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| Can’t see the forest through the trees |
January 7, 2002 |
By Jason Rodham
TRADITIONAL OLD-ECONOMY INDUSTRIES HAVE BEEN AMONGST THE BIGGEST ADOPTERS OF E-BUSINESS PROCESSES. OIL AND GAS PRODUCERS, for example, have seen significant success by re-engineering their businesses. It would make sense then for the logging industry to follow in these electronic-age footsteps.
This sector, though, doesn’t appear to see it that way.
In terms of fundamentals, forestry and paper companies aren’t very different from other businesses,particularly the manufacturing,chemical or mining sectors, and they have looked to e-commerce to reduce inventory and eliminate transportation and distribution bottlenecks,while strengthening customer relationships.
Their experience, however, has not been one of unbridled success. Many of the forest and paper industry’s major
players remain leery of the technology, although some have charged ahead aggressively. The sector’s maturity provides
a unique perspective from which to gauge the evolution of the e-business marketplace as a whole.
“The forestry and paper industry hasn’t been convinced,” said Craig Campbell of the global forest and paper practice at PricewaterhouseCoopers (PwC). “Lots of good solutions have been put forth, but very few companies are willing to give it a try to see if it works.”
Fragmented efforts
First out of the gate were third-party online brokers, such as Clickpaper and Paperexchange, who promised a revolutionary new way to buy and sell wood and related products.
The independent brokers launched with great fanfare and signed up many suppliers and producers, but didn’t see much trading activity and, in the end, have either gone bust or been relegated to the sidelines, selling small volumes of wood products like experimental batches or other items that didn’t sell particularly well.
Gone is the dream of developing a truly alternative trading channel.
In addition to the independent brokers, a powerful group of U.S.-based forestry and paper players that includes Weyerhaeuser, Georgia-Pacific and Boise Cascade, collaborated to create ForestExpress. Launched last November, the forestry portal offers network and integration services, catalogue management, private e-commerce solutions, professional services and Web-based e-commerce.
According to Heidi Biggs, vice president of e-business at Weyerhaeuser, the company and its partners have been pushed directly into the business by customers “who want to work with us under existing business processes and relationships, while looking at where we can optimize that relationship.”
From the perspective of Vancouver based forest products provider Canfor, the ForestExpress and Clickpaper models were never the answer. “We’ve had different companies try to sell that idea to us and a lot of them were just adding costs to the formula,” said Terry French, team leader of Canfor’s e-business effort.
Canfor opted instead for an internal e-commerce platform, which supports an order/service site with access to valuable information and applications, including updated cash sale price lists and automatic bidding. The company also provides customers with other useful features, such as a calculator that automatically evaluates whether an order will fit onto a rail car.
Another of the platform’s more valuable services is its transport update link, which allows customers to upload rail files and find out the latest location of their order.
According to French, there are distinct advantages to running a proprietary system. Orders are automatically processed and head straight out the door as soon as they are completed, with no middle step or additional management expense for the company. When a customer signs on to place an order, “they’re looking at a living system that we already have.”
French believes strongly that the less ambitious and more tightly focused e-commerce alternatives will be successful. “No one’s really knocking down our door for some of the other e-business stuff, but I’m sure that will be happening.”
Personal contacts
The forestry industry’s approach to e-commerce is coloured by its business culture, its small and relatively tight-knit group of business partners and its place in a commodity marketplace.
With 40 years’ experience harvesting timber and producing lumber, specialty plywood and veneer, Ainsworth Lumber in Vancouver sees no compelling need to move into ebusiness. Robert Fouquet, vice-president of marketing, said the company’s business strategy relies heavily on personal contacts and the telephone, and he doesn’t want to upset that formula.
“The last thing we want to do is see our staff babysitting their computers. Even if e-commerce is made easy to use, it still requires a degree of training and trial, and we don’t have that time right now. If we had lots of time and lots of staff, we would find a way to make e-commerce work for us.”
According to Fouquet, the forestry industry as a whole is operating in “lean-and-mean mode” and the bulk of the industry remains skeptical of technology solutions that result in additional overhead and little direct impact on the bottom line.
“While we are focusing on value-added products, the core of our business remains commodity,” Fouquet said. “In a commodity marketplace there’s a very interesting play between sales and customers. It all relies on relationships and in reading the market, and I can’t see how a machine can help you do that.”
Canfor’s French agreed. “There is something to the relationships,” he said, noting that while some customers may use their electronically updated price lists when they can’t get someone on the phone, many still want to exchange ideas and
feedback with their traders. “There’s a danger if you don’t talk to your customers to find out if they liked the product.”
Small steps
While the forest and paper industry struggles to come up with an effective and all-encompassing e-business model, critical production factors exert influence.With hundreds of millions of dollars invested in plants and equipment, today’s forestry and paper companies must run their plants 24 hours a day, seven days a week, just to cover overhead costs.
To keep the machines well fed, the general practice is to log what you have, run the raw material through a mill, send it to a holding area and wait for the customer to call. When customers are ready for the product, they might tell the wood or paper producer in advance, but most times they just call and ask that it be shipped as soon as possible.
PwC’s Campbell said this practice places forest and paper companies in a largely reactive mode.
Another result of this production-based philosophy is that producers end up with a lot of spare paper and lumber that sits in different places along the supply chain, with a wholesaler or other middleman. A shift from a production-based strategy to one of “customer pull”—where customers dictate what products are produced and when they are harvested, finished and shipped—can have significant impact on inventory levels in particular. To do this, forest and paper producers would have to work more closely with their customers to aggregate and predict demand automatically, then let the customer drive the production schedule.
“It means you’ve got to collaborate with your customers and your suppliers, and even your competition.That’s not easy to do and they’re not used to doing it,” Campbell said.
The best way forward, he added, is for paper and forestry producers to move in a deliberate step-by-step fashion, focusing first on “track-and-trace” applications that allow customers to check the status and location of their orders. “They
don’t have to disrupt the relationship they have with the customer. They can enhance it by allowing them to go online to
find out where their order is.”
Once forest and paper companies have gone through this initial e-business experience, they can move swiftly to platforms
that allow customers to place orders for product online. Only then, as Campbell’s thinking goes, will they have the technical capabilities and experience to see the benefit in a customer-driven production schedule, and begin allowing customers to book time on their facilities independently.
Like many other big-picture e-business opportunities, it’s an idea whose time has yet to come. Whether the concept ever
takes hold depends a great deal on the kind of cold, hard value that Old-Economy businesses realize.
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