Story by Daniel J. Dructor,
Executive Vice President of the American Loggers Council
As our industry continues to struggle during a period that can only be defined as a recession, a recent study completed by the Wood Supply Research Institute (WSRI) helps us to understand the relationships that exist between suppliers and the mills, and the real benefits that can be gained by both parties if they can work together to make a lasting cultural change in the wood fiber supply chain.
Over the past 12 months, Don Taylor, who contracted with the WSRI for the mill-supplier relationship study, conducted over 225 face-to-face interviews across the U.S. with logging contractors, procurement managers, TIMO representatives and other forest landowners; first asking structured questions and then receiving open-end comments related to mill/supplier relationships. To no one’s surprise, the findings indicated there are differing opinions based on the participants’ respective turf, as to how well those business relationships are working.
Don did an excellent job in recording and reporting on these differences, noting that many of the issues and divides revolve around supply contracts themselves, and that there are significant gains to be had by both suppliers and mills in rebuilding the “trust” factor that is so important in both personal and business relationships.
There were three findings that were consistent across the country: 1) relationship damage, 2) logging capacity disinvestment, and 3) productivity leakage.
Relationship Damage—In the report, Don indicated that 40% of the contract loggers/truckers involved were operating at a loss, or at best break-even. A similar finding surfaced early last year in Timber Harvesting’s exhaustive 2011 Logging Business Survey. While the focus of the WSRI study was not on economics, the impact associated with long-term financial stress can certainly have negative effects on relationships. Among contractors the study uncovered a “feeling that the mills had abandoned them,” leading Don to comment: “In my 40+ years in this business serving the industry in various wood procurement functions, I don’t think that I have ever seen supplier morale at a lower level.”
Logging Capacity Disinvestment—The report indicated the ongoing economic strain has led to significant disinvestment in the logging sector. New machine sales as reported by regional dealers appear to be down by 25% to 40% over the past three years and downsizing or closing of logging businesses are all indicators cited in the study. “Nationwide, production capacity is in serious danger of being damaged beyond a quick recovery,” Taylor noted, adding, “75% of the procurement people interviewed expressed concern about the adequacy of logging capacity once building products markets recover or some long-term inclement weather systems occur.”
Productivity Leakage—Don noted that the issues highlighted impacted working relationships and resulted in a loss of trust in the system, leading to lost productivity. “Lost production hurts suppliers’ bottom lines and ultimately adds costs to the consuming mills,” he observed. The report indicated there is an actual 7.1 % loss of production based on such factors as negotiations, planning, feedback, problem solving and communications, or an average of 30,000 tons for each supplier sampled. Don reported that “a large percentage of the suppliers nationwide basically work week-to-week with no firm commitments beyond the following week.” He asked: “Is it reasonable that highly professional people, dealing with that kind of uncertainty, would continue to stay in business?”
Perhaps the most significant cites from the report were the recommendations to help stabilize the supply chain relationship. The first suggestion was for “senior procurement managers to communicate the real situation clearly to the company’s top management;” followed by “recognizing that the independent wood supply contract system is an essential asset to the forest industry that contributes clearly to the industry’s global competiveness;” “providing a more stable operating environment for key suppliers;” “suppliers needing to move away from negative attitudes;” and responding to the “reality of the situation of facing severe cost pressure.”
The primary questions we have received at the American Loggers Council office, as related to the report, have been: 1) “Now that we have this information, will the mills consider the report and take measures to implement the recommendations?”, and 2) “Will we actually be invited to the table and be made a part of the decision-making process?”
There is real concern that the results of the study will collect dust rather than be implemented. For the good of all concerned, we sincerely hope that is not the case.
The challenge continues to be our ability to remain competitive in a global economy. If we are going to thrive and have an industry into the next generation, then we all must have a seat at the table and rebuild the trust Don Taylor emphasized. Contact us at 409-625-0206 or email americanlogger@aol.com.