Segezha Group: How a Russian forestry major addresses digitalization and sustainability challenges

24 April 2021

Segezha Group, a major Russian producer of fiber-based packaging and forestry products, is a global leader in sack paper (#2), paper sacks (#2) and birch plywood (#5). Unlike most of its industry peers, the group is fully vertically integrated and controls its own forests. Operating across several countries, it holds long-term (typically 49 years) leases on vast forest areas, 9.2 million hectares of forest land — a surface bigger than Austria or Ireland. The group is preparing its introduction on the Moscow exchange, aiming to raise at least 30 billion rubles ($400 million at the current exchange rate).

East-West Digital News discussed digital transformation and sustainability strategies with two of the group’s executives: Nikolay Ivanov, Managing Director for Government Relations and Forestry Policy, and Pavel Vakhnin, Vice-President for Information Technology and Automation.

How is digitalization progressing at Segezha Group? What are the main challenges at this stage?

Pavel Vakhnin: This is a constant, never-ending process — partly quick, partly slow — which we began a couple of years ago. A key part of it has been to unify the group’s information systems into something more coherent, based on SAP S/4HANA. This huge program has involved the whole of the company, with extra challenges brought about by the pandemic context.

We’ve also aimed to increase efficiency, minimizing the human factor in how we collect and treat data. A variety of solutions or projects, including cutting-edge technologies, have been considered or adopted. For example, when wood is brought by trucks to our paper production facilities, we need to predict as precisely as possible the volume of raw material that will need to be treated. Computer vision and machine learning can be used to make these data estimates more accurately than the traditional human intervention with a ruler. Volumes stored in log yards can be estimated with the use of drones.

Is technology also used for sustainable development purposes?

Nikolay Ivanov: There are many examples of this, from seed nurseries, to forest remote controlling systems, to cross-laminated timber for modern housing and architecture.

High-tech approaches may also be relevant to control wood provenance and turnover. There is a joint effort from industry players and the authorities to combat the grey or black market using QR codes within a unified information and accounting system. This system, which emerged in 2015, now allows better control.

How does your company compare in terms of digitalization with international peers?

P.V.: In certain fields, we are ahead, in others we may be behind. To be honest, our Finnish peers are far ahead. But there is a whole local context including favorable legislation and property regime. Meanwhile, I don’t think we’re lagging behind Swedish players.

By and large, obviously there’s still room for improvements with the corresponding qualitative changes and economic results.

How do you work with external technology providers?

P.V.: We have a team that is constantly looking for innovative ideas, exchanging with tech providers including startups. When we feel that a good result can be obtained, the partner is invited to make a pilot. Examples of Russian startups we work with include Computer Vision Systems, VizorLabs (videoanalytics), and Verme (management process optimization).

Sometimes we have an idea and organize a tender for integrators to pitch their offers.

Needless to say, we don’t have any national preference. Recently providers from Finland, France and other countries were involved in a project to modernize one of our paper factories. While strategic decisions are taken in Moscow, implementation can be done in other countries, including for startup scouting.

Wood construction was widespread in traditional Russia, but seems to have almost disappeared since the first half of the 20th century. Why so? What are the current prospects in Russia in this field?

N.I.: Traditionally wood was considered as not being as good as stone. This image is still a bit there. Russia is lagging behind Scandinavia (where wood accounts for some 30% of the market) and the German-speaking area. These countries are betting on wood because of its ecological, aesthetic and comfort benefits.

However, the Russian government is supporting a huge housing program, targeting 1 billion sq. m. to be built in the course of this decade. Low-height buildings should account for half of this surface, with a significant fraction (around 50%) of them to be wood made.

This is a back-to-wood trend, already noticeable in the private sector as witnessed by Istra and Pirogovo in the Moscow suburban area. Wood is quicker and cheaper at both the construction and recycling stages, making it really competitive.

What is the state of the Russian forestry industry in terms of transition to sustainability?

N.I.: This has traditionally been an export industry, hence players have to stick to international market standards. These include such sustainability-oriented certification standards as FSC and PEFC. Russia is in the top of world rankings by such standards, with a largely adapted legislation. In 1992 at the Rio Summit, Russia committed to protect 10% of its forest surface against exploitation. This rate stands today at 25%.

Our group, like most of its peers, takes care of keeping at a low level the surface cut every year (8 sq. km. out of 25,000 sq. km), and looking after the forests in a full-cycle perspective. Biodiversity is also taken into account. For example lime trees are not exploitable industrially, but they need to be preserved in such regions as Bashkiria and Tatarstan where these species are important for honey production. Other species may be important for recreational activities.

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