Pulp and Paper Canada

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Spending money elsewhere


February 1, 2001
By Pulp & Paper Canada

It’s been a little more than a year since three pulp mills in British Columbia now owned by Norske Skog Canada decided to outsource the management of its maintenance program to a company whose sole ex…

It’s been a little more than a year since three pulp mills in British Columbia now owned by Norske Skog Canada decided to outsource the management of its maintenance program to a company whose sole expertise resides in providing such services to the pulp and paper industry.

AllWin Technical Services Inc. was created in October 1999, when the mills’ previous owners (Fletcher Challenge Canada Ltd.) signed a $220-million, five-year 50:50 joint-venture with Zurich-based ABB Group. (ABB is one of the leading maintenance service providers in the world.) All told, 393 people, including tradespeople, engineers and supervisory staff work for the maintenance provider, the majority from Norske Skog mills.

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The decision to engage the services of a maintenance service provider came about after management conducted a series of studies called operations improvement. “We found that a large opportunity to make improvements was in the area of maintenance,” says John Veysey, vice-president of operations at AllWin in Nanaimo, BC. “We concluded that we needed to look externally to achieve the improvements we were looking for in the timeframe that we needed.”

That partly sums up the business case for outsourcing: companies ought to stay only in core activities, and find top-notch companies to do the rest. The hard part, particularly in companies with wide-ranging holdings, is clearly determining which are a business’s core activities. Yet, when these principles are scrupulously followed, say management consultants and leading academics, a company can concentrate its energies in areas that it knows best. In the case of a pulp mill, it’s making pulp.

Making incremental progress

The improvements that the Norske Skog mills originally sought are in two areas: cost savings and equipment reliability, which would lead to increased production. Thus far, progress has been incremental, in part resulting from a change in ownership of the pulp mills. (See A fresh start.) “As you might expect, there are always things to iron out in the first year,” says Dennis Day, president of pulp operations at Norske Skog Canada in Vancouver. “We’re seeing some of the right trends and early indicators.”

In the first year, the company shaved 2% from its maintenance production costs, equating to $2 a tonne. That adds up to $2 million in savings for the combined three mills annual output of one million tonnes of pulp. It achieved these savings by reducing outside services, controlling hourly overtime and using hourly paid employees on capital projects. “That doesn’t show up on maintenance spending,” notes Veysey, a mechanical engineer.

His return to Norske Skog mills is a homecoming of sorts. He worked for FCC in Campbell River for seven years, at the Mackenzie mill for six years, and then joined Cariboo Pulp & Paper Company in Quesnel, BC, as the manager of engineering and maintenance. “Then I was approached by this new venture in July 1999,” where he expects to lead the Canadian industry in how business is done, at least when it comes to maintenance management.

But there’s much more work to be done. The initial results are too thin to cause Norske Skog management to, as Day puts it, “jump up and down and say, ‘It’s a raging success.’ But it’s heading in the right direction.”

The company’s goals are loftier: by the end of 2004, when the current agreement ends, the target is to reduce costs by $25 a tonne, which would generate tens of millions of dollars of savings. Besides keeping an eye on labor costs, AllWin intends to make better use of its operating materials, including spare parts. “We want to make sure that we don’t have excess materials lying around that we paid for, yet we’re not using,” says Veysey, a mechanical engineer.

Veysey’s point is noteworthy, because for decades that’s the way most mills have operated — by carrying excess inventory to ensure paper machines reduce their downtime. Yet, AllWin’s way of controlling spare parts, which looks at risk factors, is becoming more common. “This approach is catching the attention of mill managers across Canada,” says Craig Campbell, a partner with PricewaterhouseCoopers’s global forest and paper practice in Vancouver.

Campbell says that there’s a move away from the long-standing approach of maintenance departments alone deciding what spare parts mills ought to carry. In short, companies are starting to include in their decision-making the use of mathematical models, which assign risk factors to not having a part immediately available in stores. Therefore, it might be the financial person who decides to take the risk, should it be low. “It balances the needs of maintenance, production and financial people,” Campbell explains. (See Calculating the risk of failure.)

Plugging into ABB’s portal

Although supply chain management (SCM) is not currently part of its maintenance program, AllWin is considering alliances with selected vendors to generate more savings. As well, it is considering partnerships with outside service providers to what Veysey calls “creating value that can be shared.”

And in early 2001, AllWin has plugged into ABB’s Internet portal, which offers a host of online services (www.abb.com). “They have about 180 full-service sites worldwide,” he says. “They have set up centres of excellence, or Maintenance Methodology Centres.” The one for pulp and paper is centred in Helsinki, Finland. Users can post a technical question to the Website, and derive benefit from the resources that a large company like ABB can mobilize.

Still, not all the kinks have been worked out, particularly in the area of labor relations. For example, there still exist communication problems, and how the unions perceive management. “They [the unions] are not convinced about the merits of the new arrangement,” Veysey conceded. “We went through a series of communications [with the union] to advise them of what’s in it for the unionized employees. Working with the unions in this new way is challenging, but we remain convinced that all employees will benefit.”

Although such an officious approach might not translate to ideal management-labor relations, it’s a marked improvement from the tension-laden atmosphere under the tenure of FCC, says Fred Wilson, national representative of the Communications, Energy and Paperworkers Union of Canada (CEP) in Vancouver. “Our worst fears about AllWin have not, thus far, materialized.” Although AllWin has come in to Norske Skog as a maintenance supervisor, the maintenance workforce remains employees of Norske Skog.

And job security is important to a unionized workforce. Under AllWin’s stewardship, no employee has been laid off. Yet, problems linger, likely a residue built up over years of neglect. “The difficulties remain, though we don’t lay current problems at the feet of Norske Skog or AllWin,” Wilson says.

One of the issues, a holdover from the last nine-month strike in 1997-98, is flexible work practices, or multi-tasking. The idea of cross-training and multi-tasking doesn’t sit well with unions like the CEP. Although that might be expected rhetoric from a union, its complaints might have some merit — namely, that such work practices are little more than the latest management obsession. “Such fads will become counterproductive, namely we’ll end up with a lesser-skilled workforce than we need,” he notes.

Wilson sees dire consequences if the trend toward cross-functionality and cross-training takes hold: the loss of experienced tradespersons who hold deep knowledge of particular trades, such as millwrights, electricians and welders. Retirements will eat up that experience, which even technology and all its promises will not be able to match.

Staying away from fads

Still, AllWin to its credit, Wilson points out, “hasn’t adopted a flavor of the month approach” to management and maintenance practices. “Their concept of what’s an effective, flexible workforce is a little closer to ours than was Fletcher Challenge’s,” he says. “I don’t think that AllWin is looking for a full-flex model in the same way that the people at Fletcher were.

CEP’s faint praise for the new arrangement doesn’t mean, however, that Wilson and his union cohorts have suddenly become management converts. They are still firmly against outsourcing. “Our experience tells us that outsourcing’s overriding purpose goes beyond controlling labor costs,” Wilson says, “that it’s a way for employers to avoid responsibility for their workforce.”

In a nutshell, Wilson says that when employers outsource a service, it doesn’t have the same relationship with the outsourced company as with its employees. That’s true, particularly if one looks to outsourcing as a means toward an end – in this case, cost savings and productivity gains. Even so, it’s debatable what responsibility employers ought to have for their workforce, apart from giving them a safe workplace, honoring labor agreements and respecting the laws of the land.

Undoubtedly, outsourcing is a hot-button issue, which by its implications will engender lively debate. Yet, it’s important that workers and management work together if they want to make the Canadian industry more productive in the face of global competition. That means that management ought to keep its commitments. Veysey concedes that AllWin has been “slow to deliver some of its promises,” including a 4% training supplement. “The person on the floor hasn’t seen the changes that we promised during the announcement of the new company,” he says. “This year, however, we hope to implement them.”

As well, there’s deciding how a fixed budget pie will be split. “When you talk about reduced budget, it can strain that relationship between the partners,” Veysey says. “What is at stake is balancing costs and productivity. The two partners — Norske Skog and ABB — have to jointly arrive at a budget for maintenance.

These budget talks make for lively debates at the table, Veysey points out. “Some people ask, ‘Why can’t we spend this money here?’ While others say, ‘You’re not delivering what you said you would.'”

The bulk of the next two years will be dedicated to implementing some of the things discussed at these meetings and “fine-tuning” the process, Day notes. As for whether Norske Skog’s Canada’s parent in Norway has affected operations in British Columbia, he’s quick to say, “It’s a local initiative and not a Norske Skog one.” He adds, however, that the corporate parents are aware of the maintenance program.

To be sure, time will tell whether the decision taken more than a year ago at the BC mills will achieve the expected results. “We realize that a lot of people are watching it [the outsourcing arrangement],” Day says. “But it hasn’t been a long enough period to gauge what the benefits really are. It will take at least two years to measure results against expectations.”

Perry J. Greenbaum, contributing editor, also writes about business and technology for a number of Canadian publications. He can be reached at saltpub@sympatico.ca.


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