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Forest Products: Global Competition to Improve Profitability

Forest Products Industry

The forest products industry includes a range of producers, from large, global pulp and paper producers to much smaller manufacturers of structural lumber and value-added wood products. These companies rely almost universally on independent logging contractors to harvest and deliver their primary raw material, wood fiber. Larger paper and pulp manufacturers are very capital-intensive businesses, with substantial procurement budgets and staff.  Typically each forest products manufacturer depends on scores of logging contractors to deliver harvested wood. The pressure to reduce costs is ever-present, since the forest products industry is truly global. Paper produced in northern Minnesota mills routinely competes in North American printing plants with paper made half a world away at costs equal to or lower than those incurred domestically. This industry, too, continues to search for innovative methods of reducing production costs.

The forest and paper products industry has a reputation for moving very slowly in adapting business change. The current impetus for change lies in the global competition that has entered the marketplace and investor impatience with the industry’s reputation for decreasing shareholder value. The paper and forest products industry is highly capital intensive. According to the American Forest and Paper Association the industry’s project capital costs are 9.7% of its sales revenue. In comparison, the project capital cost of the chemical industry are more than one-third lower at 5.9% of sales revenue. Access to capital has fueled the industry’s growth in global capacity and improved product quality through investments in equipment and process control. It has also contributed to price volatility and profit erosion.

The industry is under pressure to adopt new approaches that simultaneously improve profitability and reduce demand for capital. The Internet offers the forest products industry the possibility of improving operational efficiencies in their supply chain and sharpening their focus on the customer.

Case Studies

Basin Electric
One of the Upper Midwest's furthest-reaching utilities selected MotherLode to develop electronic supply connections with the many small and mid-sized companies that make up its core supplier base. More »