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
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1
2
3
4
5
12 3
4
5
Supplier/Carrier
report retrieval
6
6
Export
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
EXAMPLE (cont.)EXAMPLE (cont.)
Load Statistics
EXAMPLE (cont.)EXAMPLE (cont.)
Settlement
EXAMPLE (cont.)EXAMPLE (cont.)
‘Real Time’ Inventory
EXAMPLE (cont.)EXAMPLE (cont.)
Commodity & Freight Cost
EXAMPLE (cont.)EXAMPLE (cont.)
Reports filterable:
� Supplier� Origin� Mode� Period/Date Range
� Commodity & Type
� Delivery point etc.
Source: © 1999-2009 Enterprise CodeWorks Inc.
ACCESSACCESS
From the Desktop:
� View
� Export
Source: © 1999-2009 Enterprise CodeWorks Inc.
ACCESS (cont.)ACCESS (cont.)
Or secure, controlled web access to reports by Suppliers, Carriers, etc.
Source: © 1999-2009 Enterprise CodeWorks Inc.
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
Starts Here