Purchasing in the Pulp and Paper Industry: Creating Predictability Where None Exists
By: Matthew J. Saviello, Senior Associate, PCA Consulting
Pulp, paper and forest products companies are faced with some of the most unpredictable supply chain issues among all industries. Not only is the supply of pulpwood and other raw materials subject to the vagaries of economics, but market economics — from global competition to buyers’ expectations for preferred pricing — puts firms in a fiscal vise. One place where paper products industry firms can gain a measure of predictability is with best practices MRO parts sourcing and purchasing.
PCA consultants worked with a paper mill that was attempting to reduce the cost of its machinery components. Our challenge was to reduce the cost of bearings and power transmission parts first, followed by motors after that. PCA consultants came to the plant, conducted an evaluation and decided that direct negotiation with major manufacturers would produce the best outcome.
Although both activities produced a positive outcome, the result of the motors sourcing effort was nothing short of amazing. GE and Reliance Electric had traditionally been the major suppliers for motors in paper mills. They were known for their reliability, but they had exited the industry, leaving a noticeable vacuum for paper mills with aggressive parts reliability goals.
For the effort, PCA consultants acted as a go-between, helping the paper mill first identify the most reliable motor manufacturer and then leveraging their purchasing expertise to negotiate the best price based on scale. More importantly for the facility moving forward, the PCA team acted as mentors as well, teaching the in-house purchasing staff the fine technique of purchasing negotiation that PCA has perfected through decades of direct experience.
The motors purchasing effort alone netted the paper mill a savings of approximately 25%. The entire engagement — negotiating preferred pricing for bearings, transmissions and motors — will save mill management more than $1 million per year. Furthermore, their purchasing staff has become self-sufficient and is equipped with world-class negotiating strategies that will serve them well in the future.
Although purchasing is often overlooked as a “value add” activity, the reality is that aggressive negotiation can yield amazing savings.