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Real deals on mill upgrades

In spite of the poor lumber markets, consultants say smart companies should press ahead with mill improvements now—there are some real deals available from suppliers in slack times.

By Tony Kryzanowski

                  While many Canadian softwood lumber producers are feeling the pain of a 27 per cent tariff on exports to the United States, the failure to upgrade sawmill facilities in a timely manner—and stay a low cost producer—could eventually prove fatal to a mill.

            That’s the consensus of an informal survey of forest industry consulting engineers done by Logging & Sawmilling Journal. Furthermore, they add that now is an excellent time to be planning and executing sawmill upgrades, due to depressed markets.

    “Your capital costs are going to be lower now than if you upgraded when the economy is booming,” says Gerhard Mueller, owner of GME Consulting Ltd. “Right now you will get deals from fabricators and suppliers. You can lower your capital costs significantly building in bad times, and it can make you a very competitive lumber producer later.”

    Yet some sawmills are playing a dangerous game of delaying upgrades until the status of the softwood lumber tariff is more clearly defined.

 Successful companies have the courage to spend money on equipment upgrades in tough times, often because they have a philosophy of investing in regular upgrades—regardless of the state of lumber markets.

    The engineers note that a considerable amount of “patching” is taking place in Canadian sawmills. While some may be able to afford these types of short-term, band-aid solutions, the sawmills in greatest peril are those which opted to delay major upgrades even before the softwood lumber tariff was imposed.

    “I compare the process of performing regular upgrades with being a racecar driver,” says Mueller. “You can be the best driver in the world, but if you don’t have a fast car, you are never going to win.”

    Based in Nanaimo, BC, GME Consulting offers complete planning, procurement and project management services from greenfield projects to smaller upgrades, including machinery design.

In planning a major upgrade, companies are advised to take the time to analyze their wood baskets and establish an accurate forecast of log size and quantity over the next five to 10 years.

            One of GME’s most recent achievements was the $40-million Millar Western sawmill upgrade in Whitecourt, Alberta. The 20-year-old mill was completely redesigned from a three-line mill to a single-line mill. Advances over the past two decades in computer technology and optimizing equipment made this possible.

            Despite substantially less iron on the floor, the sawmill has achieved a 20 per cent improvement in recovery and reduced its need to purchase wood from private sources by 60 per cent, while producing the same amount of lumber. The number of employees was also reduced from 137 to 94.

            As a rule of thumb, Mueller says he counsels his clients to aim at being among the top 10 per cent of low cost producers in the country. He adds that successful companies have the courage to spend money in tough times because they have a strong belief in the future of the industry and a philosophy of conducting regular upgrades, regardless of the industry’s existing status.

            “That is exactly what a healthy company like West Fraser does,” he says. “The equipment in all their mills is always in very good shape, they are always updating and they are always at the upper level of being a low cost producer.”

            Given the pace of technological advances, sawmill owners generally rely on consulting engineers to advise them when an upgrade is essential. The general consensus on primary and secondary breakdown equipment such as canters, gangs, edgers and optimizers is that upgrades are required around the 10-year point, but it could require upgrading in as little as six and could last as long as 12. Sorters and planers have the longest shelf life—in the 20-year-plus range.

A key to any successful mill upgrade project is making sure that mill staff receive adequate training on the use and production parameters of new equipment.

            But those time-lines can vary. “I look at a mill like Hi-Atha in Hinton, Alberta, which in 1991 was a state-of-the-art mill,” explains International Quest Engineering partner Rod Lecher. “In 2000, we upgraded one gang and installed a new high-speed edger optimizer system. That was about eight years after it started production.”

            From offices in Prince George, BC, International Quest Engineering pursues business in Western Canada and the United States and offers a range of engineering, design, procurement and project management services to the forest industry. For example, it was a major contributor to Canfor’s recent $40-million upgrade to its Isle Pierre sawmill. Plant manager Randy Kubbernus described the project as going “from 1970s technology to the latest and greatest.”

            While continual “patching” is highly discouraged, mills can stay on the leading edge by implementing minor improvements before having to make a major investment. Eventually, however, there will be tell-tale signs that they will need to make a major capital investment shortly. These signs include lower than acceptable levels of lumber recovery based on current technology, unacceptable levels of lower grade lumber recovery, the need to improve productivity and general equipment wear and tear.

    “A sawmill should always improve costs by at least the rate of annual inflation,” says Lloyd Pederson of Pederson Management Ltd. Over the past 12 years, this Kelowna, BC-based company has been involved in the feasibility, design, project management and start up of approximately half a billion dollars worth of projects in British Columbia, Eastern Canada, the United States, Russia, South Africa and Brazil.   

Tips on how to successfully execute an upgrade

According to consulting engineer Lloyd Pederson of Pederson Management Ltd, there are some key elements to successful project implementation.

These are:

• Having a detailed budget and cost tracking system

• Involving mill personnel in detailed design and equipment selection

• Paying attention to detail in the engineering to ensure that the design is functional for the intent of the project

• Producing detailed specifications and performance guarantees for all equipment

• Selecting a good project team to ensure the project is managed on time and on budget

• Implementing a safety program to ensure all project personnel adhere to safe work practices

• Providing adequate training for mill personnel

            Timing is also a contributing factor on the shelf life of installing new sawmill technology, Pederson adds. “Equipment installed at the start of the cycle of new advancements will have a longer life than equipment installed at the end of the cycle,” he says.

            In the case of planning a major sawmill upgrade, all those engineers surveyed emphasized the importance of companies taking the time to analyze their wood baskets. They should establish an accurate forecast of log size and quantity over the next five to 10 years, as well as analyze long-term trends within target markets.

            The consultants also stressed the importance of contracting consulting services in a timely fashion—preferably early in the planning process—and planning the project out properly from the get-go.

            Money invested up-front usually results in savings later. “If the engineering is done right from the beginning, that dollar value will come back ten fold,” says Rod Lecher. “We can save the client money on capital costs with effective planning and design, easily recovering the cost of our bill.” Consulting engineers play an important educational role, particularly when working with small- to medium-sized independent sawmills.

            A mill—not familiar with the services that consulting engineers can provide—can strike out on their own and purchase equipment and structures. But they could have benefitted from the services of a consultant who, with a knowledge of the broad range of equipment available, could have recommended other products that would better suit their needs and/or save them money, says Lecher. “With effective planning and design, we have been able to recognize substantial savings.”  

 It typically takes anywhere from two to six months to plan an upgrade, whereas a greenfield project will take significantly longer as further analysis of the fibre supply and markets is generally required. With an upgrade, it is important to draft a detailed implementation plan before the start of construction so that whatever can be installed around existing production equipment is installed while the mill is operational.  Barring any unforeseen circumstances, major equipment installation can usually occur during regular mill maintenance shutdown periods.

            Depending on how busy suppliers are, equipment delivery can take anywhere from three to six months. A portion of payment is made up front, another payment on delivery and final payment based on the equipment meeting established performance criteria.

            With the high degree of automation now common in sawmill operations, there are two critical areas—part of the upgrading process—that require personal attention on the part of both planners and sawmill personnel. The first is ensuring that computer equipment is properly installed so that machine centres communicate effectively with control centres.

            The second is providing adequate training for production staff on the use and production parameters of new equipment.

            “Improved technology in sawmill equipment can enhance performance and profitability,” says Pederson. “However, without adequate training of employees, the maximum rate of return is generally not realized.”

            It’s essential that sawmills contracting the services of a consulting firm inquire about what sort of training is required and how it will be provided in the operation of newly installed equipment.

            For its part, Pederson Management has developed a comprehensive computer-based interactive training program that provides clear and concise descriptions of the operating functions of the equipment.

            As many sawmills have learned, investment in training makes the start-up phase of operating new equipment easier to manage and allows the company to achieve full equipment performance much faster.

            For those companies thinking of doing an upgrade, the recent decision by the World Trade Organization against the 27 per cent US tariff on Canadian softwood lumber—coupled with the federal government’s announcement of $246 million to help the industry—might be enough to get them off the fence and make the decision to go ahead. From what some consultants say, the time couldn’t be better.

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