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Sawmill & Treating Insights: Upgrading for Volume or Value? Brian Bond
Raw material quality continues to decline while at the same time logs are getting more difficult to obtain. Many mills are beginning to worry about the future log supply — not necessarily where the logs are going to come from, but who is going to harvest them and bring them to the mill.
By Brian Bond
Date Posted: 3/1/2007
When it comes to making capital improvements to an operation, should you focus on adding equipment that will increase production or equipment that will increase grade yield? As with most ideas in the lumber business, it depends!
For starters, consider the market in recent years. A large number of sawmills added significant production capacity over the last eight to 10 years. With this added production came the need for a greater log supply as hardwood markets tightened with the loss of a large portion of furniture manufacturing capacity. During the last few years, demand for oak has dropped, leaving a lot of capacity out there with poor markets. The Southern pine market has also experienced a slowdown, and the housing market continues to decline.
Raw material quality continues to decline while at the same time logs are getting more difficult to obtain. Most mills that I have visited just within the last year have commented on the decreasing average diameter of logs coming into the mill. While not as often mentioned, this is accompanied by a decrease in high grade lumber production. Many mills also are beginning to worry about the future log supply — not necessarily where the logs are going to come from, but who is going to harvest them and bring them to the mill. The shortage of contract loggers is a growing concern.
While previous market downturns have been followed by upturns, and this will likely happen again, the market has changed. It will not be the same! Knowing these changing market conditions, what would be some suggested areas for capital investment? The following suggestions are offered with the assumption that there is no seriously worn equipment that needs to be replaced or upgraded.
Be Wary of Increasing Production Volume
Given the market changes, the forecasted decrease in the domestic need for low-grade material, the increased cost and difficulty of procuring raw material, increasing production volume does not seem like the best option for most mills.
There are always exceptions. Take for instance the small sawmill, maybe a portable operation that has identified a market willing to purchase material but only if it can meet demand. Obviously, an increase in production is required to gain entrance into the particular market. Be careful to look fully into the potential of the market and determine how you would handle the extra production capacity if this one segment or customer is no longer buying. Does the increase allow overall diversification or leave you holding the bag?
Another example of the need to increase production is after a large change in raw material has occurred. With a drastic change in raw material quality, it may be necessary to change to higher volume output. For example, if the percent of No. 1 common and better produced at a hardwood sawmill drops to less than 30%, there is little grade to be recovered by using a linebar resaw and grade sawing techniques. Installation of a thin-kerf gang would lead to higher production with potentially lower overall production costs. However, one would have to consider is there a market available for the higher output of low-grade material.
It has been documented that if you can squeeze more lumber out of the same raw material input, a mill will profit more than increasing production volume by processing more logs. It is my opinion that this is one area where capital improvement will pay off in the long run. As stated above, it looks like raw material costs will continue to go up, log sizes will go down, and the price of lumber will not increase at the same rate.
There are lots of methods out there to increase value from logs. Two clear examples are grade sawing (for hardwoods) and optimization where appropriate. Higher grade lumber always commands a higher price than lower grade lumber.
If your sawyer and edgerman have basic training in the National Hardwood Lumber Association grading rules and know the value differences between grades, they can have a tremendous impact on the bottom line.
Look into remanufacturing capacity at the grading station and have your graders practice remanufacturing. The impact of remanufacturing will be impacted by how good your sawyer and edgerman are. I have visited many mills that miss out on a significant amount of value by not effectively remanufacturing at the grading station.
While optimized edger and trimmer systems are not suitable for every mill, they provide a good return on investment in the right situation. It is not uncommon for sawmills that install an optimized edger to achieve a 6%-8% improvement in overrun (based on Doyle scale) and grade yield increases of 1%-2%. Make sure to work closely with the equipment manufacturer to know what potential increase you can expect. Some suppliers will even conduct a mill study to identify the potential impact.
Bottom line: regardless of what direction you take, adding equipment or changing methods to produce more volume or value, try to ensure that change enables you to be flexible. Markets and customers change — and change more rapidly — in today’s environment.
Also, research the market before you invest and make sure you can sell the added production capacity. As my friends in marketing always say: if you can’t sell it, what good is excellence in production?