Strategic Implementation of

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1 The Role of the Supply Chain for Strategic Implementation of the Forest Biorefinery 2009 Summer School: Supply Chain and Transportation ti Optimization i within the Forest Industry 1 June 2009 Virginie Chambost, Behrang Mansoornejad, and Paul Stuart NSERC Environmental Design Engineering Chair Department t of Chemical Engineering i Ecole Polytechnique - Montreal

2 Economic Stalement for NA and European Forestry Companies The perfect storm of strengthening g dollar, volatile energy prices, rising fibre costs, small older mills.

3 Some Forestry Industry Survival Strategies Go for Survival in Commodities, or Make the Most of Our Existing Industry Buy/Build Elsewhere In Emerging Markets, or Make the Most of Our Pulp and Paper Competency in Emerging Economies Diversify Core Business with Marketing & Technological Partners, or Make the Most of Our Existing Value Chain by Migration to New Business Paradigms

4 Some Forestry Industry Survival Strategies Go for Survival in Commodities, or Make the Most of Our Existing Industry Buy/Build Elsewhere In Emerging Markets, or Make the Most of Our Pulp and Paper Competency in Emerging Economies Diversify Core Business with Marketing & Technological Partners, or Make the Most of Our Existing Value Chain by Migration to New Business Paradigms The Forest Biorefinery!

5 Forest Biorefinery Definition One forest biorefinery definition: = full utilization of incoming i woody biomass for the production of: Wood products Pulp and paper products Energy Chemicals Another (more practical) forest biorefinery definition: = Maximizing the economic value from trees = Improved business model = Corporate transformation

6 Identifying the Right Biorefinery Configuration is Complex

7 The Challenge: Mitigating Risks, Improving Existing Core Business

8 Objective of this Presentation To present (certain) critical issues that should be considered d by forestry companies seeking to identify promising biorefinery pathways...based on biorefinery design activities, iti consulting activities, and pulp and paper company strategic planning...leading to an corporate strategy and multidisciplinary design methodology, employing process systems engineering and specifically supply chain management.

9 Presentation Outline Some key biorefinery concepts and definitions Biorefinery implementation strategy for forestry companies Overall design methodology ogy for the forest biorefinery Some interesting process systems engineering ideas - emphasizing supply chain management

11 -Centric and Product-Centric Design Towards a Product-Centered Chemical Industry - Rethinking the Role of R&D and its Interaction with Marketing and Business Strategy FOCAPD (2004), and AIChE webcast (2004) George Stephanopoulos, MIT Chemical Engineering is moving from being process-centric to product-centric Product centered: market trends product specifications components and subsystems chemicals and materials manufacturing systems design 11

12 Volume-Margin Trade-Offs for the Forest Biorefinery???

13 Definition: Building Blocks and Derivatives Waste Co-products or wastes? Chips Biomass Pulp and Paper Mill Yield? Yield? Yield? Building Specialty Block Intermediates or Fine Chemicals P&P Products $$ Main Biorefinery Products to Market $$$$ Reducing Volumes, Flexible Throughputs Increasing Complexity

14 Definition: Petrochemical Value Chains and Product Replacement Biorefinery Platform????

15 Example: Product Replacement in Mature Supply Chain Waste Chips Biomass Pulp and Paper Mill Yield? Yield? Ethanol Ethylene Yield? PE P&P Products $$ Main Biorefinery Products to Market $$$$

16 Definition: Emerging Carbohydrate Platforms and Product Substitution?? Carbohydrate Platform?

17 Example: Product Substitution in Emerging Supply Chain Waste Chips Biomass Pulp and Paper Mill Yield? Lactic Yield? PLA Yield? PLA Acid Polymers P&P Products $$ Main Biorefinery Products to Market $$$$

19 Key Competitive Factors Maximize forestry company competitive advantages: Access to biomass availability and harvesting knowhow Existing infrastructure in close proximity to forest biomass Established SC for wood, pulp and paper products Address forestry company competitive disadvantages with the biorefinery strategy: Lack of capital Lack of product development culture Lack of knowledge of product quality requirement, SC practices etc for new bioproducts

20 Some Lessons Learned from Our Case Studies Thus Far Biorefinery technology will be critical for competitive position in the short-term, term the unique supply chain will be critical for competitive position in the longer-term In order to be competitive in the longer term: product design, before process design Meet profitability targets for varying market conditions i by designing i for manufacturing flexibility The key to success in the forest biorefinery will be through implementing knowledge-based manufacturing in conjunction with flexible manufacturing and advanced supply ppy chain management

21 Strategic Approach for Implementing the Biorefinery Implementation: Capital spending concrete and steel Phase I Lower Operating Costs: Replace fossil fuels at mill (natural gas, Bunker C), and/or Produce building block chemicals Lower risk technologies Compete internally for capital Phase II Increase Revenues: Manufacture of derivatives Market development for new products Higher process complexity and technology risk Partners essential Select the most sustainable product platform and partner(s) Phase III Improve Margins: Knowledge-based manufacturing and production flexibility Business flow transformation Product development culture Off-shoring, Outsourcing, etc Company culture transformation SCM key to success Strategic Vision: Phase III must determine Phase I

22 Strategic Approach for Implementing the Biorefinery Biorefinery Goal: New Business Model Margins ag improvement po e is sapeequste prerequisite

23 Phase III = Enterprise Transformation Supply Chain Restructuring, e.g., simplifying supply chains, negotiating just-in-time relationships, developing collaborative information systems Phase III Improve Margins: Knowledge-based manufacturing and production flexibility Business flow transformation Product development culture Off-shoring, Outsourcing, etc Outsourcing & Offshoring, e.g., contracting out manufacturing, information technology support; employing low-wage, high-skill labor from other countries Standardization, e.g., enterprise-wide standardization of processes for product and process development, R&D, finance, personnel, etc. Reengineering, e.g., identification, design, and deployment of value-driven processes; identification and elimination of no value creating activities Web-Enabled es, e.g., online, self-support systems for customer relationship management, inventory management, etc. Market-driven culture to be established through a phased transformation

25 Objective of the Chair Forest Biorefinery Program The NSERC Environmental Design Chair seeks to identify and design promising forest biorefinery concepts, considering the rapidly emerging body of knowledge related to this area, and a multi- dimensional i set of criteria i such as market/commercial factors, social impacts, maturing technologies, etc. We will achieve this by developing a practical set of product and process design methodologies suitable for systematically exploring biorefinery opportunities in retrofit to pulp and paper mills, that minimize risks, that target existing mature supply chains, and that account for industry culture and other barriers to biorefinery implementation.

29 Objective of the Chair Forest Biorefinery Program The NSERC Environmental Design Chair seeks to identify and design promising forest biorefinery concepts, considering the rapidly emerging body of knowledge related to this area, and a multi- dimensional i set of criteria i such as market/commercial We factors, apply social the impacts, maturing perspective technologies, p etc. of the We will achieve this forestry by developing company a practical set of product and process design methodologies suitable for systematically exploring biorefinery opportunities in retrofit to pulp and paper mills, that minimize risks, that target existing mature supply chains, and that account for industry culture and other barriers to biorefinery implementation.

30 Overall Biorefinery Design Framework Promising Biorefinery Technology Products Strategy Product Design LCA Advanced Thermal Pinch Analysis Large Block Analysis of es Simulation Set of Preferred Biorefinery Configurations MCDM Supply Chain Management Reconciled and Economic Data Design Preliminary Engineering

32 Product family analysis: Creating added value along the value chain Product Design: Which Biorefinery Sequence? Individual Product Analysis Which replacement/substitution products should be considered? Promising technologies Product growth Potential for competitive advantage with green product Competitive manufacturing costs/existing value chain What are the competitive factors associated with the p g g aggregated product family? Risks? Product Portfolio: What potential new supply chain opportunities are there? Will a unique SC result, that can t be achieved by others? Risks? Risks? Partnership Selection: Who are the promising partners for the candidate product families? Do their corporate visions align with yours, i.e. implementing the biorefinery in partnership?

33 -Based SC Modeling (2006 Summer Schoool Presentation) Cost Accounting Analysis using Impact:ECS Work Center - 1 Local Factors Routings Work Center - n Local Factors Routings Cost Script Specific Calculation Cost Script Specific Calculation

34 Related Work: Business Modeling - Operation Aggregation lower level of detail Aggregation higher level of detail Work Center - 1 Local Factors Routings Work Center - n Local Factors Routings Cost Script Specific Calculation Cost Script Specific Calculation -Based Business Model

35 Strategic Supply Chain Design Today s Forestry Company 35

36 Strategic Supply Chain Design Tomorrow s Forest Biorefinery 36

37 Unleashing Supply Chain Value Forestry Chemicals Company Company Forest Biorefinery Supply Chain Supply Chain Supply Chain but there is more value to be unleashed 37

38 The Transformed Company Mill FBR FBR Phase 1 Phase 2 Chips P&P SC Strategic Biomass Mill Level FBR Phase 2 Corporation P&P Products Building Block Phase 3 Derivative Derivative SC Tactical Level SC Operational Level Mill 3 Mill 2 Mill n 38

39 Supply Chain Design for Unique Biorefinery Product Portfolio Selection Chips P&P FBR Biomass Mill FBR FBR Product Portfolio Development P&P Products Building Block Derivative Derivative Corporation Partner Supply Chain Mill 3 Strategic Synergies Between SCs Mill 2 Mill n 39

40 Mill Methodology for Evaluating Strategic, Tactical and Operational Supply Chain Policies for the FBR Chips Biomass P&P Mill FBR FBR FBR SC Strategic Level P&P Products Building Block Targeting Flexible Manufacturing Derivative Derivative Margins-Centric Operating Policy Scenario Based Design SC Tactical Level SC Operational Level 40

41 Supply Chain Analysis of the Biorefinery Integrating the Forestry, Petrochemical and Energy Industries Chips Biomass P&P Mill FBR FBR FBR SC Strategic Level Corporation P&P Products Building Block Refinery Partner Targeting flexible Manufacturing Mill 2 Derivative Derivative Margins-Centric Operating Policy Mill 3 SC Tactical Level SC Operational Level Mill n Case Study 41

42 Identifying Emerging Conversion Technologies for the FBR and their Capability for Operational Flexibility Chips Biomass P&P Mill FBR FBR FBR SC Strategic Level P&P Products Building Block Derivative Derivative SC Tactical Level SC Operational Level Target Manufacturing Flexibility Corporation Mill 2 Design and Cost of Manufacturing Flexibility Mill 3 Mill n 42

43 Supply Chain Logistics of Providing Low-Cost and High-Volume Lignocellulosic Material to P&P Mills Chips Biomass P&P Mill FBR FBR FBR SC Strategic Level Corporation P&P Products Building Block Derivative Derivative Biomass Harvesting and Carbon Management Logistics SC Tactical Level SC Operational Level Mill 2 Mill 3 For the Product Mill Supply n Chain 43

44 Stepwise Implementation of the Biorefinery and Transformation of a Forestry Corporation FBR Chips P&P FBR SC Strategic FBR Biomass Mill Level Corporation P&P Products Building Block Derivative Derivative -Product Implementation Steps - Economical Viability SC Tactical Level SC Operational Level Mill 2 Mill 3 Mill n 44

45 Summary of Key SC Issues that must be Addressed Biorefinery product portfolios identification Biorefinery technology assessment Tactical and operational SC modeling for a margins-based operating policy SC strategic network design SC logistics for biomass procurement Integration of forestry industry with other industry sectors Exploiting manufacturing flexibility for price volatility Incremental implementation of biorefinery 45

46 Conclusions Risk mitigation associated with the implementation of the biorefinery can be achieved through careful strategic planning, and by employing systematic product and process design methodologies: Starting with market-based product portfolio design Partner selection and partnership model are critical in determining the company s unique biorefinery supply chain The supply chain is critical to the long-term sustainable biorefinery, and likely represents a corporate transformation

47 The Role of the Supply Chain for Strategic t Implementation ti of the Forest Biorefinery