Raute Canada – right time to right-size

In his 25 years with Raute’s Canadian division, Martin Murphy has participated in two major relocations. In both cases, the decision to relocate has been based on the management’s  assessment of changing market conditions and the relevance of their existing business model.

“We knew we had to change from a ‘manufacture everything’ facility. That meant eliminating ‘dumb steel’ production in North America and concentrating instead on ‘smart steel’ manufacture, such as precision machines, as well as the automation and control systems,said Mr Murphy. He used the example of a veneer dryer Raute recently delivered to a plywood mill in Oregon.

“Before, we might have fabricated big steel elements, such as doors and insulation panels, at our old plant located 20km from here. However, for this order, those components were manufactured at Raute’s own factory in Shanghai, China and shipped direct to the mill in containers.

“Raute Canada built the intricate veneer handling equipment and supplied the controls,said Mr Murphy, highly complementary of the cooperation between Raute’s North American division and its Chinese factory.

“Our China factory is supervised by personnel from Finland, so we know strict manufacturing procedures are followed. The bottom line is that customers receive products manufactured to Raute’s own high standards.”

Access to the Shanghai factory was a key consideration when Canadian management looked at relocating. With Shanghai’s record of success, they were confident their subcontracting needs would be met internally without their having to rely too much on outside sources.

“Having access to Shanghai is like having access to a large manufacturing facility next door, except we’re buying internally, with many components manufactured to our own standards,said Mr Murphy.

He describes the new plant as a ‘white floor’ facility where sophisticated machinery is assembled from multiple components which meet the high standards of both oem and enduser. This means that Raute isn’t required to produce so many proprietary parts, which, in turn, reduces inventory needs and enables more cost-effective and efficient manufacturing.

Need for new model
The due diligence process leading up to the move began in 2007, with management asking serious questions.

For several years they had been witnessing significant changes taking place in the North American structural panel market and decided that changes to their business model were needed.

Said Mr Murphy: “Our North American business is mainly geared towards structural plywood and that sector has poor growth potential – no new mills since the mid-90s and none forecast. Operating mills have declined from 89 in 2000 to 60 now and many have curtailed production. The focus now is on improving operating efficiencies and getting more out of existing machinery. Few companies are investing in new equipment”.

Mr Murphy said the dramatic growth of OSB has been the reason for the decline in structural plywood over the past 20 years. Between 1990 and 2005, production of OSB more than doubled, while plywood production fell by over 50%. The one bright area that remains for plywood is the industrial market.

But it was the sub-prime crisis of 2007, according to Mr Murphy, that shook the foundations of the structural panel industry. Housing starts, already down significantly compared to the previous year, began to plummet. As the bellwether for indicating the health of the structural panel industry in the US and Canada, housing starts determine the demand for plywood and plywood machinery.

“We knew we couldn’t sustain the order level of past years, so we adjusted our business model and set about implementing it,he said.

According to Mr Murphy, the past three years have been lean for sales of new equipment, with most mills allocating money to maintenance and repairs. Key topics in discussions with customers, he said, dealt with improving recovery and achieving higher productivity.

He believes much of his company’s sales will continue to come from upgrade and modernisation projects. When large projects, like an LVL line, come along, the company will utilise its inter-company resources.

Smooth move
The move to new premises began in February 2010 when machinery began being moved from the old factory. Relocation of office and engineering staff was completed at the end of May. According to Mr Murphy, no shipments were delayed and interruptions to day-to-day activities were minor: “Everyone stepped up and got the job done,he said.

The new facility occupies about 3,200m2, two-thirds of which is manufacturing. While it is less than half the size of the old plant, Mr Murphy said he has already seen improvements in some key operating efficiencies.

“With less space, we’ve had to smarten up. Before, staff were segmented by floors and people stayed in their cubicles. Now, those that design and those that sell are on one level and communication is quick and easy.”

He also said that certain tasks that had been neglected for years were completed prior to the move. These included the scanning and digitising of thousands of drawings going back to the 1960s – a task he believes would never have been completed had they remained in the old location. Old inventory was also disposed of.

Mr Murphy further stated that the move has enabled Raute Canada to adapt its internal culture to the changing times; from that of a big company to one in which staff are actively involved. Right-sizing, he believes, has created an improved attitude, with multi-tasking and teamwork the new order of the day.

He also sees a greater degree of discipline being applied to the work flow. Everything, from how an order is received and put into the system, to how parts are ordered, work orders are issued and inventory is handled, is more closely scrutinised.

“We believe we’ll be better able to take advantage of the principles of just-in-time (JIT) manufacturing and we expect those benefits will be significant,he said.

In total, Raute invested two million Canadian dollars in its new facility. This included the purchase of new CNC machinery, a cross-flow paint booth, industrial overhead cranes and a milling machine with a bed capacity of up to 2.14x6.0m.

Mr Murphy is cautiously optimistic as he looks to 2011 and beyond.

“The last three or so years saw lots of casualties on both sides of the order book. We expect 2011 to be a year of zero, or modest, growth as mills continue to delay investing in capital projects and concentrate on upgrading, particularly controls and automation, instead,admitted Mr Murphy.

“According to information I have, the market isn’t expected to rebound until 2013 or 2014. In the meantime, we’ll continue to serve our customers’ needs from our new and improved Canadian facility.”