This article originally appeared on Forbes.com.
Demand for paper has fallen as business and transactions move online, particularly in more developed markets where Bain estimates that consumption may decline by 3% to 5% per year. Contracts, invoices and everyday communication flow without paper, and consumers are switching from print magazines and newspapers to online and mobile versions.
But the news isn’t all bad for the paper and packaging industries. Digital technology also offers new possibilities for cost savings and product innovations, particularly in three areas.
Digital customer relationships. As customers’ expectations rise, they want more transparency and closer control over their orders. Some packaging companies now make it easier for customers to collaborate with them, uploading personalized designs or ordering small-batch runs for special promotions. Some of these online systems are easier to use than others, and with competitors only a click away, companies need to make the user experience easy and enjoyable to keep from losing business to their more digitally savvy competitors.
Beyond these customer-facing capabilities, the data collected through digital transactions can help paper and packaging companies understand their customers’ preferences better, allowing them to make better products and spot cross sales opportunities.
Digital products and services. New technologies will make packages more trackable and more interesting. For example, RFID tags in packages and labels have been in development for more than a decade, but so far their costs have limited their placement to luxury or other high-margin goods, where the need to verify authenticity justifies the costs. Stora Enso, for example, has partnered with chipmaker NXP to integrate RFID into packages of luxury goods such as champagne or fragrances, to ensure authenticity and even to produce lighting or other display effects. As their costs drop, RFID tags could have broad applicability in industrial applications—for example, improving inventory management and authenticating spare parts for industrial equipment.
Another form of intelligent packaging relies on the humble QR code, which has become important in offline-to-online commerce around the world, but especially in China, where the introduction of QR codes coincided with the rapid rise of mobile phones. If the QR phenomenon continues, packaging companies could be in a position to play an active role in providing technology platforms for similar applications elsewhere in the world. For example, liquid packaging equipment and materials providers like Tetra Pak and SIG Combibloc have broad experience across the dairy industry which is valuable to their customers around the world. As more dairies rely on packaging to make the connection from online marketing and other aspects of customer engagement to their products, these equipment makers will be in a position to provide the technology platform to help them make that connection.
- Digital value chain. From more accurate sensor and scanning technology in the forest through more efficient operations in the mill or plant and better predictive maintenance throughout the process, the connections across the value chain are becoming more seamless and integrated. Drones and sensors improve the accuracy in estimating the potential of forests, and they can sharpen the ability to estimate the value of a harvest. Scanners and X-ray technology at saw mills can help calculate the ideal cuts to maximize the value of the wood. Digital technology makes it possible to monitor and operate facilities more efficiently—and even remotely. Digital sensors, wireless networks and apps on tablets can free technicians from the control room, allowing them to carry out inspections or repairs while staying in touch with central controls.
Paper and packaging executives should start their digital journey with a diagnostic geared toward gaining a better understanding of how new technologies are changing the industry. This assessment should include a comprehensive review of the company’s current and planned digital initiatives as well as its capability gaps—and those of important competitors.
With this fact base in hand, executives can begin to prioritize their digital initiatives for operations, customer engagement and new products like intelligent packaging. By focusing teams on priorities, they can accelerate progress on those actions that are most likely to increase margins and raise the share price.
As in other industries, successful implementation of digital technologies requires digital design thinking, greater cross-functional cooperation and nimble decision making. Most companies will need to hire new, digitally savvy talent to fill capability gaps while also improving the digital skills of existing staff. Finding the right partners will also be crucial—not just technology vendors, but also those that can supply or aggregate complementary products.
Finally, executives must be deliberate about picking the right opportunities for their market and regulatory environment. As with all large transformations, they should think of this as a multiyear journey, even though in this case one of the most important aspects of the change will be acquiring the ability to innovate in short cycles and deploy new products and services more rapidly.
Ilkka Leppävuori and Oliver Straehle are partners with Bain & Company in Helsinki and Zurich, respectively. Ilkka and Oliver work with Bain’s Industrial Goods and Services practice, and Ilkka leads the Forest Products, Paper and Packaging practice in Europe, the Middle East and Africa.