BIOMASS SUPPLY ECONOMICS: MANAGING THE SUPPLY COST … · system tariff tables Test results applied...

BIOMASS SUPPLY ECONOMICS:BIOMASS SUPPLY ECONOMICS:

MANAGING THE SUPPLY COST MANAGING THE SUPPLY COST

OF RAW MATERIALSOF RAW MATERIALS

Presented by

Jim Pigott, CMCVice President, Marketing & Sales,

Tieto - Forest & Manufacturing, Americas & Australasia

CONTEXTWOOD COSTS

Source: Wood Resource Quarterly, Seattle WA

• 53% of total production costs for pulp mills worldwide – Q1 2009Wood cost often #1 factor in competitiveness of a pulp mill

• Cost of wood fibre has declined since 2008Average 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 CanadaHighest:

Japan, China and Finland

• Wood fiber costs may have bottomed in many markets are increasing

PULP & PAPER COMPANIESCONTINUE 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

Fuels used in US Pulp & Paper Industry 2002

Biomass 54.3%

Natural Gas 21.3%

Net Electricity 9.4%

Coal 9.9%

Residual Fuel Oil 4.2%

Distillate Fuel Oil

0.6%

LPG & NGL 0.3%

5 PRIORITY ISSUES FOR BREAKTHROUGH R&D

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 low-cost biomass

4. Develop new product features

5. Improve recovery and recycling of waste wood and fiber products

- Paper360o March 2009

Top Forest Industry Priorities - AF&PA Strategic Issues Workshop, Dec. 08

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

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

• Many of the various technologies are still in the research stage

• Inherent competition with established product value chains

BIO ENERGY: REDEFINING THE INDUSTRY

"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

ECONOMIES OF STANDALONE BIOENERGY & BIOREFINERY PRODUCTS

• Source: Recent Finnish paper as presented to PAPTAC PACWEST –June 2009

$167Ethanol

$102Power

$264NBSK pulp

$680Softwood dimension lumber

$US / tonne of woodUses of Wood Fibre and Value Streams:

THE PAPER INDUSTRY IS LOOKING FOR NEW REVENUE STREAMS

• Biomass “Waste” to Energy

INFORMATION SYSTEMS for the SUPPLY CHAIN

Traditional ERPProcurement Model for

Purchasing,

Receiving,

Paying Suppliers and Carriers

BIOMASS SUPPLY CHAIN TYPICAL MODEL

Long Term Supply Contracts

Roundwood, Wood Chips, Hog Fuel, Recycled Fibers, Urban Wood, Construction Waste, FBF, Bulk Chemicals

Automated Weigh-Scale Receiving

Automated Supplier/Carrier Payments

Sampling and Quality / Moisture Testing �� Vendor Payment Adjustment

(Costed)

Inventories

DB tables are maintainedwith updated Contacts,

Freight rates, etc.

=====

========== ==

PO, SO or

CONTRACT

Order/ Contract details

are entered

BARGE CO

-RR-

Dispatch

(Optional Procedure)Shipper uploads B/L info

via Web to TOPS/4 db

Truck/Railcar/Vessel arrives.Gross & Tare scale weights

and other data electronically

captured. Reverse procedurefor outbound shipments.

System printsScale Tickets and

sample test tags

sample

test

A sample is taken for

testing moisture,materials quality, etc.

Materials Inventoried:chips to dump; pellets to

silo; paper to warehouse;

etc.

50

Freight charges arecalculated from the

system tariff tables

Test results applied and

Commodity cost is

calculated.

Accounting transactionsand Journal Entries

created. Complete audit

trail established.

Jo

urn

al

Print vouchers, or batch

Export to the Corporate

financial systemfor payment

Reporting at eachstep of the process

Scale receipts and

Load reports.Also available to

Suppliers/Carriers

via Web or email

Quality & Moisture

reports for analysis

Real time inventoryamounts and values

updated

Payables detail,

taxes, invoice

record, etc.

Commodity &

Freight cost reports

===

=

Reports

============

======

1

2

3

4

5

12 3

4

5

Supplier/Carrier

report retrieval

6

6

Export

Print

Starts Here

BIOMASS SUPPLY CHAIN vs. TRADITIONAL PO��RECEIVING��A/P

- Not even close to the same processes!

QUALITY & COSTQUALITY & 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?

QUALITY & COSTQUALITY & COSTper 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

PROBLEMPROBLEM

“Most business software systems are not industry-specific…”

Off-the shelf systems … unable to customize

ERP systems … too costly to customize

SOLUTIONSOLUTION

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

Typical workflow with integrated modulesTypical workflow with integrated modules

Source: © 1999-2009 Enterprise CodeWorks Inc.

TYPICAL BUSINESS INFORMATION FLOWS for BIOMASS

QUALITY MEASUREMENT

Determine Value of Biomass in Power Generation Terms:

Heat Recovery (Thermal Value):

1. Moisture Content

2. Burnable SolidsMoisture

TestAshTest

APPLY QUALITY RESULTS TO INVENTORIES

Adjust Supplier Payment?

- Formula pricing

Know Best SuppliersRESULTS

BENEFITBENEFIT

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.

“It is important to make sure ALL the costs

associated with supply are easily identifiable

and reportable”.

BENEFIT (cont.)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

RESULTRESULT

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

EXAMPLEEXAMPLE

Moisture

EXAMPLE (cont.)EXAMPLE (cont.)

Quality of Material


Load Statistics


Settlement


‘Real Time’ Inventory


Commodity & Freight Cost


Reports filterable:

� Supplier� Origin� Mode� Period/Date Range

� Commodity & Type

� Delivery point etc.


ACCESSACCESS

From the Desktop:

� View

� Print

� Export

� E-Mail


ACCESS (cont.)ACCESS (cont.)

Or secure, controlled web access to reports by Suppliers, Carriers, etc.


SUMMARYSUMMARYAn 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

TIETO - FIBRE MANAGEMENT SYSTEM

Automated Payments of Vendors and Carriers

• Weigh Scale Integration

• Purchasing, Sales and Trades Contracts

• Integrated Transportation

• Inventory Tracking – Quantity & Cost

• Quality Testing

• Chain of Custody Certification Support

• Accounting Interfaces

• Extensive Reporting

• Web Interface for Suppliers and Carriers

DB tables are maintained

with updated Contacts,

Freight rates, etc.

=====

=======

=== ==PO, SO or

CONTRACT

Order/ Contract details

are entered

BARGE CO

-RR-

Dispatch

(Optional Procedure)

Shipper uploads B/L info

via Web to TOPS/4 db

Truck/Railcar/Vessel arrives.

Gross & Tare scale weights

and other data electronically

captured. Reverse procedure

for outbound shipments.

System printsScale Tickets and

sample test tags

sample

test

A sample is taken for

testing moisture,

materials quality, etc.

Materials Inventoried:

chips to dump; pellets to

silo; paper to warehouse;

etc.

50

Freight charges are

calculated from the

system tariff tables

Test results applied and

Commodity cost is

calculated.

Accounting transactions

and Journal Entries

created. Complete audit

trail established.

Jo

urn

al

Print vouchers, or batch

Export to the Corporate

financial system

for payment

Reporting at each

step of the process

Scale receipts and

Load reports.

Also available to

Suppliers/Carriers

via Web or email

Quality & Moisture

reports for analysis

Real time inventory

amounts and values

updated

Payables detail,

taxes, invoice

record, etc.

Commodity &

Freight

cost reports

===

=

Reports

======

======

======

1

2

3

4

5

12 3

4

5

Supplier/Carrier

report retrieval

6

6

Export

Print

Starts Here

Thank youThank you..

Jim L. Pigott, CMC

425-881-7100

or

425-698-9380

Email: [email protected]

BIOMASS SUPPLY ECONOMICS: MANAGING THE SUPPLY COST … · system tariff tables Test results applied...

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