of a price-driven environment. "If you can provide service at a much higher level than the competition," Pahnke says, "then they are going to look at that."

At the same time, Appleton must be a low-cost provider. By reducing its reliance on pure EDI, the company manages to boost service even as it controls operating costs. Any savings can be passed on to customers who might otherwise be tempted by larger suppliers with better volume economies.

Appleton's obsession with customer service is one reason why the company has yet to make extensive use of GIS for communicating with its own base of suppliers and other vendors. Up to now, says Pahnke, the system has been used primarily for pricing, orders, invoices, manifests and banking. EDI remains the primary means of linking up with suppliers, although Pahnke sees potential in GIS for managing that end of the chain as well.

Looking ahead, Appleton hopes to make use of other B2B functions built into GIS. "Until you actually have a need for these processes, you may not understand how they can be used," says Pahnke. Now a subsidiary of AT&T, Sterling offers applications for business intelligence, regulatory compliance, and process management, among other things. Johnson says the vendor will be paying special attention to trading-partner community management, as well as new security capabilities.

The problem for Appleton is finding the time to review the additional options. Occupied by the need to keep pace with competitors, the company has barely been able to catch its breath. "We are in kind of a reactive mode," says Pahnke, "because of the volume of customer demand. We need to sit down and evaluate what [Sterling] can do."

Among the company's major goals is a continued reduction in costs. That was a prime motivator behind the 2005 restructuring of the business into three divisions. It also has fueled several workforce reductions, including the elimination of 94 positions in the U.S. last year. Another 54 jobs were cut when BemroseBooth, Appleton's British subsidiary, stopped offering traditional printing and binding services within its information product line.

Appleton's recent financial performance has been less than stellar, but it's on the rise. The company posted a $3m loss in net income in 2005, compared with a $25m loss the year before. Results from early 2006 have been even more encouraging. For the first six months of the year, Appleton saw net sales climb to $538m, up from $515m in the same period of 2005. Net income was once again in the black, at $6.8m, versus a loss of nearly $5.3m the year before.

As the company's new five-year plan settles into place, Pahnke expects it will have more time to consider further enhancements to the way in which it communicates with customers at one end, and suppliers at the other. Recent brainstorming by the IT department yielded fresh ideas for deploying new information technologies throughout the company, Pahnke says. The trick is finding those applications that will lead to the biggest possible payback.

Challenges, including a declining market for carbonless paper, rising manufacturing costs, increased global competition and uncertain economic conditions, won't be going away anytime soon. But Pahnke believes Appleton is in good position to navigate that series of storms, in part because of improvements to the order cycle through use of the GIS system.

"It's clear that we made the right choice," he says. "I keep getting requests for new opportunities we wouldn't have been able to satisfy before."

Appleton at a Glance

The company: Appleton Papers Inc., a maker of specialty paper and packaging products, including carbonless and thermal paper. Headquarters: Appleton, Wis. Top executive: Mark R. Richards, chairman, chief executive officer and president Number of employees: 3,200 Recent financial results: For first half of 2006, net sales of $538m, versus $515m in the year-earlier period, and net income of $6.8m, versus a loss of $5.3m. Supply chain challenge: Cutting the cost of order processing while improving customer service, in part by reducing its reliance on traditional electronic data interchange.