Supply Chain Management Professional (SCMP) National Exam

Supply Chain Canada -2021

Submission Date:19/06/2021

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Table of Contents

Table of Contents 1

Executive Summary 2
2. Issue Identification 4

3. SWOT Analysis 5
4. Root Cause Analysis 6

5. Alternatives 7
6. Recommendation 9

7. Implementation 10

8. Assumptions 11

9. Project Management Team 11

10. Operation 11

11. Total Duration 12

12. Cash flow 12

13. Risk Distribution 13

14. Tentative Implementation Schedule 13

15. Monitor and Control 18

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16. RACI Matrix 19

17. Reference 20

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1.Executive Summary

The international economic and fuel price fluctuation situation has impacted on the Canadians industries and has aggravated the
high debt burden and falling competitiveness for its exports. Meanwhile, there is cognizance that high energy costs are a
significant proportion of their import costs. Due to the high cost of energy, and high cost structure from outdated technology
Dawson had employed various capital improvement project along with Biomass Conversion Project wherein using wood fuel is
seen as a means of redressing the challenges of affordability and also to drive down economic production costs. Dawson is also
burdened with shortage of funds and as a result, substantial investments required for transformation of the biomass project are not
readily available

Dawson Forest Products Inc is a well-known Canadian company that manages public lands. Dawson manages public lands
throughout BC, and has several mills located at various points in BC & southern US. It acquires its energy from three main sources;
natural gas, electricity and Wood fuel obtained as a byproduct of its wood pellet production.

The case study is all about central BC mill wherein after “Greenhouse Gas Reduction Targets Act” passed by BC liberal
government to reduce carbon by 33 percent by 2020 and 80 percent by 2050, the company is under legal requirement to make
efficient and economic use of its waste streams from its timber production mills otherwise pay carbon tax rates ($30/tonne).

The company had implemented biomass conversion capital improvement project or fuel switching project, but project is behind
schedule and over budget. Along with it, uncertainty of market in terms of demand supply and prices and some other issues as
described in figure 1 poses great challenges to the company

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Figure 1.
Softwood Lumber Supply
and Price
External Factors
Retraction in pulp and
paper production
Price, Costs and Exchange
Rate
Crude oil price reduction
Softwood Lumber
Agreement
Softwood Lumber Demand
US Housing.
China
Japan
The capital cost for installation is very high i.e $10.457 million with additional cost of 1.2 million and the company was generating
$189,810/per year with the sale of offsets. If the offsets are sold continuously for 10 years than Dawson’s payback period for the
BC’s forest industry struggling to balance production against shrinking timber
supplies since the mountain pine beetle infestation which has led to higher fiber
costs as sawmill, panel, pulp and paper, wood pellet and bioenergy operations
competing for a reduced supply of timber. Opportunities for residual byproducts exist
for wood pellets and biofuels in the short-term, but the supply of long-term residual
by products is uncertain
Expiration of the Softwood Lumber Agreement (SLA) with the US, and softwood
lumber demand, supply and price
Some mills closing because they could not get rid of residual material
Price of electricity for industrial customers had increased steadily
Transportation costs are closely linked to fluctuations in crude oil prices. The price of
crude oil had decreased over time and was much lower than the 10-year average
price
SLA has expired between Canada and USA that means Dawson will have to pay
tariffs and face restrictions on softwood lumbar trade hence will no more have the
cost advantage in US markets
Demand was weak in the U.S. and China, two key markets for Canadian exports
Issuance of private housing permits declined in US. Weakness in the housing
market indicated current lumber prices were unsupportable. About 56 per cent of BC
lumber exports went to the US. It was the biggest market for BC softwood for wall
and roof construction
Demand from China was also down due its internal economic slowdown
Growing demand for senior housing in the coastal industry because of Japan’s aging
population
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amount invested is 6.14 yrs. Through payback period calculation the case study shows that Dawson Forest Products can gain the
investment back in six years. To take decision about whether to cancel or continue the project, the company requires deep analysis
of various alternatives. With the increasing environmental regulations and carbon tax rates ($30/tonne), the conversion project can
be beneficial for the company in the long run. The recommendation is to continue the project with close watch out on expenses to
avoid negative returns on investment. As well, over a period of 10 years Carbon replacement credits would be generated as
through this project it is estimated to reduce GHG emissions by approximately 10,545 tonnes of CO2e per year for 10 years with a
net unit ($/fbm) benefit of $0.85 per thousand board feet of lumber. Feasibility of this recommendation is discussed further.

2. Issue(s) Identification

The organization’s main goal is to make efficient and economic use of waste streams generated from land clearing which could be
collected for use as biofuel. The material required for making bio fuel is fresh and requires drying before pelleting in biomass
burners. To achieve this goal, CEO of the organization has to decide whether to continue or cancel the biomass conversion project.
Without this project, they would have to pay carbon tax to the Government.

A secondary issue facing Dawson is how best to manage its residual bio waste. Dawson needs to make an efficient and economic
use of waste streams. It can currently sell this to a third party; however, in completing the biomass conversion project,
approximately 50% of this will be unavailable to sell.

3. SWOT Analysis

Strengths Weaknesses
 75 years of experience, with experience weathering  Operators lack experience with the thermal oil system

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 industry cycles
 The investment in infrastructure to collect wet organic
waste and to digest it under anaerobic condition has
already been made , the firm has now to decide to
weather continue or discontinue the biogas conversion
project.
 The thermal energy system will:
o Reduce freight charges
o Reduce cycle times in the kilns
o Improve drying quality, charge times, and product quality
o Reduce natural gas usage and associated greenhouse
gas emissions
Opportunities
 Canadian timber sales are subsidized by the
government , and Japan housing trends are going
upwards
 Natural gas prices are falling
 Potential opportunity to collate a pellet manufacturing
operation at Dawson’s central BC mill
 Canadian exchange rate greatly supports exports
 Biogas has zero carbon footprint
4. Root Cause Analysis
Reasons why Biomass fuel project shall be continued
 Poor project management and planning
 Frequent shutdowns / slowdowns
 Project is over budget
 Internal funding issues
 High cost structure from outdated technology
 Conventional attitudes toward traditional sources
 Lack of experience in long-term running of the
energy biomass market
Threats
 Lower revenue in Canada as compared to the US
 Production volumes dependent on market conditions
 Changes in legislation; • Biomass is exported to
major customers outside the region;
 Industry is dependent on economic health and market
conditions
 Highly regulated – specification for biomass are
outlined by thermal energy system manufacturer
 Softwood lumber demand decreasing and influenced
by US and China’s economic slowdowns
 Crash of US housing market
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Carbon Offsets BC Liberal Government passed the Greenhouse Gas Reduction Targets Act that put into law
BC’s targets for carbon reduction: 33 percent by 2020 and 80 percent by 2050.
Carbon Tax Mill would pay a carbon tax t $30/tonne (with annual increase of $10/tonne) on GHG emissions
from the use of natural gas in the kilns
Dawson is using Has the greatest share of greenhouse gas emissions as natural gas is used
Natural Gas-Fueled
Kilns
Natural Gas Supply Fluctuating price of natural gas as it depends on supply response from producers and demand
from the power sector whereas Wood fuels prices more stable than natural gas.
Cost advantages Cost advantages could be achieved if Dawson’s could dry lumber faster with less energy in the
associated with areas of existing kilns like heat exchangers, fan efficiency, uniformity of drying environment,
improving Kiln energy uniformity of raw material and process control
efficiency
Uniformity of Drying It is not there with the existing machines
Environment
Uniformity of Raw Means similar dimensions, log storage and air-drying histories as well as pre-sorting by
Material species, weight, or moisture content which is not existing but could be achieved through
biomass plant.
Process Control kiln moisture content detection systems prevented over- or under-drying which can be
improved with the implementation of Biomass project

Additionally, some other causes are:

1. Housing market fluctuations

2. Increased GHG regulations and Carbon tax rates- targets to reduce the emissions about 33% by 2020 and 80% by
2050, set under Greenhouse Gas Reduction Targets Act
3. Outdated technology- Increased regulations force the company to improve its technology to a particular level to
accomplish the targets

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 4. Company’s incapability in planning budgets resulting in difference between allocated and actual budget
5. Industry in BC is highly sensitive to economic and political conditions, both domestically and abroad, that has resulted in
little margin of safety to continue operating. Budget overruns have also occurred, resulting in a failure to manage or plan
costs in the current situation.

5. Alternatives
Alternative Pro Con
Continue the biomass project  The project requires a minimum of  Variable cost of natural gas
$10K to complete  Necessity of developing contracts
 Reduced usage of natural gas in to hold price
the drying process  increase the costs of supervision,
 Higher / rising gas prices will operation and maintenance since
increase the cost savings to the the Dawson mill lack operating
biomass process familiarity.
 Carbon offsets available from the
BC government
o $180,000 per year
By converting kilns from natural gas to
thermal oil drying systems and to
install a thermal energy system that
will use wood waste byproducts from
mill operations to create energy will
help in reducing natural gas use,
greenhouse gas (GHG) emissions.
-Installing thermal oil system will
improve the drying quality, charge
times and product quality
-The number of f heavy-duty transport
vehicles, and the associated
emissions, that would have been used

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Cancel Biomass Conversion Project  Continue with normal processes
and continue Current Practices.
Improve Kiln Energy project
to transport the biomass to a pulp or
pellet mill would also be reduced
and procedures
 No changes or implications to
enact
 dispose of the woody biomass by
selling or burning, generated
during the lumber production
process
 Installing heat exchangers to the
existing kilns would increase
energy efficiency
 Lower emissions and carbon tax
 Subject the company to the
provincial government’s carbon
taxes, roughly $316,250
 Significant political risk
 Will reduce, not eliminate, the
dependence upon natural gas and
its volatile pricing
 Does not improve Dawson’s
readiness to operate

6. Recommendation
Some of the benefits which Dawson would achieve by continuing the project is asbelow:

Cost advantages Cost advantages could be achieved if Dawson’s could dry lumber faster with less energy in
associated with the areas of existing kilns like heat exchangers, fan efficiency, uniformity of drying
improving Kiln energy environment, uniformity of raw material and process control
efficiency
Area Energy Savings Achieved(%)
Heat Exchangers 70 %energy savings
Fan Efficiency 30-40 %energy savings
Uniformity of Drying Environment
Uniformity of Raw similar dimensions, log storage and air-drying histories as well as pre-sorting by species,
Material weight, or moisture content.
Improved Process over- or under-drying of wet wood could be controlled

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 Control

On the basis of the foregoing, macro-scale energy savings within BC province, in the medium term, is anticipated to not only create
greater economic efficiency but also improve international competitiveness. There is considerable scope for increasing the
efficiency in energy use whilst developing renewable energy resources; in so doing, the country will simultaneously reduce the
negative effects of fossil-based energy on the environment while generating economic benefits. Consequently, the Government of
Canada has sought, through the Greenhouse Gas Reduction Targets Act” to reduce carbon by 33 percent by 2020 and 80 percent
by 2050.

Based on the review and analysis of the alternatives mentioned above, it is my recommendation that Dawson Forest Products
should continue the biomass conversion project. Continuing with the biomass conversion project is the most financially sound
option and will benefit Dawson in the greatest way as described above. By not proceeding with the project, Dawson would be
subjected to an additional $316,350 in carbon tax, which may increase or decrease each year. Dawson will also achieve significant
cost savings due to the decreased usage of natural gas, and increased revenues as a result of selling pellets and carbon offsets
earned.

7. Implementation
Raw material required for Biomass Fuel

Fuel Source
Hog fuel
organic matter of
animal or vegetable
origin
Chips

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 sawdust
bark
shavings

8. Assumptions

1. -steady state kiln production level of 212 Mmfbm per year

2. -Steady demand
3. -fluctuating fuel prices

9. Project Management Team

Name Position Percent of Time on Project

Nathan Energy Manager 80%
Meredith VP – Production 5%
Brandon Buyer 5%
Michael Foreman – Production 5%
Rachel Engineering Team Leader 10%
Nathan Engineer 20%

10. Operation

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The Dawson Biomass plant will be operated by about 30-40 staff – most will be employed locally from BC, Canada. Staff will
include operators – running the plant via computer controlled systems, mechanical and electrical technicians and fuel handling
and plant maintenance roles.

11. Total Duration

Project: 6 months

Phase 1: Budget allocated-$5.153million

Phase 2: Thermal Energy System

installation of a highly efficient, 38 MMBtu, stepped-grated thermal energy system, a thermal-oil heat exchange system, emissions
controls and associated fuel handling and storage infrastructure.

Budget- $5.304 million

Duration- 12 months

12. Cash flow

-Project will be paid out of operating funds

-Lease payments fixed

-Maintenance cost variable as reflected by magnitude of work required

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  Total investment Earning through sales Payback period
Payback period 11657000 1,898,100 6.141404562

13. Risk Distribution

 Risk of system integration, operability and project schedule is on Dawson. Additionally Dawson should enter in to a long term
lease contract (may be for 10 years) for the maintenance of Biogas facility.

– On site 40 hours a week

– Access to service off hours

– Responsible for all maintenance

• Dawson operates the facility – Selecting number of units and fuel source

– Monitors for alarms

Engineer of record retains liability of design.

• City accepts risk of grant qualification and must not be obstructive in construction process

14. Tentative Implementation Schedule

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 TASK NAME START DAY OF END DURATION DAYS DAYS TEAM WEEK 1 WEEK 2 WEEK 3
DATE MONTH DATE (WORK COMPLETE REMAINING MEMBER PERCENT WEEK 4
DAYS) COMPLETE                            

Plan Agenda for Team Meeting 12/15 15 1/14 31 0 31 Nathan 0%                            

Reserve Room and Resources for Meeting 12/15 15 12/18 4 0 4 Meredith 0%                            

Data collection and Team Presentation 12/11 11 12/16 6 0 6 Brandon 0%                            

Obtaining Project Approval 12/17 17 12/19 3 0 3 Michael 0%                            

Permits and Licenses 12/15 15 1/15 32 0 32 Rachel 0%                            

Supply chain arrangements 12/15   1/15         0%                            

Funding 12/15 15 1/15 32 0 32 Nathan 0%                          

Plan Agenda for Team Meeting
Reserve Room and Resources for Meeting
Data collection and Team Presentation
Obtaining Project Approval
Permits and Licenses
Supply chain arrangements
Funding
Civil Procurement
Civil Works
Machine Procuremen(if any)
Machine designe engineering
Civil Designe Engineering
Civil construction
Commissioning training and test run
Entering into voluntary agreements on supplying biomass for energy production. Establishing long-lasting contacts with this group to ensure communication and sharing of information
Creating the logistics of collecting and transporting waste biomass (hay, straw, fel ing waste, branch wood) from a site of its origin to processing plants.
Mapping the potential of the biomass production and needs/demands
Biomass Production
quality assessment of fuels (weighing, measuring of humidity)
Activities oriented on developing the biomass market
Supplyinithin the organization and excess produced biomass to the local bioenergy market
0 10 20 30 40 50
Days of the Month

 
Civil Procurement 1/16 16 1/30 15 0 15 Meredith 0%                            

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Civil Works 2/1 1 3/1 29 0 29 Brandon 0%                            

Machine Procuremen(if any) 1/16 16 1/30 15 0 15 Michael 0%                            

Machine designe engineering 1/16   1/30       Michael 0%                            

Civil Designe Engineering 1/16 16 1/30 15 0 15 Nathan 0%                            

Civil construction 1/16 16 1/30 15 0 15 Meredith 0%                            

Commissioning training and test run 3/2 2 3/15 14 0 14 Brandon 0%                            

Entering into voluntary agreements on 3/2 2 3/15 14 0 14 Michael 0%                            

supplying biomass for energy production.
Establishing long-lasting contacts with this
group to ensure communication and
sharing of information

Creating the logistics of collecting and 3/2 2 3/15 14 0 14 Rachel 0%                            

transporting waste biomass (hay, straw,
felling waste, branch wood) from a site of
its origin to processing plants.

Mapping the potential of the biomass 1/16 16 1/30 15 0 15 Rachel 0%                            

production and needs/demands

Biomass Production 3/2 2 4/1 31 0 31 Nathan 0%                            

quality assessment of fuels (weighing, 3/2 2 4/1 31 0 31 Meredith 0%                            

measuring of humidity)

Activities oriented on developing the 4/1 1 4/15 15 0 15 Michael 0%                            

biomass market

Supplyinithin the organization and excess 4/1 1 4/15 15 0 15 Rachel 0%                            

produced biomass to the local bioenergy
market

Updating the Action Plan in case of major 4/15 15 4/19 5 0 5 Meredith 0%                            

changes of outside conditions
Assessing the implementation of new 4/15 15 4/30 16 0 16 Rachel 0%                            
biomass energy sources

15. Monitor and Control

KPI TARGET REPORTING DETAILS

Project Budget Under budget of $10.457 Weekly Report actual spend v forecasted spend,
million cannot deviate more than 5%

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Utility Consumption 20% reduction in first year Monthly Previous utility rate v after project
implementation
Emissions / carbon 30% reduction in first year Monthly Total carbon emissions reduced by using
footprint reduced feedstock v gas and the associated
emissions from heavy duty transport
vehicles
Project Timeline Ahead of schedule of 9 Weekly Project cannot fall behind more than 1
months week
Waste / residual material 50% biomass usage Monthly Using 50% of the mill’s residual
recycling rate materials in the new kilns

16. RACI Matrix

Activity PM-project manager CEO-chief executive DS-Dawson staff ELT-executive

PT-project team officer leadership team
CC- construction
contractors
Project budget R I A C
Cost savings R C A I
Utility consumption A C R I
Material recycling I A R C
Toolbox meeting R I A C

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 17. Reference

1. SCMP Candidate ‘s Manual, Module Eight; Supply chain management for services, capital goods and major projects fall-2020 ,

2. Dawson forest case study., Case Study

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