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E-Commerce

E-COMMERCE GAINS

E-commerce continues to make gains in the forest industry, building a base on the buying and selling of logs and lumber.

Aiming at the Forestry Market with the Internet

By Helen Johnson


Although there have been some well-publicized dot-com flameouts in the last year, the future still looks bright for e-commerce as it continues to make electronic inroads into the way the forest industry does business. Forestry is among the last industries to catch the e-business wave, but all the signs are there that participation in "e-comm" will increase rapidly over the next decade.
The perceived value of the Internet as a business tool, the widespread use of e-mail to keep business communication up to speed globally and the fact that almost everyone-no matter what aspect of industry they're in-has a desktop computer, means the electronic age is finally coming of age.

The obvious benefits of e-commerce-increased visibility and customer convenience, reduced costs, larger markets, better information and quicker access to it-are impossible to ignore. Yet they are just the first trickle from the better, faster, smarter tap that technology has begun to open.

The Internet buying and selling of logs and dimensional lumber marked forestry's first foray into e-commerce and continues to be the mainstay of activity there, while innovations occur almost daily in terms of industry service and support.


TALPX Inc's Internet Exchange-essentially a commodities trading exchange for softwood lumber and panel products-has grown to the point where it now has close to 27 billion board feet of product represented by member mills.


British Columbia's Doug Baleshta, webmaster for www.logsale.com, has been wired to the Internet in its various forms since the late 1980s and now-using Internet conferencing-meets and delivers lectures online around the world. Having started up forestry-related Internet activities nearly five years ago, Baleshta is an industry veteran.
While many sites offer 2x4s, sheets of plywood and commodity type items, selling the actual logs themselves is a bit more difficult to do and it is what www.logsale.com concentrates on. "You have to find market niches," Baleshta says.

Using the Internet for expansion of your local market should be a first goal and, for www.logsale.com , that meant the interior of BC, where five of the site's log yards are located. www.Logsale.com is now in the process of making some unique Internet-based advances that will change industry business practices and give participants valuable information, Baleshta says. One of them affects the BC government's small business sales-where smaller lots of wood, typically two to six thousand cubic metres, are made available so smaller operations can bid on them. Currently, there is no guarantee a mill will get all the wood from a particular sale.

"We've introduced a system that allows the tracking of timber marks from the sale to the various scale sites," he says. "So the mills can now have a little bit better idea of what's going on with what they've purchased than they've had in the past."

On the flip side of that, logsale.com has made changes to the concept of stratums-the method of converting the weight of wood into volume. When a logging truck pulls onto the scales, a conversion is made using a conversion factor, based on a sample of the wood and whether it is wet or dry.

"Most mills won't tell you what those conversions are until you actually scale the wood. We've introduced a process that allows the seller of the wood to determine what the conversion factors are at the various mills, which is a very powerful piece of information people just didn't know in the past," Baleshta says. "It helps people negotiate prices and it helps the mills track what's going on, so there's better accountability for everybody."


Westwood Fibre Ltd's Salmo, BC sort yard has been listing its timber on logsale.com for nearly two years. "We have a broad customer base for purchasing the wood and we can maximize the logs for higher prices because we can offer a mill several bins instead of one stick here, one stick there," says Tracey Hilmarsen, assistant manager at the sort yard that manages the timber of small private landowners.

A lot of hits come from people looking for a specific log type, she says. "This is where it really pays off for the wood owner because we can maximize their dollar value. We have buyers that want a specific type of wood and they're willing to pay. Instead of throwing them all into saw logs or peelers, if you have a prime piece that comes in, you can get almost double," Hilmarsen says.

Even so, Westwood Fibre's Internet sales at present are still almost nil, she says, at less than one per cent of total sales.
Doug Howard, fibre resource manager at Tolko's Heffley Creek mill, has been using the services of logsale.com for about a year and likens the Internet to a supermarket. "It's another tool for the toolkit." Seeing an image on the Internet and having all the statistics available is a definite time-saver over physically examining the wood, he says. "It lets you devote time to other money-making ventures instead of driving."

But e-commerce involves a degree of trust and a degree of risk, Howard says. "Most traders like to see the wood."
So far, the 3,000 cubic metres he has purchased for Tolko on the Internet have been minimal in comparison to the 450,000 to 500,000 cubic metres he buys annually.

WoodX.com tracks all the small business timber sales throughout BC, recording all the information that loggers need to bid and track them, and to find out how much their competitors bid and who was successful. The timber cruise data and the location maps are also included so they can compare wood types and wood values, says Dean de La Mothe, database manager for WoodX.com. Updated daily from the sale results, the database is widely used by all the major companies in BC, he says, reducing tracking costs. "It allows the small business logger to track the same timber sales and all the data the same as the major companies."

Meanwhile, software developments continue to evolve from companies like SoftCare EC Inc that has two pilot projects aimed at cutting costs to the forest industry through e-commerce solutions. Along with major telecommunications giant Telus, the company is pursuing a BC forestry procurement portal-aimed at both suppliers and integrated forest companies-to increase the efficiency of the overall procurement process end-to-end, says Ranbir Puar, SoftCare's sales and marketing director for Canada.
Estimated savings to the industry of about $260 million annually, based on forest industry procurement valued at $2.6 billion a year, are predicted.

"The industry itself is obviously quite risk averse right now, so they want to do due diligence to figure out the value here. But the whole thing is based on a return on investment type of model. It's very much an economic justification type of solution and it's very much focused on reducing operating costs," she says.

Below a certain threshold, there's realistically no advantage to having an electronic solution to your problems. "But for most medium size and larger businesses that have a fairly complex process in place for procurement-with multiple purchasers and some number of people doing the processing of that whole workload-the benefits start to become more and more evident."

Another significant spin-off cost saving relates to inventory management. In the context of forestry, maintenance inventory can equate to tens of millions of dollars and industry studies show it can be reduced by 10 to 25 per cent, she says.
And a study by GE Information Systems estimates that 30 per cent of all spending by corporate North America is with non-preferred suppliers-what is referred to as rogue spending. "That could increase your costs by up to 50 per cent," says Puar. "So that would suggest about a 15 per cent savings if you do the math on that overall."

SoftCare has been working with the forest industry for about a year and has found varying degrees of participation in e-commerce projects. "What we're finding now is that most of them are focusing on the next wave of e-commerce, which is focused on operational efficiency," she says.

"If you can save operating expenses, it drives pretty much directly down to your bottom line. Whereas driving additional sales obviously has to be factored out by whatever your costs of goods sold are and your materials, et cetera, so it has some lesser effect by the time it makes it down to your net income," she says.
Particularly with the forest industry at the moment, with the current backdrop of the expiry of the Softwood Lumber Agreement, "the continued emphasis on cost reduction is going to be key," says Puar.

To that end, there are several Internet sites that offer electronic trading and related services to on-line customers. iLumber.com offers free membership to clients receiving a full range of services and opportunities relating to lumber and building supplies. Lumberdesk.com offers secure transactions in real time, allowing new users to trade in the softwood lumber market efficiently within a couple of hours of being introduced to the system, while eTimber.com features timber sales, land sales in the western US, market reports and industry news.

The start-up of Chicago-based TALPX Inc's Internet exchange-essentially a commodities trading exchange for the purchase and sale of commodity softwood lumber and panel products-was the first step in its goal to become the premier marketplace service provider in the industry.

o the point where we've got over 200 sawmills on the exchange with their combined capacity representing roughly 35 per cent of the lumber market and nearly 10 per cent of the panel market," says Rich Haddad, the company's director of marketing and public relations.

It started with about 15 sawmills and 20 buying locations and now has close to 27 billion board feet of product represented by member mills. On the buy side, TALPX has about 1,000 buying locations that bring about $13 billion (US) in retail sales.

"Now there's 70 million board feet plus offered on the exchange every day by our sawmills. We had more trading volume this past January than we did all of 2000. And that kind of growth is what we expected," Haddad says.

The site charges a sign-up fee and a transaction fee of one per cent is embedded in the delivery cost, which also includes freight.
TALPX now has critical mass in membership and has reached liquidity in several products and aspects of its markets, says Haddad. For example, any buyer can, at any time, find the product they're looking for at the market price, purchase it and set up invoicing and delivery. And everything is done electronically, including the financial settlement.

The next step is offering an array of marketplace services. The first of those is market-driven, business process and systems integration, a goal that is behind TALPX's recent alliance with csXnet, says Haddad. "We need to be able to electronically integrate our trading exchange with the existing systems that are out there. They offer a technology solution that allows us to do that," he says. "So, for example, the invoice that's generated out of our system can be read into our mill's own internal system and the inventory adjusted accordingly."

Others services TALPX plans to offer in the near future include contract management capabilities, price protection mechanisms, decision support systems, private marketplaces and logistics services.

"There are some people out there who are promising to be everything to everybody. We felt that was the wrong way to go. So we started with lumber and panels and we started with an Internet trading exchange where we knew we could make an impact and show people value," he says.

"We have a sawmill out in the west that's selling 20 per cent of their lumber over the exchange. That's a big number. We have buyers that are buying 50 to 80 per cent of their lumber over the exchange," he says. "Granted those are smaller buyers, but the fact that they've totally embraced e-commerce is encouraging to us," Haddad says.

"This stuff's not magic. This is a tool and it's like any other tool, you have to put a little bit of effort into it and integrate it into your business plan."

Mysawmill.com takes aim at mill MRO market

Taking electronic aim at reducing product procurement costs for the sawmill industry is mysawmill.com. In operation for more than a year, the Langley, BC-based Internet site is already on the way to achieving its mission statement: to be the number one choice for suppliers and buyers of maintenance, repair and operating (MRO) products in the wood industry.

"We're growing every week," says Jennifer Fitch, founder and CEO of MRO Technologies, mysawmill.com's parent company. In the seven-month period following start-up, the site logged more than 100 sales, each worth an average of $4,200, says Fitch.
The company now has about 50 suppliers and 7,000 products listed in their online catalogue and the site averages one new buyer a day.

The North American consumable wood products manufacturing industry is currently estimated to be worth about $80.3 billion. Fitch says mysawmill.com is after 0.0025 per cent of that market. "That equates to around $80 million in sales in year three. And we're on target."
Although there are about 80 Internet sites selling wood and wood products, mysawmill.com is unique serving the niche MRO market. Fitch, whose background is in the industry, says a lot of suppliers are participating on the site because of the company's experienced personnel and the quick response time. "They know we know what we're talking about," she says.

Suppliers are charged transaction fees of from three to five per cent, depending on monthly sales volumes through the site. That may not sound like much, but Fitch points out "it's a totally touchless system."
The company's newest application is a requests for quotations, or reverse bidding. To participate, registered buyers log onto the site and, while maintaining complete anonymity, invite quotes for the required products from the chosen suppliers.

"It automatically e-mails the suppliers and invites them back to the site where they can see the information regarding the quote," says Fitch. "But they can't see any of the other suppliers that are into the quote as well, or their pricing."
Once the quotes are complete, the buyer is notified right at his desktop and has a variety of choices as to how to view and sort the quotes. "We've correlated all the information for him already-which is just a huge, cumbersome and antiquated process right now-and we've totally streamlined that," says Fitch. "It's a better way to do business and it's more efficient."

The other newly introduced facet of the website allows the sale of surplus or dis-continued products, enabling sellers to
move excess products and recover costs, while giving buyers access to increased product selection and competitive pricing.

Although Fitch is president and CEO of the company, she prefers to use the title of operations manager. "I only use the title of president when I'm with people I need to use that title with. I'm really the operations manager. We all wear multiple hats, but we're the hands-on people."

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This page last modified on Thursday, October 07, 2004