Are my wood costs too high? This is an age old question, often posed rhetorically. I am sure that all of us- from legends like Frederick Weyerhaeuser, the Calders and the Camps (Union Camp) to every procurement manager with boots on the ground-have asked this question.
On the surface, this question seems simple. The answers turn complicated, though, when considering the nuances of the wood supply chain-product and sourcing mix, consumption volume and haul distance to name a few. Throw a little inclement weather into the mix and this mishmash of factors get wrapped around an axle spinning so fast that not even Einstein could theorize his way to an answer. Two of the biggest monkey wrenches gumming up this work are poor data and inappropriate comparisons. They not only lead to the incorrect answers, they lead-more importantly-to answers in which you can have little confidence.
Here are a few truths about wood supply chain management that have been proven over and over again:
An optimized supply chain produces competitively priced end products.
When a mill sources wood raw materials from an optimized supply chain, it gets better quality wood and lowers its total acquisition costs.
Companies considered leaders in supply chain management in industrial products markets have Earnings before Interest and Taxes (EBIT) that is 174% greater than other companies in their peer groups (PwC Global Supply Chain Survey 2013).
By comparing average mill costs to average market costs along a volume curve, a mill can achieve lower wood costs. How does this supply chain optimization powerhouse work?
As access to credit tightened and risk increased during the recession, the type of sale most prevalent in the market flipflopped (Figure 3). In an uncertain market, buyers were not willing to go long and tie-up cash in lump-sum sales that would not be harvested immediately. Rather, the market adjusted to pay-as-cut (per-unit) offerings with smaller advances.
In 2014, stumpage prices increased for all roundwood products across the US South. Recovery in the US economy and strong export demand for hardwood sawlogs pushed prices higher.
Forestry-related industry performance improved slightly from last month in both the manufacturing and non-manufacturing sectors.
Industrial production (IP) decreased 0.1% in December (in line with expectations) after rising 1.3% in November. The decrease in December reflected a sharp drop in the output of utilities (utilities make up 9.8% of the IP index), as above-normal temperatures reduced heating demand. Excluding utilities, IP rose 0.7%. The index for mining (15.9% of the IP index) increased 2.2%.
