Operational Effectiveness Delivers Fixed Cost Reduction at European Paper Mills

Background
The client is one of Europe’s largest producers of pulp and paper, operating mills worldwide, and their desire was to reduce fixed costs.

The company had carried out a cost reduction exercise in 2009 during the financial crisis, like many other companies. They realized that they had only scratched the surface for potential improvements, and found that they needed to further optimize their fixed cost base in order to maintain competitiveness and to deliver on their commitment to bottom line results.

Thus, they decided to engage an international management consultancy to support the local site management in the first phase, to identify the benefit potential and provide recommendations for implementation.

Task
T.A. Cook was asked to conduct the initial analysis on three mills in Northern Europe and Germany. The objective was to assess the fixed costs and find ways to reduce them through increased operational effectiveness in production, maintenance and site services.

Approach
A structured and systematic approach was utilized, applying the same studies and anal-ysis tools at each site, in order to gain transparency and to benchmark site performance.

Four lines of investigation were applied:
1)    Analyze the cost data, facts & figures
2)    Understand the core business processes
3)    Measure productivity and leadership
4)    Benchmark and gap-analysis

Our analysis approach contained the following 5 techniques:
1)    Structured interviews
2)    Data analysis
3)    Observations of work practices and pro-cess efficiency
4)    Evaluation of “shop floor” leadership
5)    Management surveys.

The findings on “as is” org-structure, processes and management systems were reviewed and critiqued for improvement po-tential.

Findings
Although the mills had different maturity, similar areas for improvement were observed, and it was determined that operational adjustments through qualitative improvements of structure, core processes and management systems implementation would lead to a reduction of the fixed cost, by 12% to 18%, depending on the location.

The following areas showed improvement potential:

Organization & Leadership:
•    Span of control not optimized
•    Lack of active management/leadership
•    Insufficient performance management
•    Poor scheduling of operations/activities

Production (Pulp & Paper):
•    Shutdown Management needed optimiza-tion
•    Lack of standard operating procedure
•    Overstaffing of the line and lack of proper job combinations

Maintenance Effectiveness:
•    Lack of clear maintenance strategy
•    Lack of root-cause analysis for bad actors
•    Lack of reliability indicators

Maintenance Efficiency:
•    Lack of adequate work preparation
•    Lack of planning & scheduling of weekly / daily maintenance work
•    Insufficient short-interval control
•    Lack of activity management  and perfor-mance indicators
•    Lack of management of third parties

Purchasing:
•    Maintenance / Purchasing process lacked transparency
•    Supplier management relationship needed further development

Recommendations & Benefits
To enable sustainable fixed cost reduction it is necessary to choose the right environment and
identify the root causes of weakness. A program covering the 5 work streams below was created at mill level, with an implementation focus for each of them. Coordination between the mills was developed in order to ensure consistency and to share best practices.

The benefit expectations are consistent with estimates developed during the analysis.