BUSINESS TOPICS FOR SMALL SAWMILL SUCCESS!

Harry WattNorth Carolina State University

and Assisting the US Forest Service’s Wood Education And

Resource Center

web www.cnr.ncsu.edu/fb/extension/ncwood

Thursday, October 24th, 2013

North Carolina State University Wood Products Extension

Since 1958 has supported the wood products industry in North Carolina in the areas of wood education, training, troubleshooting problems, research and overall assistance in making a large variety of wood products.

It is the policy of the State of North Carolina to provide equality of opportunity in education and employment for all students and employees. Educational and employment decisions should be based on factors that are germane to academic abilities or job performance. Accordingly, the North Carolina State University (“NC State”) does not practice or condone unlawful discrimination in any form, as defined by this policy.

Wood Education and Resource Center• Is the focus of the US Forest Service effort of support of the

hardwood forest industry in the states east of the Great Plains• Located in Princeton, West Virginia, www.fs.fed.us/werc• WERC project’s websites = www.cnr.ncsu.edu/fb/extension/ncwood

The work upon which this webcast is based was funded in whole or in part through a grant awarded by the Wood Education and Resource Center, Northeastern Area State and Private Forestry, U.S. Forest Service.

In accordance with Federal law and U.S. Department of Agriculture policy, this institution is prohibited from discriminating on the basis of race, color, national origin, sex, age, or disability. To file a complaint of discrimination, write USDA Director, Office of Civil Rights, Room 326-W, Whitten Building, 1400 Independence Avenue, SW, Washington, DC 20250-9410 or call (202) 720-5964 (voice and TDD). USDA is an equal opportunity provider and employer.

Legal Limitations Document

• See handout on Legal Limitations

• This workshop cannot be used for attendees to corner the US and International markets for wood products

• Cannot agree to split up the market to raise prices and limit competition

• Cannot share insider confidential individual company information

Profitability is the Measure of Success

• Each operator chooses what profitability level defines success

• Profitability = Revenues – Expenses

• Revenues = Sum of all quantities x price

• Expenses = Materials + Labor + Overhead

• Must spend time working out financial number estimates using a calculator & paper or spreadsheet

Smart Small Sawmill Operators Focus on Volume and Margins

• Volume is needed to carry costs, especially overhead costs

• Profit margins are challenged by competitors and alternative materials and other uses of customer money

• Use volume and margin analysis on every business decision!

Outline for Finding Success for Small Sawmill Businesses1. Understand the material-logs and trees

2. Understand sawing patterns-determines the time to saw

3. Picking equipment and developing process flows

4. Understanding grades, edging and trimming practices

5. Lumber drying choices and opportunities

6. Picking species, products, markets

7. Managing the business on an every day basis

1-Understanding Trees and Logs

• Logs are the major expense for all sawmills

• Four options regarding getting sawlogs– Can do your own logging– Buy logs from loggers– Swap sawing time for logs– Saw for others

• Advantages and disadvantages for each option

Trees and Quality of Lumber

Wood quality varies with location-best quality in the outside of logs!

Best quality in butt logs!

Industrial quality lumber in log core and in upper logs!

? How to Figure What $Value is in a Log?

• US USFS research that reports for three log grades the distribution of volume lumber by grade

• See Handout of pdf handouts-Hardwood Log Grades-NE 468, 1980, page 2 for chart of three grades

• Each mill operator should conduct log yield studies that show volume by grade

USFS Log Yield Studies-1970’s

• USFS Publication NE-468 Hardwood Log Grades

• Available as a PDF file on workshop pdf disc

• Published in 1980 from studies in 1970’s

• Most mills studied were circle sawmills

• Good source of basic estimates for hardwood log yield-band mills would yield better!

USFS Log Grades-F1, F2 and F3

NHLA Standard Lumber Grades

Lumber Market Reports-Appalachian 4/4 Lumber-Wholesale Market-9/2013

Red Oak White Oak Poplar Beech

FAS 1045 1055 775 500

Select 1035 1045 765 490

1 Common 700 705 505 420

2 Common 660 630 340 345

3A Common 590 570 230

Pallet Cants 375 375 375

NE-468 Table 25-Northern Red Oak = G1

Log Yield-Grade F1-Northern Red Oak

• Page 50 - Table 25

• Overrun for 12” 4,437/4,415 = 100%

• Lots of variation in % lumber by grade

• Note high % in higher grade lumber-77.3% 1C & Better!

• Message-high grade logs yield high grade lumber!

Log Yield-Grade F3-Northern Red Oak

• Page 52 - Table 27

• International overrun for 12” 2,232/2,370 = 94.2%

• Lots of variation in % lumber by grade

• Note high % in higher grade lumber-29.3% 1C & Better!

• Message = low grade logs yield low grade lumber!

Must Recognize Log Defects and Understand How to Optimize Log Value

• Natural defects-show up as defects in lumber– Knots from limbs– Splits and shakes– Sweep and crook– Oval shape– Reaction wood-tension and compression

• See samples from Neal Bennett-US Forest Service researcher

Natural Defects-Crook and Sweep

Key Concept-Must Understand Hardwood Lumber Grades

• Grading rules based on visual analysis of defects

• Clear faces valued over defects

• Values vary greatly with lumber grade

• See NHLA lumber grading publication-list of pdf’s-pages 4 to 6

Log Overrun Calculations

• % Over or Underrun in board feet = ((lumber tally – log scale) / log scale) x 100

• Thin sawblades helps higher overruns

• Good sawing helps higher overruns

• Reducing for defects helps higher overruns

• Doyle log rule support high overruns for small diameter logs

2-Sawing Patterns-Finding Faces

Diagram shows a vertical mill sawline that will set the first and following faces that are at right angles to the first face

The first face determines the rest!

Handling Taper in Logs

Diagram shows a vertical mill sawline taper alternatives

Notice how small end of log moves up and down as well as right or left

Log Diagram-Timber and Taper Sawing

Log taper sawing parallel to the saw bed will result in cutting across the grain

Sawing Patterns Determine Sawing Time

Time to saw depends upon whether sawing for boards or cants, number of turns, time to clean logs, etc.

One trip through a log is typically a constant length of time

Common Sawing Patterns

SM Sawing Hardwood Lumber-see pdf list

3-Picking Equipment & Developing Good Process Flows

• Equipment selections must support business goals and objectives

• Equipment purchases must be profitable

• Layout should eliminate wasted labor efforts

• Use roller and powered conveyors where possible

• Forklifts and front end loaders with forks greatly assist labor efforts and boost productivity

4-Understanding Edging and Trimming Practices Related to Volume and Grades

• Want to maximize profitability of the sawmill businesso Can edge and trim to increase value over losses in

volumeo Can trim to raise gradeo Can edge to raise grade

• See Sawmill Magazine Edging and Trimming article-trim and edge to increase the $ value of individual boards

5-Lumber Drying Choices/Opportunities

• About $350 premium per mbf for kiln dried over green for the wholesale market at full truckload quantities

• Lots more customers for kiln dried lumber than green

• Volume markets for green industrial lumber for cross ties, pallets and mats

• Specialty markets require kiln dried lumber for cabinets, furniture and millwork

Need to Size Dry Kilns to Sawing Volume

• May want to kiln dry 40 to 60% of sawing volume depending upon log quality

• Can turn dry kiln twice monthly with air dried lumber and easy to kiln dry species

• Example-if sawing 2,500 bf/week x 4 weeks = 10,000 bf/mo, kiln dry 50% volume = 5,000 bf/mo, if two charges per month, then need 2,500 bf kiln capacity

6-Picking Species, Products and Markets

• Must evaluate for each species and lumber product thickness what is the market a mill can actually sell on a consistent basis

• Have to conduct a financial analysis by species and thickness the profitability of each combination

• Will realize that many species and combinations of species and thickness are profitable while others are not because the lumber industry is so competitive with narrow profit margins

Picking Species

• Must analyze for each species and lumber thickness combination the profit margin = lumber value – log cost –labor and overhead costs

• Will find that margins change over time

• Pick species where you have an advantage in obtaining quality logs

Picking Products

• Should focus on lumber products that interest the owner-lumber, ties, cants, veneer, slabs, etc.

• Want to pick products where competitive advantages can be gained

• Want to profitably market all the products developed by converting logs into products, including waste

7-Managing the Businesson an Every Day Basis

• Cannot show up in the morning and figure things out and be successful-must plan ahead

• Should use a pencil + notebook + calculator or a computer spreadsheet and calculate for each species and thickness of lumber what combinations are profitable and which ones are not

• Must plan to sell products in advance of sawing and not to produce lumber and wait for customers to come

Develop Good Business Systems

• Write receiving tickets when buying logs with tally sheets

• Write up sales bills

• Use checkbook and credit cards for better documentation

• Write up a daily one page work report to document what you do to help troubleshoot problems

Prices and Profit Margins Can Vary With Volume

Helps to understand what a 100 board foot log looks like

Summary

• Must plan in advance to be successful

• Must develop profitable markets for every part of logs

• Should include some formality in documentation

• Must be smart in equipment purchases and developing processes to be productive in labor

• Look for competitive advantage to boost your volume and profit margins