It has long been my belief that the most efficient economic unit is the owner-operator. I believe inefficiencies begin to creep into this unit as people are added. This applies across the board, us included. This is the reason we strive to keep each of our mills a stand alone, separate unit. I point this out because we stand here before you and tell you we can operate a chip mill more efficiently than you can. This can be received as our being presumptuous. The reason we can do it is, we only operate chip mills, we keep the organization focused, and small. Obviously, there are exceptions to what I am saying. We all recognize the economies of scale. By staying small and focused, to a great extent, these economies of scale are negated.

Twenty years ago, as a small independent sawmiller, one without a land base, and procuring timber on the open market I made certain observations that lead me to conclude the time had arrived for the contract chip mill.

As an independent logger hauling wood to a paper company I saw the inefficiencies created by labor unions. I recognized how slow truck turn-around time was hurting the logger. I realized this slow turn-around time was becoming even more damaging as the loggers’ capital investments escalated. My procurement, and logging experience told me that loggers wanted to haul to mills where they could get unloaded quickly. I have seen loggers haul for less money to a paper mill just because of good truck turn-around time. An extra load per day meant more and more money paid for wood. It is that simple if you do not unload trucks, you are going to pay more for wood. Correcting this problem in an union environment can be a problem.

Another thing we realized was as wood prices escalated, more attention was going to be given to chip yield. At that time chip quality was what was watched. To improve yield more control of the chipping process would be required. Accurate data would be needed. Wood in, chips out, fuel weights, chip inventory -- all this data in an accurate form would be required. Gaining this knowledge in a paper mill environment would be difficult. It would be easy at a contract mill.

I believed a chip mill should be an ally, a tool to be used by procurement to hold down fiber costs. To best accomplish this, it would need to be hard-wired to procurement. This would enable quick reaction to procurement’s needs. We recognized inventorying wood and the watering of wood would become more of a need. The contract mill removed from the paper mill is a natural to handle these tasks.

Finally we realized we would be building mills that would need to last 20 or 30 years. We knew we had to build a mill that could be modified without causing undue consternation. We had a motto back in those days "We would never say to our host company - our mill is not designed to do a certain job". We have never failed to be reactive to their needs. Two of our mills are just now ending their 10^th year of operation. They have seen lots of changes since start-up. Wood quality is down, there is less tree-length wood and more double-bunk wood. Different specie mix, different bark percentages, and the list goes on. We have easily made the mechanical and operational corrections needed to compensate for these changes.

Some paper mills are reluctant to relinquish the woodroom because they fear losing control. They shudder to think they might be giving the responsibility for chipping to an outsider. We submit you will have more control over the process. With a contractor, when there is a problem, only one phone call has to be made. That is to the resident chip mill manager who is on site. His primary mission is to be reactive to the host mill’s needs. We give him the authority necessary to achieve this goal.

Our company is posed for the 21^st century. We believe wood grading is in the future. Think about it, the industry now pays the same price for knotty top wood that yields 50% acceptable chips as it pays for good wood that yields 90% acceptable chips. The price for wood in the future will be paid based upon quality and yields. To achieve this, much research and development will be needed. We, with the help of Mississippi State University, are already working toward these goals.

Different chipping techniques will be used. More and better chip screening and separation will be demanded. The way wood is purchased will change. I believe regional chip mills will come into vogue. These mills will chip for more than one paper mill. Log merchandizing will become a function at each chip mill. We are now doing this at two of our mills. In the future this will become a tool to reduce chip cost. We look forward to these changes, this is where we will make you the most money. We will be able to quickly capitalize on these changes because we will stay focused. 

From the paper mill stand point, all contracts guarantee chip quality, chip yield, and production rates. Each contract, with the exception of these three points, differs.

From our perspective as the contractor, the contract needs two things; guaranteed length of time, and a guaranteed volume of chips. The length of time runs from a minimum of 10 years up to 20 or more years. The customer makes this call.

Volume at our mills runs from 350,000 tons per year to over 1,000,000 tons per year. The larger the contracted volume the cheaper the unit price. Any other required points usually address requirements of the lending institution. We have a saying "If it is bankable, we can do it".

We have as much experience, more than most, in formulating workable contracts. I consider Dick Carmical the leading expert in contract negotiation. In the beginning, before the first contract, everyone was nervous. It had never been done. It has gotten easier as more contracts are developed. The contract chip mill is now accepted industry wide. To me the best testament that these agreements are successful is when we completed the first 10-year contract, and the paper mill immediately renewed it for another 10 years.

To aid in achieving these goals we have developed a custom designed computer system. Our mills are networked so that information is freely shared, not only with management, but between each mill. At Monticello we know everything that happened at our mills yesterday. By using the internet, we hope to soon have information as it occurs. We know the production of each mill. We know what broke down, what was done to repair the break-down, and how much it cost to fix it. We know what was purchased, how much it cost. We know what parts are in inventory, and where these parts are. We know where down-time is occurring. We have down-time history on each part of each mill.

This system allows us to know what is happening at each mill without being there. We anxiously await the ability to utilize on-site video through video conferencing. With this, our system will be complete. We will have a system that comes as close to allowing us to be on-site and yet not be there as is possible. This is exciting. What is even more exciting, this all equates to cost savings. We will be able to hold chipping costs down.

You will recall I said the reason we could chip wood cheaper than the paper mill was we were small and stayed focused on that single goal. This computer system, we call it CIMPS, computerized inventory, maintenance management, and production system, will enable us to stay small, stay focused, and yet continue to grow our company.