Successful flour mill projects
March 01, 1995
by Teresa Acklin
Analyzing the local market, assessing the competitive situation and calculating profitability are fundamental in the decision whether to expand an existing mill or build a new one.
In the first of three articles, industry consultant David Sugden outlines the issues flour millers initially should examine when considering projects, from partial retrofitting to completely new plants.
BY DAVID SUGDEN
How is it possible to put a stable and viable flour mill project together? The answer lies in painstaking analysis, debate and discussion in other words, removing as much risk as possible.
To begin, the miller must consider three principles. The first is to look at the market for flour.
This means analyzing, in depth, the current local market situation, which will necessitate a team approach to gather accurate current information. Information should include the proportion of bulk shipments to bagged, with bag sizes.
The company also will need to look to the future for possible trends, both in growth and in new products. Not to be ignored is the possibility of existing products that might die.
The market information gathered will point to the ideal location for a plant and to the range of products required. At this important stage, conclusions can be drawn to determine variety and capacity.
The second principle is to analyze the competitive situation, drawing on commercial intelligence and knowledge about the situation. The likely reaction of competitors also must be assessed most carefully; monitoring other millers' activities will indicate their strengths and weaknesses, which will highlight or underline the direction any project would take.
The calculation of options and risks is paramount. The fundamental requirement is to make decisions that will not only satisfy customers but also make money. This brings the third principle in play, profitability.
ANALYSIS IS REQUIRED.
Clearly, these three principles will have to be remembered when building the project. At any stage of planning, the appreciation of these principles will emerge to steer the team toward the right decision. For example, the analyses will begin to show both the upside and the downside issues to watch.
Interpretation of information collected is a skilled job indeed. The person in charge of the project and the team will want to assure that no vital point is missed.
This is the first big trap: neglecting to ferret out the critical questions that have neither been asked nor answered. Accordingly, slipping up at this juncture in due course can affect the actual or practical return on investment.
All of these principles apply to all project types: from partial retrofitting to a complete plant on a greenfield site, from relocation to refurbishment to reconstruction. The principles also apply to projects of all sizes: from U.S.$100,000 for a particular series or set of machines to several million dollars.
The reasons for undertaking projects also will vary: from the need to reinvest in new equipment to remain competitive to investing for a new market with new products. Regardless of the project's type, size or reasons, the essentials, care and attention, are similar.
In many projects, options open to the miller may include reusing existing machinery after refurbishment, purchasing second-hand equipment or buying totally new equipment.
In the case of reuse, the miller must conduct an inventory of the detailed condition of each machine. Machine costs must be considered in view of each machine's likely useful life.
Reuse is not always cost effective, but it can be. The reasons for lack of cost effectiveness can encompass loss of efficiency in manpower, energy, noise, hygiene or plant yield performance.
WHERE TO LOCATE?
Another vital element is the location for greenfield opportunities. It is widely held that there are three golden rules in business, namely “location, location, location,” which is wonderful oversimplification.
Obviously, there is more to success than location, but it is a significant point, for sure. So, how to calculate it? It is a matter of mathematics in general and other factors that carry an influence.
The markets for flour and millfeed have a certain pattern on a map, as does the supply line of wheat, be it by ship, rivercraft or truck from various origins. There will be freight costs into and from any plant or mill. By plotting the transportation lines on the map, including freight costs and tonnage involved, the solution will appear by close examination and debate.
Thereafter, other factors will come into play, exemplified by local incentives, real estate costs, proximity of infrastructure such as roads and airports, domestic housing for employes and other similar matters of practicality and convenience. Since greenfield site projects are expensive, it is relatively rare for the majority in milling to come across this opportunity. But, if given the chance, it is vital for millers to take considerable pains to find the right answers.
After deciding on the ideal location which must be market-demand and then supply driven, a requirement specification must be drawn.
The requirement specification is a written document, usually and commonly reviewed many times before publication. Its purpose ultimately is to provide a statement, set of guidelines or working paper that eventually is given to competing suppliers of whatever type. These suppliers probably will include milling, mechanical, electrical, structural and/or civil engineers.
Many millers often use consultants to help draw up such a document. Consultants typically could be from a number of disciplines, such as architects, quantity surveyors, civil or structural engineers, millers and so on. The consultant, by definition, is someone paid by the miller to protect his interests.
The decision as to whether to use such a professional is often based on the skills already available within the company. It is also based on the amount of time available and the size of the job at hand.
Selecting a consultant can be difficult. The only seemingly valid advice is to go by reputation and then to take references.
Sheer hard work by gathering relevant information is the necessary, market-driven first step in deciding on flour mill projects.
Part two in the series will focus on a sample requirement specification and discuss a detailed step-by-step approach to creating the document.