Activity-based costing method in forest industry modelling the production and costs of sawing, the pulp and paper industry, and energy production

Abstract

Annual commercial roundwood removal in Finland has reached approximately 50 million m3, delivering almost 1.6 billion Euros of stumpage earnings to forest owners. The aim of this dissertation is to study and model the production costs of saw-, pulp and paper mills and the combined heat and power (CHP) plant, which are the branches of forest industry that create most of the industry’s wood-paying capability. The modelling was performed by implementing the activity-based costing (ABC) method for virtual greenfield mills located in Finland. Firstly, according to the principles of ABC, mill productions were divided into processes. The sawmills consisted of eight processes, while the pulp and paper mills of ten each and the CHP plant consisted of four processes. Secondly, all required production resources of each process were defined and quantified. Thirdly, the costs of each process caused by using the wood processing or energy use resources were allocated to the products or raw materials with cost drivers. Results of the example calculations indicated that the cost structures of the studied mills shared some similarities: wood, pulp or paper drying was a relatively expensive process. The share of drying was 40%, 39% and 18% of the annual costs in the sawmill, pulp mill and paper mill, respectively. The fluidized bed boiler represented 47% of the total costs of the CHP plant. Taking into consideration the practical limitations of the test calculations, the profitability of the pulp and paper mills and CHP plant were on a healthy level. The sawmilling case was left out of the profit calculations due to lack of market price information. According to the results, ABC was well-suited to the demands of forest industry. The models provide useful tools for cost-based decision-making for both forestry specialists and the forest industry. The results indicate that the sawing pattern is a very important cost factor in sawmilling, while energy production was crucial for the pulp and paper industry and the utilization rate was in a key position for CHP. From the forest industry viewpoint the models directly aid in performance analyses; results of the calculations revealed that the relatively high share of drying costs in the industry signals that the most cost-effective improvements could be found from energy savings, which has been the tendency in past years. These results can be combined with the forest end of the supply chain, whereby forest engineers have access to better control over tree-bucking optimization and different parallel value chains of forestry can be compared and evaluated with high accuracy.