“Value added” manufacturing -- five approaches

New ways to improve your product and marketing. March 19, 2001

by Gene Wengert

1. Add value to present product
-- Make it better; upgrade it
-- Make what the customer wants
-- Rename “low grade” lumber to “industrial grade” lumber
-- Manufacture short lumber (at least 10x more valuable than chips)

2. Sell the same product you now manufacture, but sell it to a different market where it is more valuable
--­ Sell to hobbyist
-­- Sell No.2 Common to furniture/cabinet
-­- Sell No.3 Common to flooring mill instead of pallet mill
-­- Sell cants

3. Make a new product (i.e., new for your operation)
-- Try to enter an existing market for wood; BEWARE: Often competition is well established

-- Enter a market where you are substituting wood for another non-wood product
-- Enter existing market, but market not well served or market with room for expansion
-- Enter new/developing market

4. Get more value from the present resource (less low value; less waste; better processing)
--­ End coat logs (at least 4%) and lumber (up to 4% gain)
-­- Sawyer efficiency (up to 22%)
-- Don’t sell veneer logs
-- Make lumber without stain; lumber that is flat and smooth

5. Improve marketing and sales
-- "I’d rather justify my prices being high than excuse my quality being low."
-- "Are you interested only in price (17% say yes!), or are you interested in quality and availability (delivery)?" (27% are not strongly interested in price)
-- Pick two
* quick delivery
* low price
* high quality
--­ Marketing focuses on the customer; sales, on products

Gene’s hints for value-added
When looking for value added, remember that you need a market for all manufactured products. But with sawdust being only 1/100 of the value of lumber, do not put emphasis on the low valued products.

Yield is the biggest factor controlling profitability.

Consider either purchasing another mill’s production to help develop enough product to satisfy the demand.

Consider the proper use of a broker and wholesaler. Do some direct selling yourself whenever possible.

Test a new market by using someone else’s equipment at first. For example, rent kiln space first before buying a kiln. This allows you to test the market and also discover the true needs of the customer.

Many of the value-added markets are developing a JIT attitude, which means they are not carrying an inventory. So, the inventory will shift more and more to the primary producer or to the wholesaler. Watch cash flow, especially when using a broker.

Consider a retail outlet to move low grade material. The customers include contractors, builders, hardware stores, towns, counties, marinas, hobbyists, do-it-yourself-ers, schools, sign shops, etc. Do not grade this lumber. Sell short wood, narrow wood, thin wood, low grade wood, planer defects, trim pieces, etc.

Do you have bark? Don’t call it bark--call it landscape mulch and weed inhibitor. Do you have wood particles? Have you stained them so they look aged and ready to enhance property values when used as mulch? What will the retail market pay for landscape timbers that are reject ties?

With all the emphasis on the customer, don’t forget yourself and your employees. Don’t forget community goodwill.

Niche markets--small and local, most often. Highly profitable.

Remember that profit is the objective, not production.

More value added means more care, more perfection, and more accuracy is required.

Gene Wengert, Professor of Wood Processing, Emeritus, Univ of Wisconsin-Madison and President, The WoodDoctor's Rx, LLC, 2872 Charleston Drive, Madison, WI 53711-6502; 608-271-4441; Preferred e-mail: gwengert@woodweb.com