Fortune Teller: Making More Money in the Wood Industry

Wood Doctor Gene Wengert makes some educated guesses about the near future in the wood products industry, and offers some advice about how wood-based businesses can profit from change. April 15, 2013

Gene Wengert, President, The Wood Doctors Rx, LLC

It probably is not surprising to anyone reading this that the major objective of a cabinet shop, flooring mill, or even your operation is not to produce sanding dust from organic rectangular parallelepipeds from truncated cones, but rather to make money.

So, how are we going to make more money in the future? Putting more wood products into the market, that is, increasing production, is not the solution for increasing profits for the future. Remember the statement I have made before that you can make cabinets or furniture all day, but you do not make any profit until they are sold. So, rather, we need more demand, a demand that exceeds the market size we had ten years ago.

A Few Comments About These Two

My crystal ball says that the cheap sources of wood that off-shore operations have been using is or has come to an end. As the manufacturing cost of cabinets, furniture and so on is maybe 75% wood, when the wood cost rises, so does the wood product cost. So, I see exports decreasing.

Before checking my crystal ball, it is important to note that remodeling expenditures are now equal to new home expenditures. Also, note that the new house construction starts are finally over 1 million units again. But here is the key: Ask yourself “Will increased remodeling and new home construction help my sales?” Ten years ago, the answer was “Yes!” but is that the correct answer today?

Cabinets. Why should you buy “Made in USA” cabinets instead of foreign made? If you cannot answer this, how can we expect the consumer to answer it and then buy USA?

Flooring. There is big competition from off-shore with different colors, species and designs. There is huge competition from grass; that is, bamboo. Bamboo is touted as being a “green” product, but maybe our red oak floors are also. Do we tout that fact? There is big growth in ipe (from Brazil) flooring for exterior use.

Again, ask yourself “Why should the consumer buy USA made flooring?” Can we make our “Made in USA” flooring better?

Millwork. Is there money to be made here? Can the Eastern hardwood region compete with western softwoods and off-shore? One new competitor is acetylized wood that is coming out of Europe--it is decay resistant, stable with moisture change, strong and easy to work (One brand is Accoya®). Or what about the thermally treated wood that is gaining in popularity?

Furniture. Do we have furniture plants in the United States that need more wood? Will the U.S. furniture industry grow in the next few years or will we continue to get 80% of the furniture sold in the U.S. From off-shore? Does furniture made with USA woods or “Made in the USA” have any benefits--perceived or real benefits?

Crossties for the RRs mean large energy savings and cost savings for long-haul transportation. Also there is a large increase in using RRs to move oil safely without using a pipeline. There are now 20,000 crude oil trains a year (2012) in the Midwest going to New Orleans, with 118 tankers hauling about $700,000 per train. We will be needing more RR ties. Also, the Fiscal Cliff bill passed in January includes a 50% tax credit for small RR lines to improve their tracks. Tie demand will be growing and you can bet that they will pay whatever it takes to keep the tracks in good repair and the trains rolling. Why should you be concerned about RR ties? As these prices rise, we will see the prices of lumber rise as well.

The New Marketplace
My crystal ball also says there are now, and we will see many more, medium and small secondary wood manufacturers. We will see more small, customized orders within our industry. At the least, we will have to adopt new methods of market development and distribution. Overall, these customer will be more demanding on quality. This change is going to favor the smaller producer; medium and larger producers may have to change to efficiently accommodate these changes, if they want to get on the bandwagon.

Also, there will be less emphasis on oak lumber. This means that 2/3 of our potential sales will be a species other than oak.

Add to the list of future activities the idea that high quality, good customer service for small customers is going to be very important.

Did you suffer loss in sales the past 4 to 6 years? Why can’t you sell 120% of what you produced last year and let your competitor or neighbor suffer poor sales? Ask yourself “Why would someone buy from my competitors and not from me?” Hopefully you have a good answer as to why your product is indeed better. In fact, ask yourself every day “What can I do to make my product more valuable--more valuable to the consumer?”

Some ideas include

Have a guarantee.

Make customer satisfaction a goal...if not totally satisfied, why not?

Use your own grades...customer orientation

Be as proficient in marketing as in manufacturing

Maybe the manufacturing association that you belong to should trademark special names for the wood--names like prairie oak, arctic white hard maple, badger red oak, Kickapoo ash, everlasting northern cedar, just like “denim pine” (TM) which is fungal blue stained pine in the Rocky Mountains.

Maybe the manufacturing association needs a seal of quality for its members that the consumer will recognize.

What about annual awards, like the restaurants do and the beer and wine makers do, for being the BEST in a variety of areas?

A Challenge
I have seen a strong trend within our industry trying to achieve higher efficiency in production. This is indeed worthwhile, as we can indeed get more value from our log resource. Where I see a problem is that along with this capital expense for production, shouldn’t we spend money to increase marketing too? Our customers are getting used to a new approach in other things that they buy and other entities trying to get their money. Some things to incorporate include:

Guarantee your lumber 100%

Increase your customer orientation

Make everything we do for a company to appear more personal

Answer phone with a real person rather than a machine

Show quality in everything you do--ads, internet, phone, outside sign, lumber markings.

Be able to provide whatever the customer wants--even if you have to buy it on the outside.

Indeed, here we have the road map for success for the immediate future in our industry.

Gene Wengert, President, The Wood Doctors Rx, LLC