Nip Impressions logo
Thu, Mar 28, 2024 11:34
Visitor
Home
Click here for Pulp & Paper Radio International
Subscription Central
Must reads for pulp and paper industry professionals
Search
My Profile
Login
Logout
Management Side

The Evolution of Procurement in the Paper Industry

In the past, procurement of most goods and services was conducted almost exclusively at the mill level, administratively handled by the purchasing department. Actually, the selection of purchased items was controlled primarily by mill superintendents and department heads, with purchasing handling requisitions, tracking deliveries, and ensuring inventories did not deplete. In other words, the purchasing power rested with select individuals in mill management. Sales persons quickly determined who these decision makers were, and focused their attention directly on them.

Direct sales visits to the purchasing department were sometimes skipped altogether, unless done out of "respect" or to inform the purchasing manager that an order had been obtained so that there would be no delay in processing the requisition! Mill superintendents particularly exercised tight control over the purchase of paper machine clothing, chemicals, parts, and services. This resulted in numerous suppliers, with wide variations among the items purchased even by mills in the same company. This buying arrangement was protected by individual mill superintendents, who were often reluctant to allow any outside influence on the selection of items they felt critical to the efficiency of the operations. Corporate purchasing was used for coordination of major projects, such as new machine purchases or rebuilds.

In my experience, the first shift away from decentralized procurement to a more centralized system in the U.S. began when the largest paper company, International Paper, decided to conduct business only with approved mill suppliers, using a volume discount basis linked to a specific level of purchases. The mills selected their approved suppliers, but corporate purchasing controlled the amounts purchased from individual companies that had previously bid on a level of business with an offered discount. The contract bidding was done annually, and since the business blocks were relatively large, it was prudent not to lose the business level of the prior year. Corporate purchasing monitored mill purchases to ensure the terms of the contracts were met.

Some suppliers decided not to participate in this arrangement, deciding that sufficient business remained available in other paper companies without discounting their products. But eventually a number of other large paper companies adopted similar buying arrangements. And over time, the number of smaller suppliers began to diminish, having lost their ability to compete economically.

Today, purchasing is but one part of a broader and mostly centralized procurement system used by many paper mills. Procurement has evolved through a system of integrating people systems, structures and practices into one process based on the insights of all the linked departments. The goal has been to optimize project results, reduce waste, increase value, and maximize efficiency. Of course, specific responsibilities remain, such as who makes the actual purchases and who coordinates the overall planning. Mill purchasing still places orders, maintains inventories, and ensures pricing meets contract terms. And, project managers must make proper use of the goods and services purchased, identifying any needs for changes. Agreement also has to be reached on the bidding process, with decisions on whether bids are one-time and sealed, or left open to negotiation.

Other items to be considered include:

• Selection of vendors, including the number in the bidding process, and delivery capability
• Identification of key contact personnel within the overall process
• Emergency purchases
• Payment terms

Let's examine some of the driving forces leading to a change from the basic Purchasing systems used in the past.

• The corporate management structure became more "top down" in style. It was recognized that there were too many inconsistencies when individual managers or superintendents were allowed to make their own purchases.
• There was an increasing need to reduce costs. This led to more centralized buying at the corporate purchasing level, particularly when it was documented that up to 20% savings could be realized in many instances.
• Greater opportunities for corruption were identified within the decentralized structures. This led to the need for more control of the overall procurement process.
• With advancements in technology, projects became more complex and increasingly difficult to coordinate. The time involved for efficient completion of these projects sometimes exceeded the manpower/capability of purchasing department staffs at the mill level.
• There was an increasing trend toward operating with tighter schedules and meeting deadlines, particularly involving new projects, installations, and rebuilds. Many situations also required coordination of high volumes of materials. This could be monitored and controlled better through procurement on a more centralized basis.
• There were too many suppliers, particularly in specific industries. The growth of new paper mill installations declined, creating more intense competition for the amount of business remaining to suppliers. Mills were better able to leverage their purchase pricing by offering specific volumes of business, if supplied at discount prices.
• The need to establish business relationships which met both the mill and supplier objectives began to be realized.

All procurement functions need to be evaluated routinely for performance. Non-conformity reports should be required to pinpoint excesses of materials, incomplete deliveries, shortages, and damaged goods/equipment. There is a need to evaluate also whether adequate contact is made with suppliers to review any problems occurring within a contract agreement. In the final analysis, any procurement function must result fully in ample benefits to the company and be totally reliable.

Robert Moore is a retired chemical engineer, and is an experienced technical and fictional writer. His past work experience spanned the chemical, paper and equipment manufacturing industries, including holding management positions at Voith Paper, Scapa plc, and The Mead Paper Corporation. He is also the author of humorous short stories about life in southwest Virginia, circa 1940-1960.



 


 Related Articles:


 


Powered by Bondware
News Publishing Software

The browser you are using is outdated!

You may not be getting all you can out of your browsing experience
and may be open to security risks!

Consider upgrading to the latest version of your browser or choose on below: