Researchers at Virginia Tech just completed a project funded by the Wood Supply Research Institute (WSRI) where we looked at economic activities from stumpage to wood delivery to identify potential sources of waste. In addition, we were able to quantify the fulfillment cost of the wood supply chain. A value stream map (VSM) was used to identify waste in three different firms: a paper mill, a sawmill and a logger.
The VSM implementation found a lack of information sharing between supply chain stakeholders that can add system costs. This information gap causes a reactive environment for the forest products industry, and more specifically for the loggers. Since the entire process starts with the logger, higher costs at the beginning of the process eventually flow down to companies that process and use logs, such as a sawmill and paper mill.
The identified waste in the fulfillment value stream of the logger was:
1) Inefficient Use of Collaboration and Relationships
The reactive environment that has been witnessed across time, justifies the need for improved communication channels. In the elaboration process of the VSM, we found that the logging firm did not record data that could help keep track of productivity. This meant that the logging firm did not provide any data to calculate perfect-order execution metrics (i.e. right quantity, right product, right place, right time, right quality, right cost, right service). These metrics facilitate better strategic decisions and work closer with suppliers and customers.
2) Excessive Waiting Times
The logging company reported its process time (i.e. timeframe between receipt of an order by the sawmill to completion of harvesting operations) as variable, because of inconsistent demand from the mill. However, pulpwood tracts have a shorter processing time, because they were delivered on an agreed timeframe. The variability in this process was a critical source of waiting times and idling on the supplier end. The cost of idled equipment could be untenable in some cases.
3) Unnecessary Transportation
The lack of communication and collaboration between the supplier and the consumer mill could also impact the cost of transportation, because loads that were rejected at some mills were rerouted to a different location, causing extra transportation costs.
It was reported that logging crews usually harvested more than required when weather conditions were better, hoping that the consumer mills would buy extra loads. However, that was not always the case. The cost of holding inventory (estimated as 10% of the value of the inventory) should be considered, especially when the timber is already cut and needs to be delivered quickly to avoid damage.
5) Excessive Inventories
The supplier’s procurement team relied on experience and historic records to buy standing timber, given the lack of collaboration and communication with consumer mills. When there is no active collaboration between supplier and consumers, the supplier tends to increase their inventory levels to protect the company against demand uncertainties. In addition, it was found that the wood yards with an unusual amount of inventory also have large costs associated with carrying inventory.
Total Cost of Fulfillment
The total cost of fulfillment was calculated in $18.3 million for a logger processing 2,000 tons/day and involves: material ordering, harvesting, outbound logistics, wood/log yard management, and inventory carrying. The largest cost in this supply chain was the harvesting cost, with a value of $7,500,000 per year.
It was concluded that to decrease waste and cost the industry dynamic between suppliers and consumers must change. Suggested changes would include collaboration and information sharing between the supply chain partners. A more stable operating environment is necessary in order to provide better information to loggers in terms of future demand for wood, given their high levels of capital costs in harvesting and transportation equipment.
Performance of wood fiber supply chains is impacted by the lack of knowledge on the logger’s quantity of standing timber, and by the overcapacity of suppliers. If more information from the suppliers was available; the procurement teams of the consumer mills would have more data to better allocate.
For example, a yearly plan of consumption and inventory levels should be available for procurement and suppliers. A second communication should be provided within 2-4 weeks with an immediate supply and specification plan, which should be given to the procurement department.
In order to encourage easier communication channels, and information sharing we encourage a metrics driven core logger system. A metrics driven core supplier system would allow the company to distribute loads, tracts, etc while minimizing the impact to their most important suppliers.
The most important suppliers should be those who bring more value to the consumer company. Therefore, the next question should be which criteria should be utilized to select suppliers. We consulted the body of literature and interviewed industry experts and narrowed down the following supplier selection criteria: quality, cost, delivery, financial position, relationship, reputation, technical capability, reliability, geographical location, and flexibility.
Specific requirements that this supplier/consumer system would require are:
These systems should inform the consumer companies when productivity is being negatively impacted by their decisions
Development of short and long-term communication plans with their suppliers and the procurement department
After identifying key suppliers, inform each of them ahead of time of any significant changes that affect the loggers
Development of an information sharing culture between the consumer company and the suppliers that allows the allocation of resources designed to reduce waste. For example, allocate tracts and quota according to logger’s capacity.
The implementation of a metrics driven core logger system should not be considered as an end itself or as an individual initiative. Rather, it should be part of a broader change in the way that procurement departments in the wood industry think about their relationships with their suppliers. Furthermore, for the industry to start building stronger and cohesive supply chains through cooperation and stronger communication channels.
Editor’s Note: Henry Quesada is an associate professor and extension specialist at Virginia Tech. He can be reached at email@example.com. Paula Fallas is a graduate student at Virginia Tech in the Department of Sustainable Biomaterials.