Surviving the pandemic and supply chain issues

Business
Cottonsoft country manager Kim Calvert at the East Tamaki site. Times photo Wayne Martin

Kiwi company Cottonsoft faced its fair share of issues during the pandemic and showed that sometimes, you just need to think outside of the box

Kiwi businesses, large and small, which survived two years of Covid-19 pandemic fall-out, continue to try and push through the pain barrier as they face issues around global supply chains, labour shortages and rampaging inflation.

These problems have compounded to severely impact profitability and they aren’t going away anytime soon.

Leading New Zealand economist Tony Alexander last month referred to ‘dangerous supply chains’.

“Business have learnt that their assumptions about the reliability of materials supply chains have been wrong,” Alexander said in his weekly commentary.

“This is leading to a number of changes. One is running higher inventories of inputs and that adds to higher costs via hiring of the storage facilities and financing the higher stock levels.

“Another is the shifting of supply sources from predominantly the cheapest supplier to a more geographically diversified range of suppliers. This comes at a higher cost.”

Kim Calvert, country manager for Kiwi tissue manufacturer Cottonsoft based in Highbrook Business Park, can relate. “Certainly the challenges of that has been huge,” Calvert told the Times.

Cottonsoft – a New Zealand-operated and managed tissue converting company – manufactures and distributes leading brands of high-quality toilet and tissue paper products throughout New Zealand.

The company, which was formed in Dunedin in 1986 where it retains a significant presence, today has around 210-215 personnel in New Zealand.

Cottonsoft has had to dramatically adapt not just during a very testing couple of years during national and regional lockdowns, panic buying of loo roll which meant extraordinary demand on staff and stocks and consequential global supply impediments. The company sources its base paper abroad.

“At the start of 2021 we decided to move Dunedin to full 24-hour operation. When we had supply problems, containers were taking one to two months longer than normal to arrive,” Calvert said.

“(Paper) prices went up, and shipping costs went up six-fold and space on container ships became restricted.”

There were occasions when manufacturing stopped when the company became starved of paper stock from overseas – a terrifying situation for a large company when fixed costs including staff wages were still ticking over.

The panic buying of toilet paper during the pandemic didn’t help the already fragile situation.

“It’s a bit hard to catch up (with tissue production) when people were buying three weeks’ worth [of toilet roll], said Calvert.

“We were watching compatriots overseas who were having problems. People were doing armed robberies in Hong Kong for toilet paper.

“We had three weeks of panic buying before the initial 2020 lockdown.”

Meanwhile the situation became a concern with people surveilling the premises in Highbrook by night.

“We had to hire security guards. People were peeping over our fences and even tried to trigger the gates [at truck exit].”

During the first period of panic buying – from March 2020 until level 4 lockdown – every trading day was bigger than Cottonsoft’s previous biggest day.

“For the full month, it was 80 per cent up on normal production,” Calvert said.

“There was plenty of capacity in New Zealand. We had to cull our range from about 50 products to 10 products to eliminate time-wasting machinery changeovers.

“The upside was that it made us much more efficient.”

Financially, March 2020 was “awesome” however that was offset by big drops in sales in the subsequent months, and enormous rises in costs. In August 2020 there was more panic-buying meaning more over time and extra trucks to get product to market at the weekend.

“All these things add to cost. All that demand into one month…fixed costs are still there. That was kind of the pattern,” Calvert said.

“It means we did lose money, particularly when the price of freight is factored in.

“In 2021 the pandemic settled down a bit but there was still panic-buying at times. That’s when supply chain issues began to show – early 2021.

“About 20 per cent of global shipping capacity was sitting waiting to be unloaded.

“Lead time went from four weeks to eight to 12. April to August delays climbed till they were arriving two months later.

“So in August 2021 we were turning the machines off because nothing was coming in.”

Calvert and his team got creative – they sourced their own vessel to get their product down under.

“We saw a problem coming and were able to address it,” Calvert said.

“We found a shipping agent and worked to operate a charter system.

“In September [2021] we ended up bringing in four ships. We were able to get bigger and bigger boats.”

But surety of supply comes at a cost – the cost of the ships, unloading of those vessels, storage of the product and bringing the cargo to Auckland from Tauranga.

The end justified the means. “The cost of not having tissue is higher than the cost of excessive inventory,” he said.

“We just looked for a solution and found a way, not just for us but for the retailer and the consumer.

“The challenges of 2021…the team was so good. I’m so proud about what the team have done.”

Right now, Cottonsoft is facing yet another challenge. “We desperately need more workers. I don’t think we’re much different from other companies.”

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