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When a CEO is installed at a company that’s looking to battle back from bankruptcy, the temptation sometimes is to throw out the company’s strategic direction and head in a wildly different direction.

But after six months in the corner office, Fred Smagorinsky is sticking to his strategy of avoiding drastic changes in the way Marcal Manufacturing LLC creates and sells its paper goods.

“I was not brought in with a mandate to completely revamp the strategic direction of the company,” said Smagorinsky, 51. “And I frankly didn’t see a need to do that.”
A former McKinsey & Co. consultant, Smagorinsky has a long history of working with manufacturers. He most recently served as CEO of Schofield Stone, aBridgewater-based firm that quarries, fabricates, wholesales and retails natural stone products, and before that was vice president of corporate sales and marketing at Sealed Air Corp., a global food and specialty packaging firm based in Elmwood Park.

“Fred’s qualifications are as good as you can get,” said Schofield Stone CEO Bill Newell. “He spends a lot of time developing reporting, compensation and other structures that are part of a critical foundation for growth.”
Newell had high praise for Smagorinsky’s leadership and cost control expertise, noting “the recession had a devastating impact on Schofield, but he guided it through one of its most difficult periods.”

Still, the challenges facing Marcal today are impossible to ignore: It competes in a commoditized market, where consumer choice largely depends on price, and its manufacturing processes were energy intensive, leaving it vulnerable to power price swings.
Those troubles and others brought the company to file for Chapter 11 bankruptcy in November 2006, after more than 70 years as a family-owned company making paper towels, napkins and other goods at an 80-acre site in Elmwood Park. Its assets were later bought by entities associated with the investment advisory firm Highland Capital Management L.P.
“I wasn’t here back then, so I can’t tell you everything,” that drove Marcal to bankruptcy, Smagorinsky said. But a large part of its problems stemmed from expensive debt that couldn’t be refinanced at reduced interest rates, according to the firm’s bankruptcy filing.

As a privately held company, Marcal doesn’t release any financial information, but manufacturers and other companies that emerge from Chapter 11 generally liquidate most or all of their debt, according to Gerald Najarian, founding principal of Remington Group LLC, a Princeton-based manufacturing management consulting firm.
Smagorinsky said Marcal has since boosted productivity and reduced costs by embracing so-called “lean” manufacturing techniques to make products out of recycled magazines and office paper under its Small Steps product line.

“We are really very, very aggressive in pursuing cost reductions at every step in our process,” Smagorinsky said. “We’re very exposed to energy and we’re very exposed to fiber; those are really our major cost drivers.”

For instance, while some manufacturers try to reduce costs by purchasing energy contracts that lock in fuel prices, Smagorinsky focuses on reducing power consumption through improved operations.
“Rather than running (recycling and production processes) continuously, we can cycle them” to save power, he said.

In such a large production facility, Smagorinsky said, such a strategy must be coordinated with a host of other processes, from receiving raw materials to shipping finished products. A truly lean manufacturer must consider “an end-to-end view,” he said. Otherwise, “you can reduce costs in one piece and end up increasing costs downstream.”

The brand’s other distinguishing factor is its commitment to using recycled materials, which it brought to its products decades ago, when it sniffed an economic opportunity, since recycled fibers cost less than virgin pulp.
Today, the company touts its green efforts as a selling point, betting an environmentally conscious public will feel more comfortable with a company with a strong commitment to recycling. But the green image only goes so far, Smagorinsky said — selling price is still the top concern in customers’ buying decisions.
To meet some of its targets, Marcal is trying to beef up its sales team and strike deals with brokers to land in more stores. While it’s a nationally known brand, Marcal’s biggest market is still limited to the Northeast, he said, and “we didn’t hit everything we wanted to achieve in 2010.”

One strategy Smagorinsky said he won’t consider is outsourcing production to low-cost producers overseas. Marcal tested imported products over a four-month period; the results were “all over the map,” he said. “Bringing in product from overseas (involves) tremendous variation, not only in product quality, but in lead time,” he said.
“We’ve seen slow but steady progress in growing our brand,” he said. “We’d like it to be fast but steady progress — but in this environment, we’ll take it.”
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