BIOMASS SUPPLY ECONOMICS: MANAGING THE SUPPLY COST OF RAW MATERIALS

Transcription

1 BIOMASS SUPPLY ECONOMICS: MANAGING THE SUPPLY COST OF RAW MATERIALS Presented by Jim Pigott, CMC Vice President, Marketing & Sales, Tieto - Forest & Manufacturing, Americas & Australasia

2 CONTEXT WOOD COSTS Source: Wood Resource Quarterly, Seattle WA 53% of total production costs for pulp mills worldwide Q Wood cost often #1 factor in competitiveness of a pulp mill Cost of wood fibre has declined since 2008 Average 15% for pulp manufacturers worldwide in 2009 Global Conifer Wood Fiber Index (GCFI) Q2 09: $90.01/odmt Global Non-Conifer Wood Fiber Index (GNCFI): $94.92/odmt Wood cost component (as a % of total manufacturing cost) Lowest Countries : New Zealand, Russia and Western Canada Highest: Japan, China and Finland Wood fiber costs may have bottomed in many markets are increasing

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4 PULP & PAPER COMPANIES CONTINUE TO OPERATE IN A CHALLENGING, RAPIDLY SHIFTING SECTOR PricewaterhouseCoopers Global Forest & Paper Conference, May 2009 Increasing fibre, transportation & energy costs Lackluster demand at best and the impact of emerging markets on global competition Many of the largest companies have radically altered their business models Weyerhaeuser<->Chevron Catchlight Energy Biomass Power Plants Power generation lots of projects Black Liquor Tax Credit providing $$$ US Canada

5 5 PRIORITY ISSUES FOR BREAKTHROUGH R&D Top Forest Industry Priorities - AF&PA Strategic Issues Workshop, Dec. 08 Fuels used in US Pulp & Paper Industry 2002 Net Electricity 9.4% Coal 9.9% Natural Gas 21.3% LPG & NGL 0.3% Distillate Fuel Oil 0.6% Residual Fuel Oil 4.2% Biomass 54.3% 1. Substantially reduce carbon emissions and energy consumption 2. Reduce fresh water intake at least 50% 3. Increase the supply of and value from high-quality fiber and lowcost biomass 4. Develop new product features 5. Improve recovery and recycling of waste wood and fiber products - Paper360 o March 2009

6 BIO ENERGY: REDEFINING THE INDUSTRY Wood biomass is emerging as an important renewable energy source But may create competition for already strained fibre sourcing Still - substantial opportunities for forest products companies supplying or aggregating forest biomass producing wood-based energy (heat and power) producing wood-based transport fuels, value added chemicals and other materials Companies may need to partner New technology developers and with oil and gas companies to leverage the expertise of both parties Deals in the (wood and agricultural) bio-energy area have started to pick up most transactions to date involve co-ventures and start ups global bio-energy deals in the billions

7 BIO ENERGY: REDEFINING THE INDUSTRY Wood biomass is emerging as an important renewable energy source But may create competition for already strained fibre sourcing Still - substantial opportunities for forest products companies supplying or aggregating forest biomass producing wood-based energy (heat and power) producing wood-based transport fuels, value added chemicals and other materials Companies may need to partner New technology developers and with oil and gas companies to leverage the expertise of both parties Deals in the (wood and agricultural) bio-energy area have started to pick up most transactions to date involve co-ventures and start ups global bio-energy deals in the billions More states turning to wood power Electricity source on meteoric rise, but critics fear losing trees Across the USA, power plants are turning to wood to make electricity spurred by state mandates to encourage renewable power and by bills moving through Congress that would require more renewable electricity. - Source: USA TODAY October 14, 2009

8 BIO ENERGY: REDEFINING THE INDUSTRY Many of the various technologies are still in the research stage Inherent competition with established product value chains "The potential for wood-based energy and other new biomass-sourced products to significantly transform traditional fibre supply/value chains, and hence the current forest products industry, looks to be substantial. Companies cannot afford to be complacent about their chances of competing in this emerging scenario, since the most promising positions will likely rest with those controlling significant volumes of forest biomass. - Bruce McIntyre, Global Sustainability Leader for PwC's Forest, Paper & Packaging Group

9 ECONOMIES OF STANDALONE BIOENERGY & BIOREFINERY PRODUCTS Uses of Wood Fibre and Value Streams: Softwood dimension lumber NBSK pulp Ethanol Power $US / tonne of wood $680 $264 $167 $102 Source: Recent Finnish paper as presented to PAPTAC PACWEST June 2009

10 THE PAPER INDUSTRY IS LOOKING FOR NEW REVENUE STREAMS Biomass Waste to Energy

11 INFORMATION SYSTEMS for the SUPPLY CHAIN Traditional ERP Procurement Model for Purchasing, Receiving, Paying Suppliers and Carriers

12 BIOMASS SUPPLY CHAIN TYPICAL MODEL Long Term Supply Contracts Automated Weigh-Scale Receiving (Costed) Inventories Roundwood, Wood Chips, Hog Fuel, Recycled Fibers, Urban Wood, Construction Waste, FBF, Bulk Chemicals Sampling and Quality / Moisture Testing Vendor Payment Adjustment Automated Supplier/Carrier Payments

13 BIOMASS SUPPLY CHAIN vs. TRADITIONAL PO RECEIVING A/P - Not even close to the same processes! Starts Here 6 Reporting at each step of the process DB tables are maintained with updated Contacts, Freight rates, etc. Print Export === = Reports ====== ====== ====== Print vouchers, or batch Export to the Corporate financial system for payment 1 Scale receipts and Load reports. Also available to Suppliers/Carriers via Web or ===== PO, SO or======= CONTRACT=== == 2 Quality & Moisture reports for analysis Order/ Contract details are entered -RR- Journal Real time inventory amounts and values updated Commodity & Freight cost reports Dispatch BARGE CO (Optional Procedure) Shipper uploads B/L info via Web to TOPS/4 db Accounting transactions and Journal Entries created. Complete audit trail established Payables detail, taxes, invoice record, etc. Supplier/Carrier report retrieval Truck/Railcar/Vessel arrives. Gross & Tare scale weights and other data electronically captured. Reverse procedure for outbound shipments. 50 Freight charges are calculated from the system tariff tables Test results applied and Commodity cost is calculated test sample System prints Scale Tickets and sample test tags A sample is taken for testing moisture, materials quality, etc. Materials Inventoried: chips to dump; pellets to silo; paper to warehouse; etc.

14 QUALITY & COST Current technology focus seems to be on the science of biomass utilization but What about the quality of the feedstock and the total cost of raw material? How do we collect meaningful data to tell us?

15 QUALITY & COST per MMBTU as rounded percentage of $1 Fuel cost 46 Capital Dep. 20 Labor 13 Operations 10 Utilities 7 Admin & Compliance 4 Source: Common Purpose Institute

16 PROBLEM Most business software systems are not industry-specific Off-the shelf systems unable to customize ERP systems too costly to customize

17 SOLUTION A single, integrated, proven software system that will: Manage Purchase Contract data Collect Scale & Receiving data Set Sampling Frequency and Tests by Commodity Record Quality Sampling data Track & Adjust (costed) Inventories Process and Create Payments for Raw Material & Freight Provide complete Supply Chain Activity and Cost for Analysis Offload Vendor/Carrier inquiries to Web self-service Handle Sales, Brokerage and Trades

18 TYPICAL BUSINESS INFORMATION FLOWS for BIOMASS Typical workflow with integrated modules Source: Enterprise CodeWorks Inc.

19 QUALITY MEASUREMENT Determine Value of Biomass in Power Generation Terms: Heat Recovery (Thermal Value): 1. Moisture Content Moisture Test Ash Test 2. Burnable Solids

20 APPLY QUALITY RESULTS TO INVENTORIES Adjust Supplier Payment? - Formula pricing RESULTS Know Best Suppliers

21 BENEFIT It is important to make sure ALL the costs associated with supply are easily identifiable and reportable. Critical data, essential for: Paying the right $$$ for what you get Cost control over supply chain Determining variable cost versus fixed overhead Assessing profitability of power produced Support environmental certification (chain of custody) Auditable data for tax credits, grants, etc. Roll up daily, weekly, monthly, quarterly, etc.

22 BENEFIT (cont.) Single, repeatable source of data and system-generated procedures provides: Significant productivity gains Error-free work Accurate, reliable statistics and costs Improved business relationships

23 RESULT Ability to identify: Status of incoming raw material Quality of biomass material received Current net inventory quantity and value Adjusted for quality, measured in power units Cost of supply including freight and other charges, credits, etc. Best vendors to deal with

24 EXAMPLE Moisture

25 EXAMPLE (cont.) Quality of Material

26 EXAMPLE (cont.) Load Statistics

27 EXAMPLE (cont.) Settlement

28 EXAMPLE (cont.) Real Time Inventory

29 EXAMPLE (cont.) Commodity & Freight Cost

30 Reports filterable: EXAMPLE (cont.) Supplier Origin Mode Period/Date Range Commodity & Type Delivery point etc. Source: Enterprise CodeWorks Inc.

31 From the Desktop: View Print Export ACCESS Source: Enterprise CodeWorks Inc.

32 ACCESS (cont.) Or secure, controlled web access to reports by Suppliers, Carriers, etc. Source: Enterprise CodeWorks Inc.

33 SUMMARY An integrated fuel supply system allows: Significant productivity improvement through automated processing of data A credible and accurate recording of statistics for purposes of certification and supporting grants and tax credits Excellent supply chain cost management Better business relationships

34 TIETO - FIBRE MANAGEMENT SYSTEM Automated Payments of Vendors and Carriers Weigh Scale Integration Purchasing, Sales and Trades Contracts Starts Here 6 Reporting at each step of the process Integrated Transportation Inventory Tracking Quantity & Cost Quality Testing DB tables are maintained with updated Contacts, Freight rates, etc. ===== PO, SO or======= CONTRACT=== == Order/ Contract details are entered -RR- Print Export Print vouchers, or batch Export to the Corporate financial system for payment Journal === = Reports ====== ====== ====== Scale receipts and Load reports. Also available to Suppliers/Carriers via Web or Quality & Moisture reports for analysis Real time inventory amounts and values updated Commodity & Freight cost reports Chain of Custody Certification Support Dispatch BARGE CO (Optional Procedure) Shipper uploads B/L info via Web to TOPS/4 db Accounting transactions and Journal Entries created. Complete audit trail established Payables detail, taxes, invoice record, etc. Supplier/Carrier report retrieval Accounting Interfaces Truck/Railcar/Vessel arrives. Gross & Tare scale weights and other data electronically captured. Reverse procedure for outbound shipments. 50 Freight charges are calculated from the system tariff tables Test results applied and Commodity cost is calculated. Extensive Reporting Web Interface for Suppliers and Carriers System prints Scale Tickets and sample test tags test sample A sample is taken for testing moisture, materials quality, etc. Materials Inventoried: chips to dump; pellets to silo; paper to warehouse; etc.

35 Jim L. Pigott, CMC or Thank you.