Lean Manufacturing, Wood Supply Chain Optimization

The wood fiber supply chain involves much more than moving raw materials from point A to point B; it is a complex system that is constantly affected by a number of variables between point A and point B.
By Stan Parton | December 31, 2016

Lean manufacturing, a management philosophy for minimizing manufacturing costs through waste and inefficiency elimination and quality improvement, focuses on—as is often said—making obvious what adds value by reducing everything else.

One of the foundations of lean manufacturing is the Japanese concept of kaizen, meaning to strive for continuous, daily improvement. Continuous improvement is a wide-ranging concept that requires meticulous attention to detail and nimble operating procedures to be sustainable. For the wood pellet and the larger bioenergy industry, which is diverse and susceptible to the effects of myriad market variables, lean manufacturing can bring tangible value to the supply chain and increase profits.

Opportunities for Improvement
The wood fiber supply chain involves much more than moving raw materials from point A to point B; it is a complex system that is constantly affected by a number of variables between point A and point B. While no silver bullet for eliminating unforeseen challenges along the way exists—from waste to inefficiencies to unnecessary costs—wood pellet manufacturers can take steps to optimize their feedstock supply chains, reduce costs and mitigate risks.

Quality data, like the actual transaction data collected from scale tickets at wood-consuming manufacturing facilities by Forest2Market, is what elevates a kaizen-driven strategy from mediocrity. Improvement cycles must begin with a concrete process, and such a process must begin by using high-quality data (Garbage in, garbage out applies here: Incorrect or low-quality input will always produce flawed or contradictory output). Without access to reliable data at the outset of an optimization project, attempts at process improvements will be inadequate, and the solutions will result in diminishing returns.

Supply Chain Optimization
At a high level, the Kaizen process seeks to convert data into intelligence, intelligence into action, and action into advantage. The methodology for optimizing the wood fiber supply chain begins by analyzing and defining a wood-consuming business’s goals. Once this determination has been made, the process should follow a path towards improvement: 1) identify market position and set goals; 2) uncover inefficiencies, issues and their root causes; 3) develop and implement strategic solutions; 4) measure the results; 5) repeat the process.

It should be noted that, just as kaizen represents the continuous practice of improvement, a supply chain optimization process like the one Forest2Market uses is designed to be both flexible and cyclical as well. Its nimbleness allows for the analysis of any number of custom criteria including geography, species type, facility type and facility consumption, just to name a few.

In step one of the process, relying on accurate, reliable transaction data—down to the penny, in fact—should be the basis for identifying a true market position. Once this position is known, the bioenergy or biomass facility can then move through the improvement process with confidence.
Step two takes the analysis even further, by breaking out individual components such as freight costs, fiber costs and total overhead and comparing them to the market. From this vantage point, the process will begin to uncover true problem areas and inefficiencies within the supply chain.

Step three provides the framework for implementing a set of solutions for the problem areas—strategies for sifting out systemic noise—including developing the evaluation criteria for measuring success.

Step four measures the results of improvements made. In this final phase of the process, it is simply a matter of interpreting the results and gauging the success of the supply chain optimization cycle.

One optimization tool that we frequently use to help our subscribers reduce their costs is a cost curve. In one instance, a client cost curve showed the effect of a single high-cost supplier on the procurement costs of a wood-consuming mill. This supplier delivered 21,600 tons of wood to this mill annually. Once these loads were identified in the data as coming from a single supplier, the mill could then renegotiate the contract.

By renegotiating that contract using a Forest2Market index to identify the current market average price, the mill saved more than $100,000.

Wood pellet manufacturers that leverage the principles of lean manufacturing to optimize their feedstock supply chains are inherently advantaged within the market. These organizations remain agile and are able to quickly adapt to changing market dynamics because they are constantly setting goals, analyzing performance and measuring results.

The proper set of tools can help organizations using wood raw materials to implement a similar process of improvement—one that is customizable to each business and uniquely designed for the forest products industry. With superior data and a precise set of tools, reducing procurement system noise and optimizing the supply chain becomes a manageable and measurable task.

Author: Stan Parton
Bioenergy Practice Manager, Forest2Market