New mill projects

by Emily Wilson
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This is a fairy tale, but the situations described would be similar for any plant manager going through a major mill building project. Here is the story that puts you right in the middle.

You're the designated plant manager for a new greenfield mill to be built by Insectaflour, an up-and-coming supplier to the Sticky-Bun Bakery and Our Pizza Dough empire.

Your company has been approached to enter into a multi-year "take or pay" contract for flour, supplying four new food production plants. Your chief executive officer and chief financial officer have met with the bakery and pizza dough executives and have developed a draft agreement that locks in a 5-year contract for 8,000 cwts (360 tonnes) of flour per day. The board of directors has named you as the "responsible manager" for the project. Now, you're in charge.

A marketing plan has been drafted that envisions supplying 8,000 cwt/day to fulfill the terms of this agreement plus enough excess capacity to produce 2,000 cwt/day more for existing customers. A draft business plan has also been prepared for the new mill and it's subsequent operations.

This business plan follows a tried-and-true formula developed by the military, but which can be adapted for developing strategic plans for business as well. The formula is made up of five basic principles: Situation, Mission, Execution, Administration and Communication.

Following the order of these principles, you can develop a plan. First, determine your situation. Ask yourself, where are we now? What is the local business climate? Who and where are our competitors? What is the market demand? Where is the best site? Where can we source the necessary manpower?

Next, determine your mission, or where you are going. Write a short and simple mission statement, such as "Develop a 10,000 cwt/day flour mill capable of supporting our marketing and business plan objectives beginning in November 2000."

On to execution, or "How do we get from here to there?" Some of the activities and issues that must be explored at a minimum include process system design, site selection, building design, zoning ordinances and building codes, utilities, environmental impact, storm water management, equipment selection and commissioning, recruitment and training, contracts and bids, landscaping and irrigation.

There are hundreds more details, so proper planning cannot be overstressed. Too many capital projects shortcut the planning process, which can cause unpleasant consequences downstream. One important suggestion is to select a professional planner to help you develop a conceptual plan.

With your logistics plan in mind, identify sites and evaluate them according to your business objectives. Then, select the best site. Work closely with your grain origination and transportation contacts and leverage your site selection with key transportation rate agreements before final decisions are made. Also, follow your planner and engineer's advice on obtaining current surveys, soil borings, railroad maps, utility and highway plans, and environmental reports. Make sure all proposed work is in compliance with local zoning ordinances. A complete site plan is needed soon for the local planning commission.

Your planner and/or engineer should assist you with permits from local city, county and state agencies. Many companies fail in this area because they try to do it all themselves.

At this stage, complete a "study and report phase." In this report, make reference to all data that has been collected and prepare a conceptual site layout along with a process flow diagram as well as a concept phase cost estimate. Based on these preparations, you should be ready to refine your financial proforma and determine an initial return on investment. The project cost has been estimated at U.S.$21 million, which includes a 10% contingency for unknowns. The price is based on U.S.$2,000 per cwt for an overall greenfield site project cost.

At this point, develop a financial program and select a milling equipment supplier. In developing the financial program, consider where the final take-out financing will come from. What are the lenders requirements? What about interim financing or "bridge financing" for the equipment and civil design and for the equipment manufacture and for the construction activities? Ask your engineer to provide a time schedule with estimated monthly payment draws for financial planning purposes.

With your marketing plan completed, your business plan mission statement in hand, and your goals and objectives firmly in place, interview milling equipment companies. Prepare a "performance criteria" request for proposals (RFP) and select the company whose response best fits with your mission. The performance criteria should include the air system parameters and process control requirements in terms of throughput capacity, extraction rates and final product quality specifications.

Once you have selected an equipment supplier, be prepared to authorize up to U.S.$200,000 to allow them to proceed with design and engineering tasks. This will get the equipment supplier through the preliminary design phase and will enable them to fix their contract dollar amount.

Proceed with final engineering and manufacturing after completing preliminary civil plans, a preliminary cost phase estimate, combined civil and process costs and reconciliation of refined costs with the proforma. For the purposes of this fictional project, you find that you're within the U.S.$21 million cost with a $1 million contingency (4.8%) in place.

With the final plans completed and the permit application process under way, issue bids for a general contractor who will be responsible for all of the civil work plus two key interface areas with the milling equipment company (unload the process equipment and set it on the proper designated floor of the mill and include an allowance to core drill or saw openings that may be required in the mill structure once it is constructed and before the equipment is installed and started up).

This is the conventional design/bid/build approach. It is not a turnkey project. That is another much more complicated project delivery method that also includes site acquisition, financing, total project equipment and procurement, construction management, training, manpower, start-up and full operations, all under one agreement.

The job of managing a capital project takes someone with a full toolbox of skills, including knowledge of the overall project development process, strong interpersonal communications skills, specific knowledge of the flour-making process, strong people skills (teambuilding), an appreciation for the planning process and a strong sense of accountability. Choose a contractor who has experience and the size and ability to work within the timeline established. It's wise to select a contractor who has average annual gross revenues at least two to three times the anticipated project contract amount.

The final engineering, drawings and specifications are embodied in contract documents. These documents cover all of the building subcontractor areas, including site grading and excavation, site utilities (water, sewer, storm, gas, electrical), railroad track work, fixed-form and slipformed concrete, reinforcing/structural/miscellaneous steel, pre-engineered steel or precast concrete buildings, masonry and other building materials specifications, electrical, rigging, millwright, fire protection, painting, mechanical (HVAC), plumbing, mill equipment installation, communications, paving, landscaping and signage.

Now you're at the fourth step in the process: administration. More and more food manufacturers who do a lot of repeat projects have added commissioning agents to their project teams with great success. This consultant will serve as a "corporate conscience," to see that you have clearly articulated your expectations from day one.

The consultant sees that the marketing plan, planning, financial proforma, preliminary design, milling equipment contract and all follow-up final engineering, specifications, manufacturer's drawings, auxiliary systems designs and agency interfaces have not only been executed but cross-checked and completed with the proper communication and documentation. He or she also may help select the contractor and develop the construction contract, and will make sure that the schedule of values, the timeline schedule and all of the submittals required by the contract are adhered to, and that the engineer and the owner fulfill their contractual responsibilities.

During the construction phase, the consultant completes a start-up plan along with a strict accounting of all of the participants and who is responsible for each task. They also see that all insurance documents are provided and that all of the required submittals were made by contractors, subcontractors, equipment manufacturers, etc. They will make sure that your engineer reviews all pay requests and that he prepares periodic site visit reports so that you and the necessary code officials are assured that the construction was done in accordance with certified plans and specifications.

The final step in the process — communication — is the single most important step. Adequate communication must take place between all parties or people problems will arise.

There are many ways to ensure good communication. Have weekly project team meetings from start to finish. Organize a planning retreat for all major participants prior to construction and again prior to start up. Require monthly progress reports from the commissioning agent or planner/engineer. Establish a web site for all project communications and key information access by all team members. Plan a final open house and include all team members. Make sure you've done all you can to assemble a good team and to pull them all together in an overall project team effort.

Your mill started up on time. The project was done within the cost estimate. There were no time-lost injuries, and all of the team's participants left on a good note. You're the big hero and guess who is coming to town on tomorrow's flight for a grand tour of the new facility? The board of directors, who will be sure to take all of the credit!

Richard Van Sickle is president of Van Sickle, Allen & Associates, Inc., an architectural design firm in Plymouth, Minnesota, U.S. This article was presented at the 1999 A.O.M. Technical Conference.