iDRY Vacuum Kilns

Sponsors:

Marketing

Started by Tim, April 17, 2003, 10:10:43 AM

Previous topic - Next topic

0 Members and 1 Guest are viewing this topic.

Tim

I'm sure that everyone here knows that unless you have a decent marketing structure, your business is going to fail. Someone said to me, or I read somewhere along the way... "You can make as much of your product as you want, the real problem is getting rid of it." I am certainly not going to argue that point.

Moving lumber and getting your price in this area is difficult, there is a considerable amount of competition. (124 mills in this county alone, let alone the bandmills ) If you want to make a living in lumber here, you have to  market out of the area. I've priced lmber at the retail level in Ottawa, Montreal and Toronto. Even with the transportation, we are able to "cut retail off at the knees" in those particular market areas.

Through the course of marketing our lumber I've spent a considerable amount of time looking at different sites on the internet among other methods of marketing. Some of the sites were inclusive of value added items as well, things like garden sheds and so on.

Here is the question... How much hard maple is a retailer really moving at $10 CA $6.80 US? I see $25 US 2x4 8's in Boston, I see $7,000 US Garden Sheds that look like they blew together. I see HDPE Lumber on sites and that have been applied going for $3000 / Mfbm US, $250 US picnic tables... I don't understand how the material can be moving...

Understandably, the prices are retail. Typically, a retailer will mark 5% onto commodity items such as structural lumber, panels and decking. Other items such as the v-a will have a 15 to 30% margin.

I had a wholesaler balk at white cedar decking material at $0.95 /fbm CA D4S. I was offered $585 / Mfbm CA rough, for Cw 5x5. Logs are $500 / M +/- so that fellow received a resounding "No".

Are those over priced items and materials really moving? Who is making the money when we receive offers of $585? How can the problem be rectified?
Eastern White Cedar Shingles

Ron Wenrich

Sure, you can cut retailers prices because you don't have the overhead.  Put up a store, hire some employees, and see how competitive you are.

We have a local mill that decided to go into the retail end.  He was putting lumber in there that was basically off fall from his operations.  He had material I wouldn't have used for skids.  And it sat from one year to the next.  This store is open and sells a lot of flooring that they don't produce.  Also, a very low profile store.

They also opened up a second store in an area that has a ton of woodworkers.  The store went under within a year.  They couldn't move enough material to meet the overhead.  

I've gone to the Home Depot and Lowe's and other stores.  I remark how I'd like to get $5-6/bf for 1 Com lumber.  But, I've rarely seen anyone actually buy much of that stuff.  That's why there is only a small amount of floor space devoted to hardwood lumber.  

Breaking into retail is a whole other realm.  Most mills sell wholesale, since they have to move volume to keep competitive.  

You can get into value added by offering kiln dried stock, S2S or S4S lumber, etc.  But, to make it really pay off, you need some sort of a niche market.  Find the small woodworking shops that only need a few Mbf/month.  You must keep the stock moving, since you have a lot more invested in it.
Never under estimate the power of stupid people in large groups.

Tim

Understandably, I don't have the overhead that the retailers do. The observation that I was trying to make was the price discrepancy that there is between the retailer and the producer. For example, with the farmers, oats run roughly $150 per ton in bulk, when it leaves an outfit like Post or General Mills it is selling for $900 per ton. I don't expect to sell for the amount that the retailers do. Frankly, the sales that I am looking for our products is the value aded industry and contractors. More so a semi wholesale.

Moving loads of lumber 20-30 Mfbm in a given dimmension is a difficult proposition. While we have the capacity we don't have the capital. We attempted an association with two other mills to trun out that load of specific dimension material on a more consistant basis. It worked well for a while as the two other mills were of roughly the same capacity as ours. The arrangement fell to the wayside for varrious reasons. One mill switched to a rather large run of cherry and the other shipped smaller lots. For us the cold was a deteriment this winter. The deal isn't dead, it needs some work though.

I don't expect anything more than a fair deal for both parties when I am dealing with customers or suppliers. We do provide value added products, v-joint panel, d4s decking, some sorted lengths... etc. It burns my ass when I receive offers for a quality product that are less than cost to produce, particularily when I see the prices at retail and have the knowledge of the margins at retail.

Listen to me whine...

I suppose the root of my point is that basic greed is burning my ass. Personally I don't expect to get rich in this business, don't get me wrong, if it happens all the better. I expect to make a living. However, I feel that a degree of fairness is definately in order.

Roughly three years ago I partnered with two other individuals to supply White Cedar to a wholesaler in Quebec. The price we were receiving for our product was on the low end of fair. I made a few calls and made contact with a furniture manufacturer in Albany, New York. He offered a price for a couple items that was very agreeable, or at least I thought it was. When I discussed the opportunity with my partners at the time, I received from them this abridged reply; You stop looking for sales and keep taking it up the hoop. That partnership was disolved roughly 18 months ago when the softwood lumber agreement expired.

It seems to me that the end user is greeting rooked with the current supply structure. There are wholesalers and brokers in the middle that have nothing invested other than their truck. I see this particularily in the White Cedar market as much v-a isn't necessary for the majority or the products unlike hardwoods or white pine.

Seems to me that what is needed is a producer owned brokerage. There by the middle man is essentially eliminated and a group can afford to keep a salesman on the road increasing the exposure of the product and allow the producer to continue to do what they do best... produce. Further more the producer would be able to produce with confidence that he is receiving a fair deal for all the sweat and missing fingers.
Eastern White Cedar Shingles

Ron Wenrich

Everyone in the forest products industry food chain seems to complain that the other guy is making all the money.   :D

Landowners say that the loggers make too much, loggers say mills make too much, mills say wholesalers, etc.  And, they're all convinced the guy ahead of them is making all the money.

I figure that a piece of lumber passes through about 6-8 hands before it actually gets from landowner to end user.  Every one of those guys add something to the mix, and extract profit.  You're trying to bypass a few of those middlemen and keep their profit for yourself.

Sometimes that's hard to do, unless you can do it at a comparable cost.  Selling direct to end users can work well, as long as you can put in a quality product for a lower price (cutting into your profit margin).  But, when markets turn sour, you might be the first one cut.  Its called economy of scale, and small producers can get hurt in those conditions.

I know of one mill that tried to sidestep the wholesalers.  They had a lot more trucking in their product.  But, when the economy went sour, they lost their market, and couldn't go back to the wholesaler.  They were frozen out of a stable market, and went into bankruptcy.

We don't sell a whole lot to wholesalers, but try to send green lumber to the end user.  Wholesalers get enough that we can keep sending to them.  We don't try jumping from marketplace to marketplace.  Its kind of like an insurance policy.  Lower prices, but a stable market.

I'm a big advocate of landowner co-ops.  Industry co-ops won't work as well.  There are too many egos there, and to much trade "secrets".  No one wants there competition looking over their shoulder.

One option you have is to broker the material from the other mills.  Instead of trying to co-op it, just buy it and resell it, if you have a market.  A lot less capital involved on your part.  

Producing value added means you have to eat some waste, provide capital, and hang onto the lumber for a longer time causing higher holding costs.   You need a sharp pencil to decide if this is a better route then letting someone else have the headache.

The "fair" market price is where you can get enough goods at a certain price.  Too many goods on the market, and the price goes down.  Too few goods, and the price goes up.  The wood products industry is pretty much a supply & demand market.  Its hard for one mill to break that equilibrium price and tip it in their favor.

All mills have some product that they produce at a loss.  The trick is to minimize those products.  That takes good mill management as well as good marketing.
Never under estimate the power of stupid people in large groups.

Tom

There is some justification to the middlemen too. Not that I'm an advocate necessarily but you have to look at it from the retail customer' point of view.  One other than just price.

When a retail customer wants a product he wants it right now.  It may not be commonly stocked but somebody has to have it.  If your mill is cutting cherry this week and the retail customer wants pine then somebody else needs to be producing it and the Broker/middleman is the one that coordinates all those products into the funnel.  That's the only way a steady supply of product can come out of the other end of the funnel in the right place and they (middlemen) don't work for free either.

If you produce a steady flow of product such that the demand doesn't catch up with you, and have plenty of customers that are knocking at your door,  then you can cut out the middleman.  If, one day, your log supply dwindles or your species change, then you need him ....... and especially does the end customer.

Tim

I was not suggesting a need for a marketing board or co-op system. You only have to look at the milk or wheat marketing boards in this country to see how poorly that works. What I was suggesting was a corporation that the producers own that would cover a broader range of products and species. The daily operations of each of the mills would remain independant of each other. It would be their choice as to sell to the corp. that they each own a part of. I see it as a means to make the marketing of products a little easier. While I think it would work with a limited number of individuals, I'm sure that better ideas have died on the drawing board.
Eastern White Cedar Shingles

Ron Wenrich

But, that is a co-op.  You're taking marketing to a different level by having value added by the group instead of each individual.  It could work.

Would you be buying in non-member material when members couldn't match the demand?  At what price?  

The biggest problem would be how do you figure up ownership and distribute profits.  Ownership could be looked at by mill production (for example).  So many shares for the amount of production put into the central plant.  Profit would be distributed by the amount of material sold.

Getting a firm basis would be the hard part.  How do you control who's investing and the amount?  I was going to try that with small bandmills, but was discouraged away from the idea.  Central dry kiln and marketing at a bigger level.  
Never under estimate the power of stupid people in large groups.

Minnesota_boy

With the variation in production and the wood quality and the quality of sawing, I'd think that would drive a person insane in short order.  A better bet would be to buy from other mills and do a value added process like kild drying or planing and then sell the product.   You could have a better control on the quality of the product without the bad feelings by grading the lumber as it comes in and paying based on the quality.  Oops, now you're a middleman.  :)
I eat a high-fiber diet.  Lots of sawdust!

Tim

It took a little while to formulate a reasonable response Ron.

I've had the co-operative marketing idea rolling around the skull for a few years. I, like you, was discouraged by responses from  others that I approached about the idea. Check that... the responses were positive, the problem was a lack of action on their part. On to the point...

What I had in mind was a corporation owned by 5-10 manufacturers covering a range of species and items. The reason for this; when I started out 12 years ago or so, I was milling cedar and found that I couldn't keep enough of the stuff around to keep my customers happy. I figured that I wouldneed a basic inventory of 50 Mfbm rolled 8 to 12 times a year to do so. That is a considerable investment for all but the big boys. With two other mills producing, that reduces the initial investment to a point where it is managable, therefore I and two others would have roughly 18 Mfbm rolling 8 to 12 times a year... sorry about the digression.

I envisioned... as I mentioned 5 to 10 manufacturers in varrious sectors of the industry. One planer, One to two kilns depending on the size of the kiln, and the balance made up of mills. Obviously the planer and kilns would do the finishing to the products. The mills would have to cover a certain range of species and products, softwood for example. There would have to be some redundancy to fill the gaps in production. For example, While there is a good market for 4/4 6 x 6 fence boards I don't make alot of them because of the lengths and size of my logs. I can't justify throwing away 3 feet of 4/4 6 to make a fence board.

I would see each of the partners owning 10 to 20% of the corporation and each holding a chair on the board of directors. A president / CEO from outside the group to provide direction and mediation between the partners. A dedicated sales team of 2 or so. There would have to be a sucessor arrangement made within the charter of the corporation where the approval of the board would be necessary should someone wish to sell out.

The idea of the marketing corporation is to put the money back in the hands of the producers as oppose to the wholesalers. The corporation should run on a 5 to 8% margin in order to do so. The corporation is not intended to operae any capital items... ie. a mill or planer.

To me... this idea would work well across our boarder as well, due to varrious gaps in the 27% duty that the US government is charging on Canadian softwoods... and to the quality of hardwoods in other areas.

Ownership would be a function of what is invested, be it cash or stock, upto an agreed limit to retain group control as oppose to one individual. Profits would have to be divided according to percentage ownership.

There would have to be a volume of production match for the shareholders as well. I mentioned previously that Candy and I were working with two other mills to compliment production and sourcing. During some of our discussions we were questioning who else could be brought into the fold... My production CAPACITY is roughly a million feet annually, same as Will's, Mark's is around 600 Mfbm. One of the names brought up has a production of 5 million. The other name has the resources to walk away with the agreement. Those numbers are capacity and not actual production.

A shared risk is easier to swallow than an individual risk. Ottawa / Hull is a little over an hour away from here. The market area holds about 1.1 million. I've seen people paying 6 bucks a foot for manitoba maple or box elder. You would never receive that price for that junk here... Group retail outlet to sell to the city suckers... oop... slickers  ;D. Personally, I don't have a half million to set up a store front in Ottawa or its environs. Maybe the 5-10 producers as a group would... maybe one of the group should be someone that already has the storefront (closer to start up than established)...

Certainly if 100 people from a failing plup mill in Temisquming, Quebec can trun that mill into one of the top ten lumber, pulp and engineered products companies with a production of around a billion feet a year, 10 producers can put together a marketing company that would promote their ineterests and a greater rte than alone... mind you it took them 25 years. ;)

I don't envision handing over my production. The production concerns would remain the domain of each of the shareholders. The marketing would be a shared interest...

Just a thought... It would be nice if it worked though...
Eastern White Cedar Shingles

Percy

Very interesting thread.

Getting back to an earlier part of it, a few years ago I had a fellow offer me $500.00 Can per Mbft of my WRC. It was below cost, I was choked....I asked him how much he was lookin for, he wanted 3000 bdft. I gave him 300 bdft for free and told him if he wanted anymore, it was $900. per thou. He scratched his head, took the free boards and left, Two days later he come back for the rest. He has since bought lots of lumber from me. I humbly accept SURPRISES(returns) in the pile and replace them with what shudda been in there in the first place.

My point is, there is alot of millers that hide the crap in thier piles and these puchasers are wary. If you find a good buyer AND have a quality product( Im not implying you dont), you can develope a relationship with these folks and mebey make a little coin. Of couse, some are just jerks ;D ;D ;D
GOLDEN RULE : The guy with the gold, makes the rules.

Tim

Excellent point Percy... I've met both the good customers and the jerks too...  :D I try not to sell anything for a particular price that I wouldn't be willing to pay that price for myself. Then there is the goodwill portion of it like you did with your customer, there is nothing like the surprise on a good customer's face when they receive more than they expected.

There is a fellow  in Killaloe, Ontario that runs a couple small work wear stores. I went out the other day to buy a pair of boots from him. The service I received from him was second to none... I bought the boots, couple pair of doble palm gloves @ $3.00 / pair and a pair of kids gloves for our 2 year old ( we start 'em early here ) and he threw in a bottle of silicone treatment for the boots that retails at $12.00 gratis... I'll refer him to everyone I know... so that $12 he gave me will pay off well for him.
Eastern White Cedar Shingles

biziedizie

Tim you have some excellent ideas there and it could work if enough guys got together and went for it. Your right about the marketing boards and how they make a mess of things. Out here they were talking about getting rid of them and making it a free for all and alot of guys thought that would be a great idea. They did it in England years back and my uncles say it's the best thing since sliced bubble gum. The only problem is that the big guys get bigger and that hurts the little guys.
  As far as the middle men go I think that their time is coming to an end. Like there's a small lumber yard here and he can't compete with the big box stores as they buy in volume. The broker won't give him a break on lumber prices so he calls me for all his cedar needs.
  This works great for me as I have yet another place to stock my products. And I also get all the custom cuts that his customers want and that's %75 profit in my jeans.

    Steve

AtLast

Ok Ok...so can you pit all this info into " a nut shell"..laymens terms even.....whats the bottom line here? :o

Minnesota_boy

I'm afraid the bottom line is:

 Sawmill owner/operators are such an independent group that getting them together to work toward a common goal will be like getting the legislators to agree on a controversial bill.  It can be done, but will the effort be worth the payoff. >:(
I eat a high-fiber diet.  Lots of sawdust!

Tim

I would tend to add paranoia as something that would need to be overcome as well Minnisota_Boy... You don't have to be in the industry long before you come across the first person that wishes to rook you. I think my first was one month into it... Tends to leave a person a little jaded. However, I do see benifits to owning a part of a joint marketing company. The biggest hurdle is keeping it fair to everyone involved.

In a nut shell At_Last...

-an autonomous company that is owned by 5 to 10 producers to handle the marketing (only) of those 5 to 10 producers in a particular market area with 2-3 people for a staff.

The benefit;
-being that the mills would be able to devote more time to what they do best... manufacture lumber.
-the sharing of the marketing and transportation costs amongst the mills.
-raw materials referal. I missed 300 Mfbm of cedar through the course of the summer as I couldn't take the 200 Mfbm of white pine that went with it. The producer wasn't willing to split the supply.
-knowing that you are selling to a company that is taking a minimum of commision on your sweat and missing digits.
-access to markets that would normally be out of reach. I don't have the time to sell tomato stakes nor the production to fill a transport, where several mills would fill that transport easier.
-having a salesman on the road for 10% the cost of what it would normally cost.
-In the case of the producers in the great white north, the potential to tap into the US market with a US based partner. ( I drool when I see the $6.00 a square foot flooring and $0.94 a lineal foot cedar v-joint )

Personally; I have a 2 year old and a wife whose company I enjoy very much... I don't want to have to spend 14 hours a day 7 days a week working and missing out on them. It took me a long time to learn that there is more to life than work, there has to be a balance. It isn't a question of working harder to make it in your choices but, a question of working smarter. I see that potentially a marketing alliance with other producers can be a way of working smarter.

A friend of mine owns a logging company. One time a couple years ago he stated to me that he hadn't see his kids in 9 weeks and the only reason he saw his wife is that she slept in the same bed.
Eastern White Cedar Shingles

Ron Wenrich

If you're just looking for a marketing broker, that shouldn't be too hard to set up.  Actually, there wouldn't really need to be much investment on the part of the mills.

Just hire a guy to do the marketing for a select group of guys.  Pay him on percentage and let him market your production.  You may even be able to keep him as an agent instead of an employee.

When you get to the more advanced stages of value added, like kilns, resaws, and planers, then you can think about the investment part.  

To get to those lofty $6/ft prices that you drool over would require a lot more investment.  I doubt that the return would be that much greater due to the increased overhead.
Never under estimate the power of stupid people in large groups.

AtLast

Mr Wenrich,
Can I give you a scenerio (sp) and perhaps request your input.
If a client comes to you and says they want 8/4 cut to any lenght at any width ( reasonable) and requests 14,000 bf a mounth, How do you put a price on that. Obviousally ( I assume) you cant do a b/f price, do you insted price it like a cord of firewood? ie: length x width x height.. Do you price it by the count? Is there a formula thats use in these circumsatnces? Or am I totally confused...well.I know I am but I mean am I even close? ???

beenthere

AtLast
I assume you meant to state a minimum length and a minimum width that would be acceptable in your "reasonable" order. Or did you not?
south central Wisconsin
It may be that my sole purpose in life is simply to serve as a warning to others

Tim

We are doing the resawing, kiln drying and dressing anyway Ron, we may as well be getting the price for it... I've costed out the flooring to the point of delivery. There ain't many costs left to calculate... There is plenty of room.

Give your customer a price by the thousand At_Last. ( length x width x length ) / 12 for a volume in feet, divide that number by 1000 to give you a volume by thousands.
Eastern White Cedar Shingles

Percy

Hey Tim.
Im in northern B.C. and if your idea gets off the ground, Id be interested(allthough I dont know how long distance would factor into it). The market around here (Terrace) is realativly small compared to Pembroke Ont. but I have access to Western Red Cedar, Sitka/Engleman Spruce,Alaskan Yellow Cedar(nice), and even some Denim Pine.(Thats what they are calling the bug killed pine nowadays that turns blue).
    Another adavantage I see here to this idea is, I might be able to peddle some hard maple(dont grow here at all) and I would of course buy from the "corp".
Its a very interesting idea, this thing, and worth thinkin about some more.
GOLDEN RULE : The guy with the gold, makes the rules.

AtLast

Beenthere....no....the only stipulation was that it HAD to be 8/4....ie: 8/4 x what ever x what ever...

Tim....I appologize but....run that by me again....remember...Im a newbie :-[....

Ron Wenrich

You're probably being asked to quote on some 8/4.  I assume it to be hardwood, since most pine is cut into dimension stock ie 2x4, 2x6 ...

What I always look for is the specs of the deal.  Yours is random width and random length.  That means the narrowest piece would be 4" and the shortest length would be 4'.  The longest length is normally 16'.  The width can be any width, so you can go for as much as the board will yield.  

The next spec to know is what the oversize is supposed to be.  Most 8/4 is cut 2 1/8-1/4.  I have one client that will not take anything cut under 2 1/4".  

Green or kiln dried, rough or surfaced, picked up or delivered, graded or ungraded are other specs that you need to know.  Graded or ungraded is very important.  You must know the grade specs.  

Most hardwoods are sold by grade:  FAS, F1F, Select, 1 Com, 2 Com, 3 A Com.  The common grades are graded on the poorer side, so you'll be flying blind when you cut it.  Part of the learning curve.  

I also like to know what they are paying for each grade.  If I have to set the price, then I'm not real comfortable with a deal, especially on an ongoing basis.  These guys are usually out shopping around for prices.  You get the work if you can undercut someone else.  If someone undercuts you, you lose the work.  Not a real stable relationship.

8/4 prices should be about $30-40/Mbf higher than 4/4 prices.  If you don't know those prices, you might want to get a market report that gives you the price.  These are expensive, so just get a current issue as a sample.  Or ask around about price by calling some other buyers.

Usually, 8/4 is used for moldings and they like the higher grades of wood.  I do sell all my ash in 8/4 log run which is used for butcher blocks.  It's the best market we've found for the stuff.

You must also be able to produce 14 Mbf of lumber every month to satisfy this commitment.  That means you need a stable log supply.

There are several ways of measuring lumber.  You can do as Tim suggested.  Width x length/12  will give you board feet.  If you did that for each piece, it would probably drive you nuts.

You can do a layer count.  Measure the width of the layer x the length/12 x # of layers for a volume in a bundle.  Works OK for log run and random width.

For graded stock, use a grade stick.  That will give you the volume of each piece.  

Prices are always quoted per 1,000 bf ft.  That is abbreviated as Mbf or $/Mbf (dollars per 1,000 bd ft).
Never under estimate the power of stupid people in large groups.

Tim

Good explaination Ron.

It is fairly well the same for the softwood markets. I have gotten away from marketing run of mill and I sort my dimensions and grades. We do tend to charge more for dimensions that are in a heavier demand; for example 7/4 ( 1 3/4") x 6 is going for more than 7/4 x 4 and 7/4 x 5. Dimension will tend to run up the price some as well. Because good cedar to make 7/4 x 12, I wouldn't let them leave the yard for less than $1100 / Mfbm. That isn't much of an issue as I haven't any 7/4 x 12...  :D

I agree with Ron when it comes to pricing. It is one thing for a retail customer to ask what the price is, it is fully another story when a resaler or manufacturer ask what the price is. I usually reply with my own question along the line " what is it worth to you?"
Eastern White Cedar Shingles

AtLast

Thank you VERY much!!!!!  :)

Thank You Sponsors!