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Management Side
Week of 15 January 2024: Foolish Capital Choices

Email Jim at jim.thompson@ipulpmedia.com

There have been several capital decisions in recent years that have left me scratching my head. In these cases, a great deal of funds have been expended to clean out old paper machine halls for the express purpose of installing new machines of a different grade.

In the most egregious case, decades old directory paper (think newsprint) machines were site cleared to install tissue machines. When I say "site cleared" I mean they took out the machines, left the building intact. Look at a machine that makes newsprint or directory paper. Look at a tissue machine. In profile, do these look like the same machine? It is as if you were taking a garage housing a semi-truck and trailer and reworking it to hold a pickup truck. Except it is worse than that...paper machine foundations are not insignificant and require a great deal of rework.

The owners foolishly thought they were saving money by "reusing" the building. What one ends up with in this case is a compromised installation that was too expensive at the outset and that will have extraordinary costs throughout its life as compared to its peers. It would have been much better, meaning a cheaper installation and more economical to operate, had they gone to a new piece of land and started over. It is not like new land was not available--this mill is way out in the country on a site of hundreds of acres.

Who is to blame for this nonsense? Likely the entire management team, from engineers through operations, all the way to the board of directors.

The engineers did not have the stature in the company to state the case properly to start with or to restate the case if it was handed to them with the scheme that was adopted.

The operations people, from bottom to top, do not have the expertise to properly assess the situation. If anything, they acquaint it to remodeling their home which is infinitely less complicated and orders of magnitude less expensive by any measurement one chooses.

I have yet to see a member of a board of directors in an operating company who was placed on the board for their construction expertise. They are drawing on the same experience, their personal experience, that the operations people are.

It is a common failure for the unthinking to draw on their personal experiences and try to relate them to industrial decisions. I have mentioned before that many decades ago, I was running the maintenance department in a certain mill. The electricians had a pile of old instruments in the corner of one of their areas. I asked about them. I was told, "They only have minor things wrong with them, we are going to fix them, and they will save the company a lot of money over buying new ones."

I told them to throw them out and it took several repeats of this directive to make it happen.

What was wrong with their logic?

First, if my electricians have time to troubleshoot and fix these old instruments, I have too many electricians.

Second, at home in your garage, your time is free. I am not going to pay mill wages to fix these old instruments.

Third, the consequences of a misdiagnosis and new failure at home is I just do it over. The consequences of a misdiagnosis and a new failure in the mill is a minimum of an hour of downtime if we are lucky.

This may not seem like it is, but it is the same logic as putting a new machine in an old building...foolish and expensive logic.

Be safe and we will talk next week.

#pulpandpaper

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