Peat Supply Chain Management. Vapo Oy. 1) Vapo Group overview 2) Pro and contras of used production methods 3) From R&D idea to practice, case example

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1 1) Vapo Group overview 2) Pro and contras of used production methods 3) From R&D idea to practice, case example Peat Supply Chain Management 4) Production network Director, management SCM Ilkka Heikkilä, Vapo Oy 1 FINNISH-RUSSIANENERGY DAYS 19-

Chain Management 4) Production network Director, management SCM

2 Vapo Group The parent company Vapo Oy is owned by the Finnish State (50,1%) and Suomen Energiavarat Oy (49,9%). Turnover 653 Me (2012) Number of employees

3 Vapo Group, business areas 3 BALTIC PEAT PRODUCERS FORUM , Ilkka Heikkilä

4 Peat activities Total production area ha 85 % of peat is produced for energy use 4

5 Electricity and heat production in Finland by energy sources Energy peat consumption in Finland was app. 17,1 TWh 6,3 million tons. Vapos share was > 70% of that 5

6 Volumes, scales 450 main contractors, 2900 external persons. Production volumes Mm3/a, 5-11 Mton/a In Transportation 550 persons (180 contracts). Up to truckload of peat per month (>800 truck load per /day) 6

Production volumes 15-35 Mm3/a, 5-11 Mton/a In

7 Production network management - History of Vapo`s peat contracting Co-comp. MWh-based contracts Partner contracts Independent contracting, overall contracting Work phase contracting Own peat production

8 Production network management - Responsibilities of Contractor/ Vapo Contractor is working as an independent entrepreneur (taxes, insurances, quality, quantity, supervision of work) Tractors owned by contractor Production machineries mainly owned by Vapo Production area in contract ha Typical duration of contract 1-5 years Contractor is also taking care of machine (own by Vapo) maintenance, and to keep production areas in basic condition Production is based on ISO-9001 and ISO standards 8

by Vapo Production area in contract 15 1000 ha Typical duration of contract 1-5 years Contractor is also taking care of

9 Production network management - Responsibilities of Contractor Fire protection, environmental works All production works from milling to stockpiling Maintenance of production machineries during production season Quality control of final product Yearly maintenance of production machinery (will be checked before and after season before final payments) Yearly maintenance of production fields (will be checked before and after production season before final payments) Vapo arrange training for contractors and its drivers, ajolupa card before work permit 9

production machinery (will be checked before and after season before final payments) Yearly maintenance of production fields (will be

10 Production network management - Quality driven contract 10 Payment is based on produced cubic meters (some cases MWh) measured on stockpiles. No fixed kind of payments Moisture level of peat is affecting to payment Moisture is defined by drilling stockpiles and analyzing the samples Other items that are affecting to payments: Density of stockpile Ash content Fuel price is affecting to payment Amount of fines is affecting Quality of environmental issues This contracting model has been good arrangement for Vapo and for Contractor

No fixed kind of payments Moisture level of peat is affecting to payment Moisture is defined by drilling stockpiles and analyzing the

11 Production network management - Profile of our peat Contractor Urakoitko Vapolle muuta kuin turvetuotannon kokonaisurakointisopimukseen liittyvää työtä? Do you have some other than peat contracting with Vapo? 50 % 40 % Kuinka suuri osuus yrityksesi liikevaihdosta tulee Vapolta? How big part of your companys turnover is coming from Vapo? Average = 65% Keskiarvo 65 % 38 NOEi 36% % Kyllä YES 64 64% % 30 % 20 % n= % n=153 0 % 10 5 belowalle prosenttia percent prosenttia percent prosenttia percent prosenttia percent prosenttia percent What contracting your company is doing for the moment? Road Teiden works kunnossapito (inc. snow (sis. work) lumityöt) Ground building Maanrakennusurakointi 37 Preparation Soiden of valmistelu-urakointi new bogs 26 Farming Maatila/peltotyöt 24 Loading Kuormaus 19 Transportation Kuljetus 18 Workshop machine Konepaja/korjaustyöt building 17 Wood collecting Puun ajo/keruu 9 Wood harvesting Hakkuutyöt 8 Lime distribution Kalkitustyöt 7 Stump collecting Kannonnosto 6 Energy grass Peltoenergia 5 Wood shipping Haketustyöt 2 Other contracting n= Missä urakointitoiminnassa yrityksesi on mukana tällä hetkellä? Muu urakointi, mikä? 6 0 % 20 % 40 % 60 % 80 % % 60 % 40 % 20 % 0 % n=154 Overall scores for Vapo about co-operation Kokonaisarvosana yhteistyöstä Vapo Oy:n kanssa? Keskiarvo Average 3,9 = 3, =Erittäin Very bad huono =Erittäin Very good hyvä

Average = 65% Keskiarvo 65 % 38 NOEi 36% % Kyllä YES 64 64% % 30 % 20 % 21 26 n=152 10 % n=153 0 % 10 5 belowalle 20 20-39 40-59 60-79 80-100 prosenttia percent prosenttia percent prosenttia percent

12 R&D together with partners. From idea to practice From idea... to laboratory... under testing verifying... prototyping... To practice Jyrsöksen (J) ja minikarheen (M) kuivuminen, koe 7 80 % 75 % Vesipitoisuus, % 70 % 65 % 60 % 55 % 50 % 45 % 40 % J 3/7, p-% M A/7, p-% M B/7, p-% J 3/6, p-% M A/6, p-% J 3/4, p-% M A/4, p-% 35 % 30 % Aika, h 12

.. To practice Jyrsöksen (J) ja minikarheen (M) kuivuminen, koe 7 80 % 75 %

13 Continuous R&D work has been key item to keep peat competitive.to 2013 From

14 Production network management - Training Lot of new tractor drives each year DVD training material Driving-cards for production persons E-trainings, environmental issues Contractor meetings Mentor arrangement 14

Driving-cards for production persons E-trainings,

15 Production network management - Environmental aspects BEFORE PRODUCTION DURING PRODUCTION EACH 2 WEEKS AFTER PRODUCTION Checking Environmental day Each production responsible area Observation of Environmental structures on the bog Fixing Notification of fixing needs Documentation and reporting of checked and fixed items Environmental review (Contractor and Vapo) Order/ agreement of fixation Fixing of structure Via MobiTask 15

structures on the bog Fixing Notification of fixing needs Documentation and reporting of checked and fixed

16 Production network management - Environmental aspects 16

17 Production network management - Environmental aspects 17

18 Production network management - Environmental aspects 18

19 Production network management - Performance measuring 19

20 Future challenges, smaller and older production sites 20

21 1) Vapo Group overview 2) Pro and contras of used production methods 3) From R&D idea to practice, case example 4) Production network management Thank you 21

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