ABSTRACT
In today’s global environment, manufacturing companies, especially commodity manufacturers, are being challenged to dene new business strategies to sustain their competitive position in the market. In recent years, the most common strategy for the North American forest industry has been the unpopular closure of unprotable operations. This arguably straightens up enterprise-level cost curves to some extent, but will probably not sustain the company’s future. Another common and yet critical strategy over the short term is to minimize production costs, for instance through continuous improvements. This exercise is typically carried out by process engineers who set up benchmarking performance parameters for individual processes or for the whole mill. Undoubtedly, welldened process-based benchmarking is helping many mills to improve process efciency
CONTENTS
5.1 Introduction ........................................................................................................................ 129 5.2 Understanding Production Costs .................................................................................... 131
5.2.1 Current Cost-Accounting Practices and What We Are Missing ..................... 131 5.2.2 Cost Allocation and Activity-Based Costing ..................................................... 132
5.2.2.1 ABC-Like Cost Accounting .................................................................... 134 5.2.3 Operations-Driven Costing Approach ............................................................... 135
5.2.3.1 Actual Product Margins......................................................................... 136 5.2.3.2 Operations-Driven Cost Modeling Framework .................................. 136 5.2.3.3 Cost Assessment of Operating Regimes .............................................. 137
5.3 Case Study: Integrated Newsprint Mill and Its Business Transformation ................ 140 5.3.1 Problem Statement ................................................................................................. 140
5.3.1.1 Case Study Description-Current Core Business .............................. 140 5.3.2 Overall Methodology: From Low-Level Data to Smart Decisions ................. 143
5.3.2.1 The First Block: Traditional Current Practice ...................................... 143 5.3.3 Traditional Costing and ODCM: Economic Results and Discussion ............. 146
5.3.3.1 Analysis of the Current Core Business ................................................ 146 5.3.3.2 Analysis of a Potential Business Transformation: A Multiproduct
Environment ............................................................................................ 150 5.3.4 Concluding Remarks ............................................................................................. 154
References ..................................................................................................................................... 154
and hence to tighten up their monthly spending. On the other hand, cost-based performance measures, generally established by mill cost accountants, assist in evaluating the difference between current production costs and their expected values, which are the budget values. The cause of this variance is difcult if not impossible to determine from only cost information. Obviously, each mill has developed its own particular cost-accounting practices, and some may even claim that a certain level of process information is involved in their cost analyses. From practical experience, it is evident that the communication link between cost accountants and process engineers is generally missing.
