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Tieto Forest & ManufacturingCost & Profitability Tools- Cost Management Suite.

Papercon ‘09St. Louis, MOJune 2, 2009

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Agenda

• Introduction to Profitability Analysis

• Product Cost Management

• Real-Time Costing

• Transportation Cost Management

• Implementation

• Conclusion

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Introduction

• Corporate- and mill-level tools for:• Cost scenarios• Profitability analysis

• Evolution of industry IT• Individual mills – “best of breed” approach• New direction – common SOP/MES systems • Move from disconnected to integrated systems

• Base business decisions on relevant information• Accurate• Timely• Complete

• Challenges: • Cultural, organizational and technical issues

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Cost Management Suite

Profitability AnalysisProfitability Analysis

Product Cost ManagementProduct Cost Management

Real-Time CostingReal-Time Costing Transportation CostManagement

Transportation CostManagement

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Product Cost Management.

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UPM-Kymmene

• Need: Harmonize product costing for all 20 mills worldwide

• Differences between MES systems, currencies, unit of measures for mills. Costing harmonizes differences so corporate can easily compare costs.

• Product Cost Management feeds the product costing tables in SAP. General ledger cost accounting still SAP.

• Product Cost Management supports cost optimization to source production at most profitable mill

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Boise• Boise implemented Product Cost Management for four mills in

2007

• Makes the product costing process more efficient, timely and accurate

• Integration with PeopleSoft; Product Cost Management feeds the product costing tables in PeopleSoft ERP. The general ledger cost accounting still PeopleSoft ERP.

• Product Cost Management closely integrated with linear programming system for optimization of sales profitability

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Who Benefits from the System?

• Typically maintained by:• Cost accounting• Production management• Process engineering• Product development

• End users are:• Machine operators for continuous cost optimization• Shift leaders to monitor abnormal cost and consumptions• Production management for key performance analysis• Product development for new product trials• Process engineers to detect erroneous flow meters and

measurements• Accounting department for monthly closing process• Mill management for production decisions

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Product Cost Management Features• Recipe and specification management

• Price management

• Standard product costing

• Short-term cost forecasting

• Long-term cost forecasting

• Actual product costing

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Cost Management Navigation• Web-based system

• Menu driven

• Users can see what they have rights to

• User-friendly, with consistent look and feel

• Easy to create, update, and search on records

• Audit trail on all user changes

• Multi-language with support for customer-specific terminology

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Recipe and Specification Management

Recipes are based on child recipes and child components. A recipe can have indefinite levels. The same grade can have

different recipes.

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Recipe and Specification Management

All grades have base data (specifications) for grammage, trim, speed, moisture, etc. Production speed is calculated based on those

specifications.

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Recipe and Specification Management

Recipe versions are complete sets of all recipes and valid for a period range. Status codes determine how end users can view and update

recipe versions.

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Price Management

Price lists consist of prices and rates for cost components. Prices are maintained for a specified unit of measure and a specified

currency.

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Price Management

An unlimited number of price lists in the system. Price lists are valid for a period range, and only one price list is “official” for that range.

Status codes determine how end users can use the price lists.

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Standard Product Costing• Calculates cost for:

• Any combination of recipe version and price list• Any quantity and unit of measure• Any currency

• Present costs in three types of analysis:• Production Management - Costs and consumption presented using

same structure as recipes or production processes

• Profit and Loss – Costs and consumption presented in a user-defined financial reporting structure

• Product Costing – Costs and consumption presented in a user-defined material (cost component) reporting structure

• Calculates costs using alternates/substitutions

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Standard Product Costing

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Short-Term Cost Forecast

Short-Term Cost Forecast estimates purchasing needs based on open production orders.

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Long-Term Cost Forecast

Long-Term Cost Forecast used for budgeting and global sourcing analysis. Based on production plan or sales forecast.

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Actual Product Costing

Actual Product Costing analyzes differences between standard cost and actual cost

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Real-Time Costing

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SCA

• Implemented Real-Time Costing in 2004 for their four largest paper machines

• Project goal: increased understanding of how variable production costs were impacted by production decisions.

• Real-Time Costing data matched with sales transaction data for profitability analysis on customer, product and customer order.

• Today production cost performance metric monitored as closely asproductivity and quality to gauge production efficiency.

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Mondi Packaging

• Mondi Packaging implemented Real-Time Costing in 2007 at their largest paper mill. Planned rollout of Real-Time Costing to three more mills.

• Real-time cost information is shown to machine operators on big screens in the operator rooms.

• Before implementing Real-Time Costing limited understanding of production costs. SAP could only do financials allocations to get high-level actual costs, once monthly and very inaccurate.

• Real-Time Costing lets Mondi Packaging sell and produce smarter due to real-time knowledge of what impacts production costs.

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Real-Time Costing Features• RTC is a “costing engine” calculating costs per unit of production

• Embedded graphical reporting engine for management analysis

• Customer configurable business rules for: • Handling of recycled losses (e.g. broke)• Handling of costs during production breaks• Validation of flow meter measurements

• Ability to set time-offsets for material consumption per process tag

• Real-time costs and consumption available through web service interfaces and can be used by other applications

• Multi-language, multi-currency and support for company-specific terminology

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Cost Impact of Production Speed

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Cost Impact of Grade Change

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Shift Cost Comparison

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LogBook / Production Loss Analyzer

Material Energy Machine Total

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PQIS

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Real-Time Costing – Reel and Run Costs

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Cost Calculations

• Based primarily on online measurements

• If online measurements unavailable (or unreliable) based on calculated tags. (Consumption calculated based on machine speed, width, moisture, etc.)

• If unreliable measures of consumption, costs added based on recipe standard consumption.

• Fixed (machine) costs can be included based on production time.

• Handles time offsets, break consumption, broke and data validation

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Real-Time Costing Data Flow.

ProductionSystem

ProductionSystem

RTCRTC

ProcessHistorianProcessHistorian

Real-Time Costing done at the lowest production unit level -- a jumbo reel, a unit of pulp, etc. Production data and process historian data used to calculate cost.

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Time-Offsets

Start Run End Run

Reel 1

Reel 2

Reel 3

= Consumption in Time

Consumption for a jumbo reel does not necessarily happen during the production time of

the reel. Often they start before the reel is produced. Accurate Real-Time Costing

must configure time-offsets for certain materials to ensure

accuracy.

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Start Run End Run

Reel 1

Reel 2

Reel 3

Break 1 Break 2 Break 3

Costs and consumption per e.g. a reel of paper are calculated including

and excluding consumption during

break.

Break Consumption

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Standard Recipe Reel1

Fiber A

Fiber B

Filler Y

Filler X

Fiber A

Fiber B

Filler X

Filler Y

Broke(Credit)

Real-Time Costing – Broke Calculation

Produced broke impacts the cost of a reel of paper.

Few mills have a method to measure the produced

broke per reel, so calculated based on the

reel mass balance to allocate a broke credit to

the reel.

Broke Credit Through Mass Balance

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Recalculation

Jumbo Reel

Roll

RollConsumption and costs can be

recalculated to account for re-winder losses and wasted rolls.

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Lower Limit

Upper Limit

Reel Consumption

Validation filters for permissible consumption configured per process (paper machine, material group, and specific material).

Filters encourage machine operators to focus on the biggest cost contributors.

Validation Filters

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Validation

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Run Cost

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Production Costs per Team

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Monthly Cost

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Customer Benefits Real-Time Costing

• Increased awareness of how production decisions impact the cost of produced grades

• Detects previously unidentified consumptions and costs

• Increases accuracy in grade recipes and costs

• Quality, process and cost measurements reported and analyzed online. Easy to find correlations between quality, process factors and costs.

• A continuous cost reduction effort that increases mill profitability

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Transportation Cost Management

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Catalyst Paper• Catalyst Paper implemented a transportation cost analysis tool

to get actionable information to reduce its transportation costs.

• $400,000 was saved in the first three months after go live. Thesavings have since then accumulated to millions of dollars.

• “The real value has been in enhancing our understanding of freight costs and knowing where to focus our attention. Solid reporting underpins all our activities and leads to improvementsin many areas.“ Director, Order Fulfillment

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Transportation Cost Management

Sales Forecasts PlannedShipments

BudgetedRates

Planned Transportation Cost

ActualShipments

ActualRates

Actual Transportation Cost

Actual Shipments

ShippingPatterns

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Analyzing Transportation Cost

Actual vs. planned transportation costs analyzed in great detail. Factors such as exchange rate, fuel charges, customer mix, product mix, etc. explain why

actual transportation costs exceed plan.

Printing Papers Freight Cost vs Plan - 04/2007Freight Analysis, October 2008 - Actual Vs Plan

102.59

0.480.31

0.84

0.300.44 0.33

0.38

0.13

1.20

1.050.650.16 0.66 102.99

95

100

105

Plan Exchange Fuel Customer Mix Product Mix Routing Adustments Freight Rate First Leg Rate Storage andHandling

Mode Carrier Yield OtherShippingExpenses

Actual

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Transportation Cost Factors

• Distribution mix variance

• Impact of warehouse routing decisions

• Volume variance mix

• Impact of transporting more or less than budgeted

• Customer destination mix variance

• Calculation of mix impact for each customer

• Mode mix variance

• Impact of shipping via a different mix of modes than planned

• Carrier charge variance

• Difference between the actual and planned freight rate, fuel surcharges, border

charges, brokerage fees, port charges

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Mode Variance - UnfavourableProduct Line

Customer Name City Ctry Act MT Plan MT Mode Var$ Whse Mode

Plan Tonnes%

Act Tonnes%

UNCOATED Customer A New York US 2,000 1,000 36,772 Whse Rail 95% 50%DIRECTORY Customer B Atlanta US 2,000 2,500 20,268 Whse Rail 100% 83%UNCOATED Customer C Miami US 2,000 2,000 17,970 Whse Rail 70% 25%UNCOATED Customer D Birmingham US 1,500 1,500 13,061 Whse Rail 83% 49%UNCOATED Customer E Toronto Canada 500 1,000 9,018 Whse Truck 14% 75%UNCOATED Customer F Winnipeg Canada 1,000 1,000 7,678 Whse Rail 76% 33%DIRECTORY Customer G Montreal Canada 5,000 2,500 6,529 Whse Rail 97% 95%DIRECTORY Customer H Chicago US 1,000 500 6,325 Whse Rail 95% 79%UNCOATED Customer I Chicago US 500 100 4,613 Whse Rail 100% 56%UNCOATED Customer J Ottawa Canada 1,500 1,000 3,868 Whse Rail 80% 73%

Freight Rate Variance - UnfavourableProduct Line

Customer Name City Ctry Act MT Plan MT Rate Var$ Whse Carrier Plan Rate Act Rate UoM

NEWSPRINT Customer A Caracas Venezuela 1,500 1,500 30,870 Whse Carrier A 98 120 $/mtNEWSPRINT Customer B Mexico Mexico 2,000 2,400 13,963 Whse Carrier B 62 68 $/mtDIRECTORY Customer C Jacksonville US 4,000 4,500 7,264 Whse Carrier C 5,914 6,091 $/loadCOATED Customer D Memphis US 500 100 6,325 Whse Carrier D 5,950 7,391 $/loadCOATED Customer E Los Angeles US 1,000 500 5,575 Mill Carrier E 2,124 2,341 $/loadDIRECTORY Customer F Edmonton Canada 500 500 4,765 Mill Carrier F 1,867 2,075 $/loadNEWSPRINT Customer G Calgary Canada 1,500 2,000 4,753 Mill Carrier G 1,867 2,080 $/loadNEWSPRINT Customer H Chicago US 2,000 2,000 3,578 Mill Carrier H 4,079 4,266 $/loadCOATED Customer I Phoenix US 500 500 3,325 Mill Carrier I 1,867 2,064 $/loadDIRECTORY Customer J Pittsburg US 6,000 5,500 3,215 Whse Carrier J 4,079 4,145 $/load

Examples of Actionable Reporting

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Implementation.• Usage Planning

• Workshop• Project plan, project scope, and detailed specification

• Factory Acceptance Test• Configuration of system• Conference room pilot with basic interfaces

• Site Acceptance Test• Installation• Configuration of interfaces• Conference room pilot with interfaces• Training• Documentation

• Final Acceptance Review• Begin production use• Go live support

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System Requirements.

• .NET application

• Windows server

• Oracle 8, 9 & 10 or SQL 2000, 2005 database

• Web client (Internet Explorer or Mozilla Firefox)

• MS Active Directory

• Audit trail on all user changes of data

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Conclusion – Profitability Analysis is Mission Critical• Industry Requirements Driving Cost Management

• Globalization• Rising Input Costs

• Fiber• Energy

• Product Cost Management

• Real-Time Costing

• Transportation Cost Management

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Thank You.Jim Pigott

Tieto Forest & ManufacturingAmericas & Australasia

jim.pigott@tieto.com