Paper360 - May/June 2013 - (Page 16)

MILL WISE SPECIAL FEATURE: ASSET MANAGEMENT Successful Asset Management in the Paper Industry from an OEM Point of View Second to the owner, the OEM has the strongest interest in maintaining and improving the profitability of existing assets. MICHAEL VON GRUMBKOW T he quality of a company’s asset management is the primary driver of good, long-term equipment performance. All related practices within a mill directly impact machinery uptime, mill operating costs, and economic profitability. Second to the owner, the OEM has the strongest interest in maintaining and improving the profitability of existing assets. This article explores the different time horizons of effective asset management in the pulp and paper industry: sustaining operation, optimizing operation and investment activities (repositioning or new assets). Sustaining and optimizing operation involves maintenance, repair and operating (MRO) materials and related services. Repositioning of existing assets has become more and more common in our industry Figure 1. Mill operating costs (North American average). SOURCE: FISHERSOLVE TM © 2006-2013 FISHER INTERNATIONAL, INC. Figure 2. Investment to depreciation ratio comparison to other industries. Capital investment to D&A Ratio (3-year average) by industry. SOURCE: FISHERSOLVE TM © 2006-2013 FISHER INTERNATIONAL, INC., COST DATASET Q4 2012 AND VARIOUS PUBLIC COMPANY ANNUAL REPORTS AND SEC FILINGS (2012, 2011, 2010). 16 Paper360º MAY/JUNE 2013 and requires a different focus in the cooperation between owners and vendors. Average operating cost for paper mills in North America are shown in Figure 1. MRO costs make up less than 9 percent of an average mill’s overall production cost. Figure 1 breaks out these MRO material costs by type. North American paper mills still account for approximately 23 percent of global paper production, while utilizing the oldest asset base; the average technical age of operating paper machines in North America, as calculated by Fisher Database, is 31 years. China’s mills, by way of comparison, operate paper machines with an average technical age of 12 years. The challenge for the North American papermaker is to sustain production at a high efficiency level through strategic investment in the proper care and upkeep of their relatively old existing equipment. The efficient application of MRO materials will not only keep producers’ papermaking assets in good working condition, but can result in significant savings in almost all other production cost categories. To get an idea of where the North American paper industry stands in its efforts to improve its aging asset base, we examined the ratio of capital investment to depreciation and the technical age of assets in the paper industry compared to another industry with significant challenges in asset management—the airline industry. The technical age of paper industry assets are much higher than assets of the airline industry. Furthermore, the airline industry invests significantly more to improve and maintain the quality of its asset base than does the paper industry—a three-year average of 125 percent compared to 83 percent respectively. Figure 2 illustrates this comparison and further elaborates by adding the oil and gas industry, automotive industry, paper producers based in Europe and Africa, and OEMs to the pulp and paper industry. In recent years, the North American paper industry has had the lowest investment to depreciation ratio than any other compared industry. However, in the last two years the investment level has picked up significantly within the North American paper industry. The respective three-year industry average increased by 26 percent just from 2011 to 2012, and now outperforms the corresponding number for paper producers based in Europe and Africa. Figure 3 plots operating income as a percentage of net sales (before depreciation and amortization) of North American companies in the airline industry and the paper industry against the technical

Table of Contents for the Digital Edition of Paper360 - May/June 2013

Over the Wire . . . News Summary
The 2013 TAPPI Award Winners
Successful Asset Management in the Paper Industry from an OEM Point of View
TAPPI Journal Summaries
Managing the Risk of Fire and Explosion in the Pulp and Paper Industry
Broadening the Availability of Carbon Fibers with Lignin
TAPPISAFE Through the Eyes of a Labor Attorney
Bleached Softwood Kraft Pulp
Association News
What’s New on

Paper360 - May/June 2013