Survey Finds Causes, Costs of Lost Production

New research shows the Southern forest products industry loses an estimated $430 million a year by operating timber harvesting systems at only 2/3 of full production capacity. Forest scientists at the University of Georgia, the University of Maine and Louisiana State University surveyed loggers and mills in Georgia and Maine to determine the full wood production capacity in these states and the causes behind lost production. Overall, market factors were seen as the biggest obstacle, followed by inclement weather and a lack of planning.

 

“Of course, not all of this inefficiency could be removed, even under ideal circumstances,” said Dale Greene, professor of forest engineering at UGA’s Warnell School of Forestry and Natural Resources and principal author of the study. “Conservative estimates project the potential profits from increased efficiency between $135 and $300 million per year--and that’s a lot of money saved.”

 

Funded by the Wood Supply Research Institute, the study, “Causes and Costs of Unused Wood Production Capacity,” is the first large-scale effort to collect production information from both loggers and mills. Researchers say it’s an important first step in pinpointing problems in a system subject to constant change and competing interests.

 

“In the world of wood procurement and supply-chain management, there are conflicting objectives,” said Mike Clutter, UGA professor of forest finance, who was also involved in the study. “Mills want a consistent supply of wood at a low cost. Loggers want available markets for their services and decent contract rates. But when prices are low, like they have been lately, mills operate at a lower capacity, which means loggers have less work. The data from this study will show how to better balance the needs of loggers and mills.”

 

Southern loggers cited mill-imposed quotas, weather, and mill handling or closures as major problems, followed by mechanical failure and other issues with land tracts or stands. Maine loggers listed weather as a major cause of lost production, followed by road conditions, equipment failure and thirdly, mill-imposed quotas.

 

Researchers also found that logging crews identifying themselves as “preferred suppliers” were more efficient. These companies reported the lowest total cost per ton and the least variable costs. Their median costs were 14 percent lower than other contractors.

 

“The preferred supplier system is well established and works well,” said Greene. “Over half of the logging companies responding to the Southern survey and 48 percent of all study participants reported having a preferred supplier relationship with a mill.”

 

Researchers say a lack of planning, cited third in the survey, accounts for at least some of the weather-related loss as well. Since planning is typically a shared responsibility, the scientists say better communication among loggers, wood dealers and mills could improve efficiency through shared decision-making, a cornerstone of effective supply chain management.

 

The study also suggests that relationships between loggers, dealers and mills are complex and continually ever-evolving. And because the characteristics of mills, logging companies and dealers vary enough by region and location, researchers believe system improvements will have to be specific and local in nature to be effective.

“Significant savings will only result from real system improvements,” said Greene. “Simply lowering the rates paid to loggers and expecting the market to adjust is probably counter-productive. All parties in the wood supply system will have to work together to bring about real structural changes to see an increase in system efficiency.”