The Cost Efficiency of the Supply Chain in a Nordic Paper Mill: A Case Study

This paper focuses on examining the cost efficiency in a Nordic paper mill. Recent years this topic has been under wider interests especially in Finland. The economic efficiency per machine hour is an essential research area from the point of supply chain. This topic has been scantily examined in previous journals and discussions. Our purpose was to examine if the development of economic efficiency might give any explanations to vast mill closures particularly in Finland after 2002. The empirical data was retrieved from a very large paper mill, which is exporting 90 % of the production. The research data consists of machine hours, variable and fixed costs and contribution margins and covers the years between 2002 and 2008. The study presents interesting results how economic efficiency of supply chain has developed during the research period. Our findings demonstrate that cost efficiency per machine hour have been under serious pressures during past years in the case mill. Additionally this empirical study concludes that in a supply chain (SC) examination is worth to make by utilizing mill specific time series data in order to yield valid and specific results. 1. Introduction The purpose of this case study is empirically to examine the cost efficiency of the Nordic paper industry. Our research is based on detailed longitudinal data from the large integrated mill. This economic data covers on a monthly basis years 2002-2008. We studied how the mill succeeded to maintain the efficiency to stay competitive. Our interest was also to reveal if the development of the costs efficiency could explain for its part the closures of paper machine lines during the past years in Finland. In the paper industry, cost efficiency of supply chain has been examined only marginally in the Nordic countries, particularly with empirical mill data. One reason for this absence might be the lack of a paper mill data, which is not easy to acquire. Only few articles have been published in journals (see e.g. Arlbjorn, Jonsson and Johansen, 2008; Elmuti, 2002; Koskinen, 2009, b; Lahtinen, 2007). Hamalainen and Tapaninen (2008 and 2010)) demonstrated that smaller delivery shipments lower the margins and that there are large monthly variations in paper deliveries at the country and also customer level. These heavy fluctuations are probably one reason for the inefficient logistics and costly warehousing, which Koskinen (2009, a) and Koskinen and Hilmola (2008) addressed in their studies. The need of constantly improve performance has become more acute in all industries but especially in manufacturing industries due to rapid demand and costs changes in the market. This is particularly valid in the European paper industry due to the decreasing demand for printing paper (RISI 2009), which constrain the producing units to all the time find more performance in whole production machinery. In Finland the paper industry is still a significant sector and its share in the total exports is nearly 20 % in 2008. The Finnish board and paper mills export around 13 million tons of paper products valued at EUR 10 billion (2008) yearly, mainly to Europe (Forestindustries, 2009). The Finnish paper companies have made enormous efforts to solve economic problems by various means, such as closing paper machines, rebuilding some machine lines and acquiring inexpensive pulp from South America. The years covered by this study have been extremely difficult particularly for the Finnish paper industry (Tappi, 2008; Forestindustries, 2009). In this study we are exploring economic efficiency in euro per machine hour, which provides a fresh research angle for discussions. In our examination, the terms 'anticipatory', 'budget', 'estimations' and 'forecast' are used synonymously to describe planning functions. Comparably, the terms 'reported, 'actual' and 'realized' show how efficiency actually developed in reality. We placed some research questions to reveal economic efficiency particularly on the paper machine basis: - Was mill been able to anticipate development of cost efficiency accurately? …