The city of Swiecie in Northern Poland has a population of 27,000, and another 100,000 people live within 30 kilometers. At 24%, the region’s high unemployment rate is a major concern for local residents. The 1990s saw the downsizing or closure of several large companies. No new large-scale investments creating local employment have been realized. The city is a regional center for forest product companies (paper, pulp, wood processing and associated services). In addition to Mondi, there are at least two other corrugated paper producers and several small sawmills. Many small and medium businesses are materials and service providers to the regional and international paper industry.
Mondi is a global paper and plastic packaging group and is a specialist for office paper, containerboard, corrugated packaging solutions, kraft paper, industrial bags, extrusion coating, release liners and consumer flexibles solutions. Mondi has 112 production facilities in 34 countries and is dedicated to developing customized packaging solutions for optimum protection and promotion of its customers’ products.
Mondi’s paper mill in Swiecie is an important site for the company. It is one of the largest paper factories in Poland, producing sack paper and corrugated case materials – kraftliner, testliner, semi-chemical fluting and waste-based fluting.
Mondi plays a significant role in the economic and social life of the local area. The mill is over 40 years old and has been the largest employer in the region for several years, directly and indirectly employing nearly 4,000 people.
The most important impacts Mondi has on the local area are creating and maintaining employment and paying taxes. The taxes and royalties paid, money spent on local procurement, and the added value generated by the mill make Mondi one of the biggest contributors to the local economy.
In addition, Mondi is committed to encouraging private sector development in the local area through working with small and medium enterprises (SMEs) in its supply chain.
Encouraging private sector development through SMEs in the Supply Chain
Mondi defines local SMEs in their supply chain as those located within approximately 60 kilometers of the mill. This region includes the municipalities of Swiecie, Chelmno, Bydgoszcz, and Torun. Private sector development in the region has grown tremendously in the last ten years but remains comparatively weak because industry was historically dominated by large, state-owned enterprises.
Focus on SMEs
The history of Mondi’s support for SMEs began in the late 1990s when a major restructuring created opportunities for many local small businesses to take over outsourced functions. The efforts to support these new small businesses and others in the region were endorsed by the Mondi Board through a specific purchasing policy that says that if a local SME is at least equal to an international provider, preference is given to the local SME.
In 2005 and early 2006, Mondi conducted a Socio-Economic Assessment Tool (SEAT) analysis. Mondi uses the SEAT process to measure the impact of the mill on the local community. The process includes measuring direct and indirect job creation and several stakeholder interviews.
Stakeholders including suppliers and Mondi employees raised the importance of maintaining and increasing local SMEs in the supply chain. As a result, the Mondi management team in Swiecie committed to trying to further catalyze job creation and economic development.
Mondi is in a highly competitive industry where price, quality, and service are the key factors in purchasing. The Mondi purchasing policy is not philanthropy and is based on sound business principles. It is designed to encourage and enhance relationships with SMEs and strengthen the local socio-economic structure.
The aim is to raise local business capacity beyond Mondi, creating self-sustaining businesses that support a thriving community where qualified workers choose to live and work. Marcin Witkowski, Head of Purchasing, states, “If we were giving them an advantage perhaps it would help in the short term but not in the long term. Every Mondi local supplier needs to be competitive to survive on the market. It is really gratifying to see suppliers that started with Mondi as their largest contract now signing contracts with other international partners.”
How is the approach implemented?
Mondi sources its materials and services from suppliers across Poland, worldwide and locally. Mondi currently purchases local round wood, chips, paper chemicals, and services such as repair and maintenance, security, wood unloading operations, cleaning, and transportation of wood and finished products. Only about 10% of indirect materials are from local suppliers.
The strongest local business influence is in services rather than supplies. About 80% of services are from local sources. More than 25% of Mondi suppliers are SMEs and most are located in Eastern and Central Europe. Over the last 7 years, some 20 new local SMEs have been working with Mondi.
Working with SMEs starts with advertising in the region specifically to attract SMEs as business partners. The additional advertising cost is under 100,000 Euros per year.
Mondi’s experience is that many SMEs have needed Mondi to be a strong partner that provides technical assistance and enhances their capacities.
For example, several SMEs have needed significant guidance and coaching to improve their safety and environmental standards and procedures when working with Mondi. Training is offered to SME contractors to improve their skills and abilities. At first, the standards and training are a burden for them and not easy to implement.
In the long run, however, they learn to adapt and realize that working to a higher standard is a long-term benefit, as it increases their overall competitive position. More than 20 SME contractors have higher environment, health and safety standards today because of their work with Mondi.
Another aspect of supporting SMEs in the supply chain is recognizing the financing issues that some SMEs face. For example, Mondi focuses on paying invoices on time, not always a common practice in Poland. Mondi’s on-time payments provide cash-flow and payroll certainty, thus improving a SME’s ability to plan and grow.
Also, some SMEs are not able to independently finance equipment upgrades. In one case, Mondi signed a longer term contract with an SME so that it could use the promise of future payments to support its application for financing additional equipment.
Each purchasing decision involving SMEs is quantitatively and qualitatively evaluated on a case-by-case basis. The standard of bids for SMEs is no different from the standards for large players. Suppliers are expected to comply with specific environmental, health, safety and ethical standards.
Mondi recognizes that working with SMEs is demanding; however, the additional costs are low and the effort returns benefits in terms of increasing competition among bidders, reducing prices, and increasing the availability of goods and services to the company. Mondi estimates that the costs of maintenance contracts (where SMEs are concentrated) would be 20-30 percent higher without their participation.
Mondi has gone beyond philanthropy to use sound business principles to build local business capacity and help local companies be competitive to survive on the market, essentially helping them develop the tools for success.
The company has adapted to several challenges including: financial constraints and inconsistent quality from local suppliers that can be a barrier to working effectively with SMEs; a lack of local resources; poor customer service and a lack of knowledge in how to work with a large company.
The company has had to: build supplier capacity through training, skills development and strategy alignment; improve supplier quality and delivery performance; help companies improve their environmental, health and safety standards; and work within the local community to establish a stable operating environment.
A critical aspect of the SME success is in the well-developed and positive long-term relationship that Mondi has with the Swiecie community.
For Mondi, focusing on working with local SMEs in the supply chain has:
Enhanced company reputation
Created a competitive advantage for Mondi
Stimulated competition among bidders for Mondi business
Mondi believes that SME suppliers partnering with Mondi benefit by:
Improved environmental, health and safety performance
Improved quality and delivery performance
Increased financial stability
Enhanced local employment and skills
Wealth creation within the community