What is value added?

Forum participants give technical and personal definitions. April 2, 2002

My company belongs to a local Value Added Co-op, which is a group of people from throughout the wood and woodworking field. Out of the 60 or so members, only 6 have mills, and out of that 6 only 2 have dry kilns, us being one.

Is a product value added if you, say, start with wood that is worth $2 to $3 a foot and make something nice? To me it really isn't, but if you took wood that was worth .20 to $1 a foot and made something nice, that is.

Anybody can sell clear lumber, but the real job is to sell your low grade. I agree with Gene that you only make money when you sell wood. The only problem is that the consumers set the market, and they are dictating a bland wood market. I try selling stuff with a bit of "funk" to it, like colorful stain and spalting, but it is really a hard go.

How would you define value-added?

Forum Responses
Strictly speaking: Value-added is the increase in value of a particular piece of wood. It can happen usually by additional manufacturing, but it can also happen by better marketing. Not all value-added is profitable. When calculating the value-added, we do not subtract manufacturing costs. So, value-added is a "gross" number, while profits are net. (Example: The log cost may be $400 per MBF. After sawing, the lumber and sawdust are worth $600 per MBF of logs. The value-added is $200. Sawing costs, handling, overhead, etc. are $75. The profit is $125. Another example: Some red oak lumber is worth $600 per MBF. However, you divide it into two groups - honey wheat and rose red oak. The price you get is now a total of $700 - value-added is $100 through better marketing.)

Gene Wengert, forum technical advisor

Finding customers that both want and need your product. Doing whatever you can to satisfy their needs (within reason, of course). Keeping your production in motion while adding value is critical. "Fingerprints" will affect your value. Paying close attention to the effort and its cost.

From contributor T:
I am not a member of an organization nor work for a large company... I'm it. There are no big dollars or an impersonal factory here at risk, so I just go muddling along sawing and selling what I like. This is not just a hobby - I depend on it for paying a lot of bills, but I decided that there were already enough people selling "perfect" stuff. Since I have always leaned toward rustic motifs, I try to sell wood that has character.

I don't know how to approach multitudes, so I decided to go head to head with the woodworkers I met and sell them one at a time - kind of a Johnny Appleseed philosophy. I have joined and given talks at woodworker clubs, carving clubs and the like. I have spent a lot of time talking with customers about using "not so perfect" wood rather than throwing it in the slab pile. As a result, there are folks around here who are making slab benches, sawdust sachets, wormy and knotty gun cabinets, natural edge house trim, furniture and picture frames. Gum stumps go to the carvers, pine, oak, cedar and various other artistic stumps go to tables and chairs or finished "stand alone" just because it was unique.

To make it happen, my investment is time... a lot of it. I have to sell the customer on his own wood that he is throwing away, rather than just saw and leave. I try to interest him in every piece of wood that comes from the log, much of which I don't get money for, with the intention of getting him to think.

Value added to me isn't just money right now - it's money later on. We have been taught that only certain woods/cuts are good. Time invested to get a slab used today may create an entire industry for someone tomorrow.

Sometimes the extra time spent with a customer may not bring an extra dollar today but a happy customer will be back and bring along a friend. Try new things - there are markets we don't think of until they are pointed out. I am trying to pellet sawdust for the pellet stoves that are being sold like hotcakes now.

From the original questioner:
So many people think they know a lot about sawing, until they come out to the mill and see what can and can't be done. People drop by with logs that should be cut for firewood. I sometimes prove a point by cutting this garbage and showing them what they get.

Being in BC, we have wood everywhere. The hardest part is to open people's minds. Norm Abrams from the Yankee workshop is kind of helping us out when he uses salvaged and character wood. Sawmillers have to start selling a "wood culture". It is renewable, it is environmentally friendly and it is reusable.

As for our mill, it's a partnership between myself and another family member - total amount of people working here: two.

From contributor T:
It's a difficult thing to tell a log owner that what he has isn't worth sawing, especially when it was planted by his great grandfather. I cut a lot of stuff that has sentimental value for the customer as long as it is not so small that it may come out of the dogs and hurt the mill. After all, the customer knows what is valuable to him. As long as he is not expecting me to make a "silk purse out of a sow's ear", I'll try. Perhaps one should consider "sentiment" as a value-added product.

I know that the big mills can't be bothered with this stuff because they are concerned with quantity, but it is a niche that has to be filled and it takes a dedicated person to do it.

You're right - customer education requires that we show him that his rotten, wormy wood won't make decent 2x10 floor joists. The next time he shows up, it's with solid wood and now he knows the difference.

Whenever I have a customer that wants the wrong boards for their project, I am careful when suggesting what I think they need. I always ask what will they be doing with the wood. I may preface my remarks with "It might be more economical for you if you use..." (Never use the word cheaper, as it may cause the customer to think inferior.) I explain my reasons, but never tell the customer they shouldn't do something. I just point out possible problems - they usually figure out for themselves what will work after that.

How many times have we gone into a store for an item and when asked what we will be using it for, been told it just won't work? Even after we have been using it for that purpose for years! It destroys the store's credibility. Now if the salesperson says "I didn't know it could be used that way", it shows a willingness to learn. We have egos and our customers have egos. We need to be careful how we treat them while educating them. It is our job to point out pitfalls that our customers may be unaware of. Then in good conscience we can do as the customer requests.

Value added to me is building a product and doing the little things or providing services that don't necessarily fall into the traditional woodshop.

Example: I build a lot of small boxes. The value added is that I
1) individually box each item so the wholesaler can ship it without re-packing it,
2) have a documented Q&A program that assures the customer is getting a quality product every time,
3) will warehouse products and drop ship to my wholesaler's customers - imagine not having to take possession of 100 jewelry boxes, but being able to sell them as if you did,
4) accept blanket orders with staggered release dates,
5) have just in time shipping when I build components for furniture companies. Keeps them from having to warehouse items.

These are just a few of the value-added services that I provide. Future services will include providing bar coded labeling and EDI transactions.

In BC, the technical definition of VA is anything more processed than dimensional (2x) lumber. Even boards (1x) are seen by their producers as value-added. The history of the industry here has somewhat separated primary producers from remanners, so this definition has been more or less along sector lines. Around here it usually means chopping utility studs and fingerjointing them to construction grade.

Specialization of the vast bulk of the forest industry in dimensional has kept production costs low, but the demise of most smaller mills has meant that if you need anything besides dimensional to make your VA product, you had better mill it yourself. Even when a primary producer has a flexible breakdown arrangement (like a Hewsaw: 3D laser-scanning-yield-calculating-curve-chipping-and-resawing-an-8'-log-every-0.8-seconds-with-only-one-operator thingy), productive long-term relationships with small VAs are less frequent than they should be for various reasons. I can buy logs and saw green 5 x 5s cheaper on a tiny band mill than I can buy them from my friends at the local mills.

Where I see room for the little guy is at the margins of the big industry. Saw only high-grade logs, or only "guts and feathers", or to a different dimension or dryness or species or primed or whatever. Often the big producers will dabble with value-added, but without their heart in it, so they don't follow through with what it takes. (In the interior of BC, kiln drying seems to be more about reducing the shipping weight than meeting an MC spec.)

Sometimes the smallest bits of wood are worth more than the big bits. Wood wool: "Excelsior", chopsticks, etc. Other components of a forest are often overlooked as income-generating. Wild plants, mushrooms, phytochemicals and so on.

I am a relatively new logger on the BC Coast and see value-added as the only way to pay for the helicopter flies (even on salvage). Although we specialize in salvaged red cedar cants, we get an additional 10% each of cypress and old growth fir. And now with Vancouver Region Small Business Program (of the BC Ministry of Forests) insisting we all certify for Environmental Management Systems (ISO14001), I hope that the small loggers and mills are in a position to make money on something other than shake and shingle blocks.