Benchmarking

Fred Lundberg

One of the most important accomplishments in the tissue business or any business is the creation and maintenance of customer satisfaction. Customer satisfaction is best evaluated by the commitment over time that the customer makes to purchase a producer's goods. This commitment creates a core business, one that allows plans to be made by both the producer and the customer. When this level of relationship is reached it is a coveted possession and must be maintained. How is this achieved? The customer's purchasing decision involves many criteria including:

-Does my supplier have the right grade or product at the appropriate quality?

-Is the product available in the quantity need?

-Is the price competitive?

-Will it he delivered on time?

-Will it perform to expectations?

To create and maintain customer satisfaction all of these criteria must be met, and producers should have regular discussions with and feedback from customers to ensure their performance against these expectations.

When performance deviations are noted, the producer should respond with continuous improvement programs in order to remain competitive. However, continuous improvement is not improvement for improvement's sake, rather it should be aimed at adding value to the product and service at a cost that is commensurate with sustained profitability. Historically, most of the continuous improvement efforts have been directed at the manufacturing and converting operations in the supply chain. The reason is that one can measure and quantify things in manufacturing and converting, and if you can measure it, you can determine deviations and develop an approach to improve performance. For example, typical overall tissue machine efficiency at the reel should average around 88%, and if a mill runs consistently below this level there is potential for improvement. However, to realize this potential for improvement will require investigation to uncover those factors inhibiting efficiency. In the simplified supply chain illustrated in Fig. 1, the objective is to move the raw materials into the manufacturing and converting processes as quickly as possible and produce a product of consistent quality while minimizing in-process inventories and the consumption of resources. While this is no small task, the job has been made easier by the application of electronic control systems, other systems initiatives, and recently the advent of B2B e-commerce systems. The use of computers and electronic data processing has been instrumental in adding value to the supply chain. As in pulp and paper generally, the tissue industry has benefited from an evolving sophistication in systems and applications. There has been a sort of natural order for systems applications starting with process control systems, then adding manufacturing execution systems followed by enterprise systems, and then B2B e-commerce systems as shown in Fig. 2. Process control systems are designed to maintain consistency of operation in selected critical processes during the manufacture of tissue and other paper products. Examples are de-inking control systems, power boiler control systems, refiner controls, paper machine automation and converting line control systems, to name a few. Manufacturing execution systems link these individual process control systems together to produce a logical operating protocol for the facility. Minimization of in-process inventories and grade change logic to minimize transition quality are some examples of the benefits attained. Enterprise systems add dimensions of order entry, production control and scheduling, and management information to the facility. At this level, order files, finished inventories, and production schedules are optimized and on-demand status reporting is featured both for mill and sales management, and frequently for customer query response. The B2B e-commerce applications allow customers' and supplier's systems to interface with the producer's systems to streamline processing and further minimize inventories.

An important component of B2B systems is 'just in time' delivery which provides the producer with on-site inventory minimization of spare parts and operating supplies.

TRANSFORMING THE SUPPLY CHAIN TO THE VALUE CHAIN. Properly implemented, the judicious use of all of these systems can transform the conventional supply chain into a "value chain" affording customers value-added products and services at a cost to the producer that enhances his profitability. It is safe to assume that most tissue and paper mills are engaged in this transformation and that they are at different stages of development. As mills and companies go through this process they clearly learn more and more about their own operations and procedures, but little is gained in their knowledge of the competition. In fact, many programs that are put in place by producers to effect sweeping change in some aspect of the business fall short of the set goals because competitors are implementing change as well. It's like shooting at a moving target from a moving platform. A significant opportunity for further continuous improvement in profitability and customer satisfaction lies in knowing how we are doing with respect to competitors that we meet in the marketplace. One of the key things that differentiate professional sports from business is that they keep score in sports! In fact, score keeping is what makes sports so riveting; nothing is more frustrating than to tune into a world-class event and have to wait for what seems to be an eternity to find out if your favorite team is ahead or behind! Once you find out the score, you are "into the game" focusing on offense if you're behind and on defense if you're ahead. Interestingly, this applies both to the players and to the spectators. The tissue business could be more dynamic and exciting if we could keep score versus our key competitors. Determining performance versus that of competitors is less well defined in the "mill to market" area compared to that in basic manufacturing and converting. So, how can we improve our understanding of relative performance from the mill to the marketplace? To understand this area, refer to the diagram below (Fig. 3):

THE PROCESS APPROACH. The "mill to market" piece of the value chain is a process just as much as converting and manufacturing are processes, but it's a different type of process. It is a process that is characterized by 'soft' data rather than 'hard' data. The movement of product from mills to markets is a process that involves facilities, functions, information flow, and material flow. In contract to production processes, which are largely characterized by hard variable data (such as temperatures, pressures, flow rates, speed, etc.), the "mill to market" process is characterized by soft, attribute data such as % on-time delivery, % of goods damaged, inventory level, etc. The good news is that attribute data can be quantified and measured as easily as variable data, but it isn't commonly done, and if it is done the scope is usually very limited. Therefore, the first step in treating the mill to market area as a process is to develop some questions that characterize the process and measure performance. Attribute questions for the mill, storage facilities, the merchant (if appropriate for tissue), the customer, and for the functions; company sales, agent sales, logistics, and scheduling are necessary to characterize the entire process. These measurements are really questions for which you'd like to have the answers for your own operation and for your competitors' operations. An example may be, 'How many sales people do you employ per thousand tons of sales for this product?' Next, you must get data answering and quantifying the questions. These measurements are the first step in achieving control over the process. You need to know where you are before you can realistically determine where you can go, and when you set out to measure performance, you often gain early insight into your own situation and the process and reap early benefits via process improvements. Assuming that you measure some attributes in the mill to market process, how do you know how you're doing? This is where bench-marking comes in. Benchmarking compares your particular measurement against those of other producers in order to understand the relative position of your measurement.

WHY DO BENCHMARKING? There are two fundamental reasons to benchmark; first, to determine where you are, and second, to find out what is possible. This is classical gap analysis where you determine if the difference is significant enough to warrant some program to narrow or eliminate the gap. When and if you conclude that there are significant differences, you then design a program to move from 'where you are' toward 'what's possible', and you apply that strategy as appropriate to each element in the mill to market value chain. Thus benchmarking allows one to systematically improve performance and move toward goals known to be attainable. Now the more important question is how this type of information might be obtained. One method is the Direct Survey Approach. Each producer is capable of quantifying attributes within their own "mill to market" value chain, but they have difficulty in getting consistent, accurate information about their competitors. What is needed is the same attribute data from a sufficient number of competitors. If you want to understand "how you're doing" it's necessary to have a statistically significant sample base for meaningful results. A direct survey like this, of course, must be completely confidential! Each participant's inputs, while included in reported averages, are otherwise blind to the other participants. Finally, an independent, third party who is not affiliated with a supplier or producer should manage the survey. As stated previously, there are functions, facilities, information flow, and material flow components involved in moving products from a mill to customer. Broadly, the facilities are mills, warehouses, merchant houses, and customer locations. Functions are order entry, scheduling, company sales, merchant sales, and agent sales. Information flow provides the communication interface between function and facility, and material flow is the result. A direct survey (a series of questions) could be designed that would dimension attribute data at the Customer, Merchant, Agent, Company Sales, Order Entry/Production Scheduling, Transportation & Storage, and at the Producing Mill. At the 'Customer' a typical question might be 'How many complaints are received per thousand tons of product sold?' A 'Merchant' question could be 'What percentage of this product is sold via merchants?' A possible 'Agent' question is 'What is the average order size in short tons that is sold via an agent?' For 'Company Sales' a question could be 'What is your selling intensity in short tons per year per salesperson?' At 'Order Entry', do you promise a shipment date? For 'Transportation', what is your average transportation distance? At the 'Producing Mill' what is your percentage of on-time delivery for this product? As these questions and others like them are answered, we are able to define our own performance. The survey would he directed at product groups that are similar in terms of their material flow attributes. Nine possible product groupings are: Tissue (parent rolls), Tissue (converted products), Fine Paper (rolls), Fine Paper (cut-size), Fine Paper (cartons/skids), Newsprint/Directory/UCGW, Market Pulp, Liner/Medium, and Bleached Board/Coated Recycle Board. An independent third party can collect such mill/product information by direct survey from each producer and then play back that producer's response in the context of all the other producer's responses retaining their anonymity. For each question in the survey the feedback could consist of the answer for 1) My mill, 2) My Company, 3) Survey Average (all companies), 4) Best in survey, and 5) Worst in survey. The selected use of histograms as shown in Fig. 4 is a possible, future display for survey results. Here 'your value', the survey average, and the minimum and maximum are displayed in a way that visually quantifies the participant's position. It gives a perspective of the % of survey participants that are better or worse than you based on the area under the curve to the left and right of 'your value'. To participate in the survey, a producer would select the product(s) and the survey segments to be characterized and then proceed to answer the survey questions specifically for those products. (While the questions are fundamentally the same for each product, the answers are differentiated by product and can't be bundled.. obviously market pulp logistics are different from converted tissue products.) With the survey results in hand, each participant can assess his position on any attribute and decide to improve performance in that area if the gap between his performance and what's possible warrants action. By participating in the survey at regular intervals, say semi-annually, performance improvement can be tracked and at the producer's option be shared with the customer as appropriate.

THE INCENTIVES FOR BENCHMARKING. Fundamentally, there are at least two compelling reasons why a paper producer or converter should be interested in this type of benchmarking.

First, a producer can differentiate himself from his competition by developing facts and data that demonstrate his capabilities to his customers and use this to facilitate sales, and second, improvement programs will reduce costs and improve service. Typically, the all-included cost for moving tissue parent rolls from mill to market ranges from 10% to 25% of the cash manufacturing cost of the product, and not much is actually known about whether or not optimum performance was delivered.

Assuming a tissue jumbo roll cash manufacturing cost of $650 per ton, then all-included delivery cost could range from $65 to $160 per ton. A 10% improvement in delivery represents savings of $6.50 to $16 per ton amounting to $275,000 to $680,000 per year for a 120 tons per day mill running 355 days.

Gaining control in the logistics area will not only improve customer satisfaction, but also makes compelling economic sense. To date, the investments in control and business systems, and in e-commerce systems have enhanced intramill or intra-company performance, but information on inter-mill/inter-company performance continues to be subjective, and highly differential by producer. Each producer of tissue and other pulp and paper products has an opportunity to measure how effective their collective investments in control systems, business application systems, and e-commerce systems has been by benchmarking themselves versus their competitors in one of the last frontiers for improvement, the "mill to market" arena. Benchmarking substitutes 'facts and data' for subjectivity about performance in the many activities involved in moving products from mills to the marketplace.

Benchmarking will identify performance gaps and will point out what is possible to be achieved because someone else is actually doing it. As each producer determines it to be appropriate, improvement programs can be initiated to close the gaps generating value through improved customer service and satisfaction and achieve cost reduction that comes with better overall efficiency.