Wood-Mizer & You. A Profitable Combination

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1 1 Wood-Mizer & You A Profitable Combination

2 At Wood-Mizer, the most common question we hear is... How do I get started in the sawing business? This booklet is designed to give you good basic information that has come from our in-house business managers and also our successful owners/sawyers. While it does not contain everything there is to know about marketing, customer service, financial planning, sawing, etc., the information presented should assist you in getting started on the road to success. 2

3 Content SeCtIon 1 Can Your Wood-Mizer be Profitable?... 4 exhibit 1 Business Profitability on an LT40HDG exhibit 2 Business Profitability on an LT40HDD exhibit 3 Business Profitability on an LT70HDD62-RX with Twin Blade Edger... 7 exhibit 4 Wood-Mizer Profitability Worksheet... 8 SeCtIon 2 How Can I Make Money with My Wood-Mizer?... 9 SeCtIon 3 How Do I Charge? SeCtIon 4 Value-Added Manufacturing exhibit 5 Value-Added Example SeCtIon 5 Five Factors Necessary for a Successful Business SeCtIon 6 What About Liability? SeCtIon 7 Wood-Mizer Support exhibit Ways to Use a Wood-Mizer and Counting! exhibit 7 Sample Custom Cutting Contract exhibit 8 Roster of U.S. State Foresters and Extension Wood Products Specialists Wood-Mizer Products, Inc. All rights reserved. No part of this publication may be reproduced or transmitted without written permission. 3

4 SeCtIon 1 Can your Wood-Mizer be Profitable? Exhibits 1 2, and 3 (pages 5-7) show three different possibilities for earning income with your Wood- Mizer Sawmill. Exhibit 4 (page 8) is a worksheet to help you determine how much income you may be able to earn. Even though conservative numbers have been used, little more than a day and a half of custom cutting per month could cover your mill payments and operating costs. one month of weekend-only cutting with an LT40HDG28 can net you up to $2,000 or more. For example, by cutting average-sized logs with an lt40hdg28, 20 days a month, you could earn up to $7,500 for that month!* with an lt40hdd51 Super, you could earn up to $14,700! And over $24,000 with an lt70hdd62-rx Production Package!* These aren t Pie-in-the-Sky numbers. We have customers doing it every month. The key is you! How hard do you want to work? How much of your own timber do you want to cut? Who can you find to buy your cut timber? Do you want to add even more value and profit to your operation by utilizing a Wood-Mizer dry kiln or moulder, or by making products with your lumber? For help with these questions, go to Section 2. Running Eastern Red Cedar is exhilarating. We have done so many things, and I can t believe where we are today. Of the hundreds of companies I have dealt with over the years, Wood-Mizer is the best. Richard Newton Eastern Red Cedar 2006 Business Best Grand Champion *(See Exhibits 1-4 for more information on the approximate figures used for examples.) 4

5 exhibit 1 BUSINESS PRoFITABILITY Wood-Mizer Sawmill Model: Lt40HDG28 with Trailer Package and Debarker options (one SAWYER AND No HELPER) Package Price Assumptions:* Total Investment... $27,537 Loan Financed...$23,406 Down Payment... 15% Pay-back Period in Months...48 Interest Rate...10% Sawyer Efficiency Factor...75% output in Bd.Ft. Per 8-Hr. Shift...1,810 Sales Price Per Bd.Ft.... $0.25 Maintenance Cost/Hour (Repairs, Fuel & Blades)...$5.99 Labor Cost/Hour...$0.00 Useful Data:* options Included... $0 Monthly Payments...$594 Cash Investment... $4,131 Breakeven Days Per Month output in Bd.Ft. Per Hour Total Processing Cost Per MBF... $65 (Total Processing Cost includes: financing, depreciation, and maintenance costs.) * Approximate values only. Your values may differ, depending on actual amount financed, length of financing, interest rate, depreciation, gross income, log sizes and support equipment. (The addition of an auxiliary edger can enhance productivity up to 27%.) Prices and specifications are subject to change without notice. $0.30 to 0.90 per bd.ft. prices can be obtained for some species and log grades. Lt40HDG28 IF YOU CUT: 1,810 bd.ft. x $.25 cents/bd.ft. $ x 20 days of cutting $9, $ monthly payment $8, $ days x $48/day maintenance cost $7, Total Monthly Gross Profit with an lt40hdg28 Monthly Gross Profit $25,000 $20,000 $15,000 $10,000 $5,000 $0 -$5, Eight Hour Shifts Per Month Example based on sawing red oak logs, averaging 20" diameter x 12' length, for 8-hour days, using no support equipment, edging on sawmill. NoTE: The Monthly Gross Profit amount has not yet deducted labor, costs, taxes or other miscellaneous expenses associated with operating your business. 5

6 exhibit 2 BUSINESS PRoFITABILITY Wood-Mizer Sawmill Model: Lt40HDD51 (one SAWYER AND one HELPER) Package Price Assumptions:* Total Investment...$36,735 Loan Financed... $31,225 Down Payment... 15% Pay-back Period in Months...48 Interest Rate... 10% Sawyer Efficiency Factor... 85% output in Bd.Ft. Per 8-Hr. Shift... 3,446 Sales Price Per Bd.Ft.... $0.25 Maintenance Cost/Hour (Repairs, Fuel & Blades)...$10.45 Labor Cost/Hour... $12.50** Useful Data:* options Included...$0 Monthly Payments... $792 Cash Investment... $5,510 Breakeven Days Per Month output in Bd.Ft. Per Hour Total Processing Cost Per MBF... $81 (Total Processing Cost includes: financing, depreciation, and maintenance costs.) ** Approximate cost for one assistant worker * Approximate values only. Your values may differ, depending on actual amount financed, length of financing, interest rate, depreciation, gross income, log sizes and support equipment. (The addition of an auxiliary edger can enhance productivity up to 27%.) Prices and specifications are subject to change without notice. $0.30 to 0.90 per bd.ft. prices can be obtained for some species and log grades. Lt40HDD51 IF YOU CUT: 3,446 bd.ft. x $.25 cents/bd.ft. $ x 20 days of cutting $17, $ monthly payment $16, $1, days x $84/day maintenance cost $14, Total Monthly Gross Profit with an lt40hdd51 Monthly Gross Profit $25,000 $20,000 $15,000 $10,000 $5,000 $0 -$5, Eight Hour Shifts Per Month Example based on sawing red oak logs, averaging 20" diameter x 12' length, for 8-hour days, using no support equipment, edging on sawmill. NoTE: The Monthly Gross Profit amount has not yet deducted labor, costs, taxes or other miscellaneous expenses associated with operating your business. 6

7 exhibit 3 BUSINESS PRoFITABILITY Wood-Mizer Sawmill Model: Lt70HDD62-RX with Production Package and Twin Blade Edger (one SAWYER AND TWo HELPERS WITH GAS PoWER EDGER) Package Price Assumptions:* Total Investment...$61,540 Loan Financed...$52,309 Down Payment...15% Pay-back Period in Months Interest Rate... 10% Sawyer Efficiency Factor... 90% output in Bd.Ft. Per 8-Hr. Shift... 5,577 Sales Price Per Bd.Ft....$0.25 Maintenance Cost/Hour (Repairs, Fuel & Blades)... $15.48 Labor Cost/Hour...$25.00** ** Approximate cost for two assistant workers Useful Data:* options Included... $11,000 Monthly Payments...$1,111 Cash Investment... $9,231 Breakeven Days Per Month output in Bd.Ft. Per Hour Total Processing Cost Per MBF...$83 (Total Processing Cost includes: financing, depreciation, and maintenance costs.) * Approximate values only. Your values may differ, depending on actual amount financed, length of financing, interest rate, depreciation, gross income, log sizes and support equipment. (The addition of an edger as shown here enhances productivity up to 27%.) Prices and specifications are subject to change without notice. $0.30 to 0.90 per bd.ft. prices can be obtained for some species and log grades. Lt70HDD62-RX IF YOU CUT: 5,577 bd.ft. x $.25 cents/bd.ft. $1, x 20 days of cutting $27, $1, monthly payment $26, $2, days x $124/day maintenance cost $24, Total Monthly Gross Profit with an lt70hdd62-rx and Edger Monthly Gross Profit $25,000 $20,000 $15,000 $10,000 $5,000 $0 -$5, Eight Hour Shifts Per Month Example based on sawing red oak logs, averaging 20" diameter x 12' length, for 8-hour days with an edger as a support equipment. NoTE: The Monthly Gross Profit amount has not yet deducted labor, costs, taxes or other miscellaneous expenses associated with operating your business. 7

8 exhibit 4 WooD-MIzER PRoFITABILITY WoRkSHEET Insert your own numbers to determine how much income you could earn. Income 1. Number of full (8-hour) days you will cut PER YEAR EXAMPlE FIll In your own 2. Bd.ft. output per day (LT40HD)* up to 1,810 x 1,810 Bd.ft. output per day (Super Series HD)* up to 3,446 x (or) 3,446 (or) Bd.ft. output per day (LT70HDD62-RX & Edger)* up to 5577 x 5,577 x x x Annual Bd.Ft. Production = 3. Local cutting charge per bd.ft. x Annual Income = expenses 4. Daily maintenance expense LT40HD** $48.00 (or) Daily maintenance expense Super Series HD** $84.00 (or) Daily maintenance expense LT70HDD62-RX** $ Number of full (8-hour) days you will cut/year x x Annual Maintenance Expenses = 5. Monthly mill payment $ Annual payments x 12 $ x Annual Payment Expenses = 6. Annual Maintenance Expenses (number 4 total) $ Annual Payment Expenses (number 5 total) + $ Total Annual Expenses = Gross Profit (Cash Basis) 7. Annual Income (Income total) $ Total Annual Expenses (Expenses total)- $ Annual Gross Profit = * The output numbers are for experienced opeartors with average sized logs and Exhibit 1 and 2 represent only using the mill for production and no support equipment. (our results show that the addition of an auxiliary edger can enhance productivity up to 27%.) Exhibit 3 is with Edger. Your results will vary. ** Based on average mill maintenance expenses, such as fuel, repairs, and blades. Your actual expense may be different. 8

9 SeCtIon 2 How Can I Make Money with My Wood-Mizer? Listed below are a few categories to consider as you begin your new business with the Wood-Mizer Sawmill. Custom Saw other People s timber. Who would use your cutting service? What is the local demand for custom cutting? What are the going rates in your area for custom cutting? Are there other people providing a similar service? Refer to Sections 3, 4 and 5 for more information. It (LT40 Hydraulic) has been the best investment that I have ever made. Hardly a day goes by that I don t look at that mill and think, What a great job it does and how much profit I can make from it. Mike Gogo Gogo Cedar Products Buy Logs and Cut Lumber. Contact potential customers for your lumber. How much would they use? What species/ dimensions? Research local log costs and availability. (See U.S. State Foresters, Exhibit 8.) Research local lumber selling prices and preferred sizes/ species. Check into the value of drying and further processing (See section 4 for more information). Research log sources. (See U.S. State Foresters, Exhibit 8, and industry-related publications.) Attend log-grading workshops sponsored by Forestry Departments and Cooperative Extension Services. (See U.S. State Foresters, Exhibit 8.) Refer to Exhibit 8 for important contact information in your area. Cut your own Logs. Contact potential customers for your lumber. How much would they use? What species/ dimensions? Research local lumber selling prices and preferred sizes/ species. Check into the value of drying and further processing. (See section 4 for more information.) Learn appropriate characteristics of various species, i.e., decay resistance, structural properties, workability, etc. (See Hoadley s book, Understanding Wood, available from Wood-Mizer as item P05877; call for current pricing.) Refer to Exhibit 8 for important contact information in your area. Some Wood-Mizer owners do all three, but investigating your local market will show you the best cutting method for you. 9

10 SeCtIon 3 How Do I Charge? There are no limits to the different approaches you can use to charge for your cutting services. The three most common methods are to charge by the hour, by the board foot, or by sharing the finished lumber. All three have their place, but the key is to anticipate which method would be the best pricing policy for that specific job. This will be easier to assess as you are exposed to more and more cutting situations. By the Hour The most stable or secure method for pricing for the mill owner is a flat, hourly rate. Rates vary from location to location and range from $30-$75/ hour and some charge set-up fees to cover travel and smaller cutting jobs (as reported by current Wood-Mizer owners), depending on equipment, number of crew members, species and local conditions. You will know how much you make in any given day (other than a small variation in operating costs) before going out to cut. Eight hours work means eight hours of pay regardless of the amount produced. Pricing on an hourly basis transfers all of the risk of daily output to the customer. It encourages the customer to have his logs clean and easily accessible, and to provide a person to help handle the materials to get the most value for his money. Depending on the situation, however, the customer may feel he did not get a good deal. I bought a woodlot thinking I d like to build a house. Then I saw an ad for a portable sawmill and it got me thinking. I thought it might be a good business to get into. That was in 1985 and we ve sawn more than 10 million board feet since we started. Earl and Lee Davidson Earl-Lee s Portable Sawmill EXAMPlE 1: Unless you adjust your hourly rate to compensate for mill or blade problems incurred during the day that reduced your production, the customer will not have received as much lumber as if you had a trouble-free day. EXAMPlE 2: If you had a good, high-volume day, you may have missed the opportunity to make significantly more money by charging by the board ft. You may have been underpaid for the services you rendered. By the Board Foot Cutting by the board foot (or 100 board foot) is the most common method used in the industry. This pricing method gives you the ability to make the greatest return in a day, but potentially exposes you to the lowest returns as well. Many owners routinely cut between 2-3,000 board feet a day for up to cents* per board foot for a total return of $ * per day, even more on our Super Series mills and LT70. For every one of those situations, there are sawyers who struggle to cut 1,000 board feet for a maximum return of $200. This pricing method places all of the risk of productivity on the sawyer since the customer is only paying for the lumber he receives. That is why this method is preferred by a great number of businesses in the industry. This may be the only method of pricing available to you until you establish a track record of offering a reasonable value on an hourly basis. You don t always have control of certain factors. Production levels can be reduced by having to cut muddy or overly-seasoned lumber, by customers who get in the way, by having an impossible working area, or any other factors that obstruct efficient operation of the mill. It is vitally important that you recognize these factors before you start cutting so that any adjustments to your rate can be discussed and negotiated 10 * Contact other sawyers in your area for competitive prices.

11 The key to making money is obviously your individual capability to produce a certain volume of lumber each day. prior to starting the day s work. Hourly fees for cleaning logs and/ or charges for moving the sawmill can be agreed upon ahead of time so that both parties are satisfied with the charges. It is also important to consider the size of the logs, the species being cut, and the dimension of the lumber that the customer is requesting. The price to cut large, dimensional framing lumber out of clear pine should not be the same price as cutting quartersawn white oak. It s obvious that these factors affect the amount of volume you can produce in a day, so the charges should vary accordingly. Sawmill owners report cutting rates ranging from 10 to 30 cents* per board foot for cutting general grade hardwoods. Don t feel like you have to match the price of the lowest production circular mill in your area. The customer needs to remember that you are giving more yield per log, eliminating two-way hauling costs, giving faster turnaround, and sawing more accurate lumber if your mill is properly operated. These advantages can be used to justify charging a higher board-foot rate. on a Share Basis one of the most lucrative approaches to charging for custom cutting can be to accept a percentage of the finished lumber from the owner of the logs. In most circumstances, this pricing method is advantageous to both you and the customer. With this pricing method, the customer doesn t need to pay any money up front to have his lumber cut. The mill owner, in many cases, can get significantly more money by selling a portion of the lumber on the open market. Generally, the percentage of shares varies with the species cut. EXAMPlE 1: When cutting a stand of valuable high-grade hardwoods, a 30 percent share may be more profitable than charging by volume or by the hour. A higher percentage share would be required as the value of the lumber decreases. It is not uncommon for customers to report 50/50 shares on lumber even in high-grade hardwoods. If you could cut high-grade walnut on a 70/30 share basis at a production level of only 1000 board feet per day, the 300 board feet of green walnut could sell for over $600* in many markets. Cutting at a higher production level on a 50/50 basis could generate over $2,000* of income in a single day. This kind of opportunity may sound very unrealistic to achieve, but you shouldn t overlook the possibilities that exist under these arrangements. * Contact other sawyers in your area for competitive prices. 11

12 It s the Little things that Count Most of the customers that share their success and horror stories about starting their custom cutting businesses wish they had known many of the little things that make them successful today, but that they completely overlooked when they were new in the business. 1. Clearly define in advance the cost to a customer when an embedded foreign object (i.e., nail, fence wire, etc.) is hit while cutting a log. This will give you the money to cover the damaged blade and make the customer aware of potential additional charges. Common charges for damaging a blade range from $10-$30*. This charge can vary depending on whether a blade is completely destroyed or just requires sharpening. 2. explain to the customer in advance any charges he will be assessed in addition to volumerate charges. EXAMPlE 1: A customer may want you to cut a 38" diameter log. You need an hour to trim it with a chain saw to the mill s 36" capacity, thus significantly decreasing your productivity. Hitting a railroad spike in a log may result in a loss of one-half hour of production time to remove the blade that is jammed into a cut. Both of these occurrences are examples of things that a customer should be expected to pay in addition to any broken blades since they are the responsibility of the log owner. 3. Set an hourly surcharge for cleaning muddy or rock-embedded logs. 4. establish a mileage charge if the cutting site is beyond a specified distance from your location. 5. Charge a small setup fee (ranging from $5-$25*) for each time the mill must be moved at a particular cutting site. 6. Consider requiring the owner of the logs to supply a person to help off-bear. (Many owners prefer to be there or have an associate there while logs are being cut anyway.) Being aware of some of these small details will not only allow you to generate more income, but also help you avoid awkward situations with customers that could damage your reputation. 12 * Contact other sawyers in your area for competitive prices.

13 SeCtIon 4 Value-Added Manufacturing by Dr. Gene Wengert, The WoodDoctor s Rx the objective of Sawmilling The main job or the objective of every sawing operation is to make money. or stated another way, lumber manufacturing is (or should be) a money-making process! As raw material costs have risen over the past decade, without a proportionate rise in the price of lumber, achieving this money-making objective with the mill has become more and more difficult. In this section of your Wood-Mizer profitability booklet, we will look at many practical approaches for increasing profitability with the mill through value-added manufacturing. We will define value-added manufacturing; we will give many examples of how to make a value-added product; and we will consider the marketing and economic aspects of these new approaches to remaining in business. PRoFIt = [Product value when sold] - [Raw material cost] - [Processing cost] the Profit equation This profit equation is a simple equation, but there are some important concepts or ideas that we must not overlook or miss. First, based on this simple equation, there are three ways to increase profitability: Make the product we sell more valuable; make a better product for which the customer will pay more money. In other words, we want to increase the value of the product without increasing the raw material or processing costs as much. Reduce the cost of raw material required to make the product, perhaps by reducing waste so that there is more product per log (without reducing the quality or value of the product). Reduce processing costs without reducing product value or reducing yield. 13

14 Let s consider this profit equation in more detail. First, a subtle, but important concept in this profit equation is: In other words, the most expensive wood product that a mill can manufacture generates no profit until it is sold. The product must be sold to make a profit A second concept expressed in this equation, perhaps almost too obvious to mention, is: Considering the raw material costs, any time a mill can make more products from the same amount of raw material (that is, the yield is improved), profits will also increase (unless the yield increase is obtained by spending too much money on processing). This idea becomes even more important when the raw material costs are compared to processing costs. With today s sawmill, raw material costs (that is, log costs) are 3 to 4 times greater than processing costs that is, raw material costs are 75 to 80% of the total manufacturing cost and processing costs are 20 to 25%. (Note: The proportion of total costs for raw material has increased over the past 20 years from under 25% to over 75%.) This increased importance of raw material costs results in a new emphasis in the mill on quality and on waste reduction. No longer are production rates or production costs the keys for mill profitability; yield is the key. This shift means that sawmills using narrowkerf blades are becoming more the favored technology for high-profit sawing operations. The more valuable the product, the greater the profit. In addition to getting more product from the same raw material, profitable operations need to focus on increasing the amount of valueadded products they make, and this usually requires that more manufacturing be done at the mill. In the future, profitable mills will pay much more attention to quality and appearance, to remanufacturing opportunities, to marketing improvements, and to the wants and needs of the customer. 14

15 Seven Steps for Making More Money When Manufacturing Lumber Safety must be the #1 concern, not profits. An accident can be very expensive. Get the best logs at the lowest price; store logs properly. Maximize profit by getting the best yield from the resource provided. Appreciate the role of the debarker, opening face, log turning (when and sequence), edging, trimming, grading, remanufacturing, cant size and drying quality. Production rate is not much of an issue with respect to profitability. Perhaps the most important new concept for the mill of the future will be that to make money, the future mill will pay particular attention to, and then must meet, the customer s needs. But, often these needs are poorly articulated. In fact, when manufacturing lumber, the key question is: Who is the customer? Are we manufacturing lumber for the grading rule or the grading association?...or for the wholesaler or the builder?...or for the ultimate customer? This question must be answered before we can proceed with a proper analysis or with managing a sawmill (that is, determining how to make more money). keep everyone working with the mill aware of the value of the product and the customer s needs. Measure quality; document quality. Package the lumber or secondary wood product to reflects its high quality. 15

16 Ideas for Increasing Sawmill Profitability today In the Log yard Double-check log grades to make sure you get what you pay for Calculate estimated values for each log; remove low-grade logs Process logs by value classes Check log lengths to avoid overly long logs End coat logs to prevent stain, dry ends, and checks FIFo or LIFo for stain control When edging and trimming Check lumber for adequate wane Check the number of pieces requiring remanufacturing when grading 5% is probably optimum Negotiate edging reduction agreement with purchaser Send edgermen to grading classes When Marketing Visit major customers Compile quality list for each customer Explore opportunities for shortlength lumber Consider S2S and S4S Consider adding a kiln Consider moulding Improve packaging When Sawing Check lumber thickness to get the best thickness Check sawyer s procedures patterns, opening face, rotation Consider short-length lumber Send sawyer to grading classes Send sawyer to visit major customers know quality requirements for each customer When Grading Advanced lumber grading training for graders Send graders to visit major customers Our Wood-Mizer band sawmill based firm created a welcome life change for my mother and father, has since given our two families a good life and security, and I feel more fulfilled with my work than ever before. Egil Foss Mossig Sag Anyone who has a bandmill and doesn t have an edger is really missing out. Percy Gavronsky PMG Sawmilling 16

17 Five Approaches to Value-Added Manufacturing There are many ways to increase value-added in a wood product manufacturing operation. We have divided these different ways or techniques into five categories: Add value to present product Sell the same product you now manufacture, but sell it to a different market where it is more valuable Make a new product (that is, a new product for your operation) Get more value from the present resource (make less low-value material, produce less waste, have better processing) Each of these five is discussed in more detail on the next page. With many of the suggestions given here, the sawmill will have to consider drying and some machining of the wood product. Improve marketing and sales The Wood-Mizer is important to our business because the thin kerf band maximizes recovery. We take a lot of pride in sawing straight and square and in consistently putting out an accurately milled product. If you keep that Wood-Mizer lined in it cuts beautifully. Marc Mandel Crossroads Recycled Lumber 17

18 TECHNIqUE #1: Add value to present product This is an appealing approach to value-added manufacturing as the capital cost is usually quite low. As a start, ask yourself, your employees, and your customers (Especially ask the customers!) what you can do to make your product better. In other words, you need to make what the customer wants. Another approach involves renaming the product that you re making. For example, change the name of lowgrade lumber to industrial-grade lumber. If you have bird s eye hard maple lumber that a grader would call No.1 Common, rename this particular grade of lumber perhaps a name like, Wild Turkey Maple which will give special value to the product, both in the customers and employees eyes. Another example: If you have ordinary pine lumber, call it blackjack pine. A good example of this approach is Choice Wood (TM) from Weyerhaeuser. They guarantee that this lumber will be defect-free. It comes only in certain sizes (such as 2-1/2 inches or 5-1/2 inches wide, and 2, 3, 4, and 6-foot lengths), is always S4S, and is always kilndried. In a recent trade catalog, this product was priced at over $10,000 per MBF (nominal size) for walnut, oak, and cherry. The market is the hobbyist and small scale, professional woodworker; these people value this product and will pay the price to get exactly what they need correct MC, surfaced, defect-free lumber. As another example, consider the wood going into your scrap-pile, or hog. Is it possible to convert some of the waste in the conveyor to short lumber? Pulp chips or fuel chips are seldom worth more than $25 per ton. But short-length lumber is worth no less than $250 per ton and often more. A recent ad in the Hardwood Market Report listed red oak shorts, 24 inches long, kiln-dried, 4/4 for $225 per MBF. one of the largest kitchen cabinet manufacturers is buying short lumber (20-inches long and 3-inches wide, green) at prices over $300 per MBF. Hobbyists love short lumber too, especially if it is kiln dried. Prices are often $3000 per MBF. And just about every gardener needs tomato stakes 1 x 1 x 4, 5, and 6 long. one mill in ohio sold tomato stakes for $.125 per lineal foot (equivalent to $1500 per MBF). And what gardener doesn t need some sawdust for mulch $1 per bag. or consider manufacturing wooden fireplace mantles perhaps custom-made from a customer s favorite tree at a cost of no less than $450 per MBF. TECHNIqUE #2: Sell the same product you now manufacture, but sell it to a different market where it is more valuable As we mentioned in Technique #1, the hobbyist is a potential market for lumber. often, they will pay much more for a piece of lumber than will the large furniture plant. Defects in the grading rules (defects as defined by one customer) often are viewed as character marks by another one. one small mill in Wisconsin began selling lumber to hobbyists and small businesses as a sideline; it wasn t long before people in these markets became their major customers. Another operation in Virginia increased the value of their product when they called it picture frame stock. Another opportunity for the hardwood mill is to convince a customer that they can use a lower grade of lumber (such as No.2 Common) and achieve a lower overall cost for their product. But, rather than just sell them this lower grade at market price, modify the grading rule slightly so that the lower grade with the rule modification fits their needs even better (and of course, raise the price accordingly both you and the customer should benefit Study the wood-using industries in your area. Ascertain what grade of lumber they are using. 18

19 Perhaps you can supply their needs, saving transportation costs for both of you. For example, often there is a better return if you sell low-grade lumber to a flooring mill than if you sell it to a pallet manufacturer. Also, determine if there is a better market for thicker products, which will cost you less to manufacture and will have higher yields, than thinner products. Maybe the city or county needs 6 x 6s for landscape timbers, or a non-wood industry needs 4 x 4s for facilitating material handling. Compare the profitability of selling 6 x 6s versus the profitability of sawing this timber into lumber. TECHNIqUE #3: Manufacture a new product Lumber and its by-products are used for thousands and thousands of different products. Maybe you want to consider manufacturing one of these products yourself, rather than shipping the raw material to another firm. In other words, you want to extract a little more value-added from the wood before you ship it. In this case, you would be entering an existing market for wood. A word or two of caution in this case: often competition is well-established, has markets already developed and has manufacturing and raw material costs under control. Their equipment may already be depreciated, so that their production costs seem unbelievably low to the newcomer with brand-new equipment. So, be careful; analyze the market situation very carefully. As an expansion of this idea, see the example presented later in this article. Another alternative is to consider making a wood product where you will be substituting wood (and all the good features of wood, including that it is a renewable resource) for a nonwood product. (How about aspen for sticks for ice cream bars instead of plastic? The wood is tasteless, odorless, clean, splinterless.) or, you could enter an existing market, but a market not well-served or a market with room for expansion. (one example of this approach is to make bowling alleys for an emerging or developing country we ve heard that Mexico is putting in an average of two bowling lane facilities every week. The huge, growing market for hard maple and all the other wood fixtures for lanes is a opportunity for someone!) or, finally, you could consider entering a totally new and developing market for wood, such as the wooden bridge market that began developing several years ago. TECHNIqUE #4: Get more value from the present resource In this technique, we are considering improvements in processing that will produce less lower-grade (or low-value) material and less waste or by-products. There are many examples. Example 1: End coat logs to prevent end checking and stain development. For logs that are accidentally stored longer than expected, the financial gain or improvement by end coating is over 10%, based on a University of Wisconsin study by Linaries and Wengert. For other logs that have just a little checking or stain and that are typically cut several inches over-length to allow for trimming the defects, the savings in being able to cut shorter logs is over 4%. Example 2: Although most experienced sawyers will achieve approximately the same footage of lumber per log (that is, their over-run is nearly identical from mill to mill if they are sawing the same size and quality of log on the same equipment), the value of the lumber varies greatly depending on the choice of the opening face, the size of the opening face, and when the sawyer rotates the log on the carriage. In tests done at Purdue University by Cassens, the best sawyer could achieve 8 to 22% more value from a log by proper sawing procedures than the ordinary, average sawyer! Example 3: End coating oak lumber right after sawing will reduce end checks by 4-1/2 inches per piece of lumber. That is 4-1/2 inches of more usable lumber for your customer. End coating costs about $2.50 per MBF, but your customer will see benefits of $50 or more per MBF. But the hardwood lumber grading rules do not give you much if any credit for check-free ends, so you will need to educate your customer on the increased value of your lumber and why it also costs a little more. ( I would rather justify my prices being high than try to excuse my quality being low! ) 19

20 Example 4: Don t sell unprocessed raw materials without first calculating the profit that you can make if you were to process the same log into lumber or other products. For example, consider a 22-inch diameter veneer log. The lumber produced will have a value of $1,590 per MBF. If processing costs are $125 per MBF, then at a log cost of $1,465 per MBF, the log will have zero profit. If the veneer log can be sold for $1465 per MBF or more (Don t forget to subtract any veneer log handling costs!), then selling the veneer log will generate more profit than sawing the log into lumber. on the other hand, if the veneer log price is under $1465 per MBF, sawing is more profitable, on the average. Example 5: Process logs and lumber in such a manner that the lumber will be free of stain. Consider remanufacturing warped lumber into a piece that is flat and straight before grading and selling. 10 WAyS to Discover new Markets 1 Visit neighboring woodworking plants to see how they process wood and what is going on. 2 Visit local plants that are not forest products oriented to see how they use or could use wood. 3 Look for opportunities to solve other people s problems. 4 on business trips, visit nurseries, industrial supply houses, toy manufacturers, poultry producers, pet stores, architects, and so on to find out who is their supplier of wood and why they deal with that company. TECHNIqUE #5: Improve marketing and sales Marketing happens either intentionally (which means you control your destiny) or unintentionally. Bring your marketing and sales expertise within the company up to the highest level possible. Don t worry about the price of your product. In a survey of wood users by Bush and others at Virginia Tech, only 17% of the companies listed price as the #1 criteria when purchasing wood products, while 27% had an extremely low interest in price and were more concerned about quality and delivery time. As stated earlier, a good motto is, I d rather justify my prices being high than excuse my quality being low. Consider your marketing brochures and advertisements. Use different approaches for different markets. For short lumber and specialty lumber, consider local advertisement techniques local newspapers, woodworking associations, trade school teachers, and woodworking shows. one of the important processes in value-added manufacturing is to constantly be on the lookout for new markets. We have developed a list of ten ways to help discover new markets. 5 Ask adhesive sales people who is gluing wood in the local area, especially firms gluing small pieces of wood where the potential for valueadded is often very high. 6 See if local companies need wood products for crating or packaging. Ascertain their quality needs for these products. 7 Contact the local small business development center for assistance. Contact the state natural resources people for a directory of wood-using firms in your own state and adjacent states. 8 Ask yourself how your product does (or can in the future) differentiate itself from your competitor s product. 9 Visit the customer s facility and learn what they like and don t like about your product. Invite the customer to visit your facility to become more familiar with your operation. 10 Adopt a quality consciousness throughout your operation and make sure your products reflect this consciousness. Let the customer know of your quality efforts. 20

21 exhibit 5 VALUE-ADDED EXAMPLE (Example developed by Dr. Gene Wengert, The WoodDoctor s Rx, and based upon: his knowledge and experience, prevailing lumber values, and data provided by Wood-Mizer.) Dr. Wengert can be contacted at: The WoodDoctor s Rx 2872 Charleston Dr. Madison, WI Example Purchase seven No. 2 grade red oak logs 1000 bd.ft. (Doyle Scale). Price is $400 delivered to the sawmill site. (Details: Logs are 16" diameter small end inside the bark. The logs are 16' long. This would be 1120 BF Scribner scale, 1260 BF International 1/4-Inch scale, and 182 cubic feet. The U.S. Forest Service log grading system is used.) SteP 1 Sawing Value-Added to Log Value-Added from Sawing 1 $ $ Log Cost $ Total Value 2 $1, SteP 2 Drying Value-Added from Drying 3 $ $ Value from Step 1 $1, Total Value 4 $1, SteP 3 Cutting & Moulding Value-Added from Sawing 5 $ $ Value from Step 2 $1, Total Value 6 $2, total Profit from Value-Added $1, Footnote: 1 Saw the logs using a thin-kerf band mill, maximizing the volume of upper-grade lumber by using Grade Sawing techniques. This will produce 1300 BF of rough, green 4/4 lumber worth $ Sawing costs, including equipment costs, operating costs, maintenance costs are $47 per MBF of lumber produced. A custom sawing operation might charge a higher rate in order to include profit, general sales and overhead expenses, special site location expenses, and other miscellaneous costs. Rough, green lumber produced will be 294 BF of Selects and FAS worth $406; 470 BF of No.1 Common, $446; 323 BF of No.2 Common, $210; and 213 BF of No.3 Common, $92. 3 Dry the No. 2 Common and Better grades of lumber using a small dry kiln. Dried lumber at 6% to 8% moisture content will be available in approximately 30 days. The dried lumber value will be $ The No. 3 Common lumber is sold green for $92. Drying costs for the 1087 BF of No.2 Common and Better lumber are $109. These costs, equivalent to $0.10 per green BF, including stacking, inventory costs, equipment, energy, other processing costs, and maintenance. Custom kiln-drying would charge a higher rate to include profit, overhead, and other costs. Shrinkage is 6%. quality losses due to uncontrollable splits, warp and other degrade is 4% of the green volume dropping one grade. Therefore, including shrinkage and degrade losses, kiln-dried lumber produced will be 265 BF of Selects and FAS worth $477; 435 BF of No.1 Common, $579; 309 BF of No.2 Common, $284; and 13 BF of No.2 Common that degraded to No.3 Common, $6. Total lumber value is $477 + $579 + $284 + $6 + $92 = $1438. Note that the profit in drying is $175.) 5 Process the 1009 BF of No. 2 Common and Better kiln-dried lumber into higher-valued products, including S4S lumber, furniture and cabinet parts, and flooring. The total lumber and part value, including the No.3 Common lumber values, is $ The cut-up operation would consist of cross-cut and rip saws and a moulder, plus a heated building with dust and wood waste conveyors and other necessary wood handling and safety equipment. The 265 BF of Select and FAS lumber will, after allowances for edging losses and cutting to improve appearance, produce 209 BF of S4S nearly clear lumber worth $940. No.1 and No.2 Common lumber can be processed into furniture and cabinet parts, often called hardwood dimension, and into flooring, with appropriate yield allowances of 75% and 60% for No.1 and No.2 Common respectively, to produce 511 BF of moulded dimension parts and flooring worth $1329 (or $2600 per MBF of product); this is a conservative estimate as some custom manufacturing can develop products that are worth as much as 50% more. Processing costs are $.37 per BF of raw material; this does not include sales costs, special packaging, or finished goods inventory. The total lumber and part value including the No.3 Common lumber values, is $940 + $ $6 + $92 = $2367.)

22 SeCtIon 5 Five Factors necessary for a Successful Business over the last 25 years or so, we have gathered many operating tips and suggestions from successful custom cutting operators. Many ideas customers have shared appear in hindsight to be common sense but were only realized after considerable expenditure of time and experience. Every Wood-Mizer owner who has been operating his saw as a business for a long period of time has learned many small details that significantly increase profits. Here, Wood-Mizer would shares some of these general tips and suggestions: Reputation Without exception, the key element to long-term success for every mill owner has been a reputation for performing a quality service for the customer. Quality quality extends to a clearly defined pricing structure so that the customer knows what he will be paying and what he will be receiving for his money. It also includes meeting schedule commitments. Professional Attitude The professional way in which the business is transacted is also vitally important to maintaining a proper image and developing customer confidence. Every customer will be looking for something different when they contract for a mill to cut lumber. Some are interested in volume, others in accuracy, while others are more concerned about getting the widest boards or some unique cuts that only a band mill can yield. knowing what the customer wants and the best way to price the job allows you to make a reasonable profit and have a satisfied customer at the end of the day. Deciding what will make a customer satisfied before going into the job will determine how you approach each cutting situation. As a sawyer, you want to cut the lumber as quickly as possible to get the highest return. From the customer s point of view, you are expected to spend a considerable amount of time on each board to get exactly what he wants. Neither party is satisfied if both angles are not discussed before actual cutting begins. Word-of-Mouth Advertising If an owner experiences problems on a particular day, it is better to lose a little money on that particular job. This attitude will demonstrate concern in giving every customer value for his money. There is nothing that will generate more business over a long period of time than word-of-mouth advertising from satisfied customers. Flexibility Some of the greatest opportunities to make money with a Wood-Mizer Sawmill center around the flexibility of the cutting system. In addition to cutting flexibilities, there is the element of personal flexibility. The flexibility of how you operate your business and the flexibility of the mill are equally important to capitalize on money making opportunities. Too many times mill owners feel the only way they can get enough business is to compete on a volumeprice only basis. The flexibility of the Wood-Mizer and how you operate it are what can keep you out of that situation. Within seven months, I had sawed and sold enough lumber to more than recover my initial investment. I have always made a point to have respect and consideration for my customer and do the very best quality work possible. Word-ofmouth advertising has provided me with more than enough work for my sawmill. Bill Stewart Greenbrier Farms 22

23 SeCtIon 6 What About Liability? With the current climate of unbelievable settlements in personal injury lawsuits, many mill owners are concerned about their personal liability when operating their Wood-Mizer. Insurance for the mills can be difficult to almost impossible to find in some areas. Some customers have found that the mill can be simply added to their homeowner s liability policy or to a liability policy that currently covers their farm or business. tips to Limit your exposure to Liability Observe routine safety procedures when operating the equipment. A primary concern in this area would be to keep the area clear of people. Keep all guards and covers on the mill to reduce any risk of injury. Require eye and ear protection for the operator and anyone offbearing lumber. Be cautious when handling the logs and the lumber as most injuries result from handling rather than the actual operation of the saw. area clear of people. This contract will not automatically cancel your responsibility in cases of injury, but will demonstrate that you made a clear attempt to advise the owner that he also must assume responsibility in keeping the cutting area safe. Consider incorporating the sawmill as a business. If an injury occurs, the corporation generally would be held liable for damages rather than you personally. Usually your only risk after incorporating is the loss of the mill itself, if that is the only corporate asset. The cost to incorporate in many states can be less than $100. Again, this will not completely protect you against a lawsuit, but it usually protects your personal assets. If you plan on hauling lumber as part of your service you might want to consider setting up a separate corporation for hauling lumber to lesson exposures to your sawmill business. Consult your attorney. Use a cutting contract that contains a clause stating that it is the log owner s (or property owner s) responsibility to keep the 23

24 SeCtIon 7 Wood-Mizer Support Wood-Mizer stands ready and willing to help you succeed in the sawing business. When you pick up your mill, you will be fully trained in its operation. You will go home knowing how to saw and you ll feel certain that your Wood-Mizer will do the job. our Customer Service Department is available to help you with any questions or difficult sawing conditions you experience. In addition to complete customer service, you will receive a sawing support package with your mill. This package contains posters and newspaper ads to help you promote your business. The sawing support package also contains many other items designed with one thing in mind to help make you successful. Call today for more information about this exciting opportunity. the only one holding you back is yourself! Sawing Support Package I was having problems with my LT40 (hydraulics, debarker, battery and mostly out of square cants) until Bob drove into my driveway. I had made an appointment for the service truck and that turned out to be my best experience with Wood-Mizer yet. Bob listened to my problems and then commenced to work. Two hours later all of the problems with the mill had been corrected, and he helped me learn the proper way to keep my mill aligned. Bob had a very professional and knowledgeable demeanor and was very friendly also. An employee like this man is a good find. Thanks for sending Bob to take care of my mill. He treated my mill like it was his own. Just another great reason to own a Wood-Mizer. Russell Webb WebbWood LLC 24

25 exhibit WAYS To USE A WooD-MIzER AND CoUNTING! We thought it would be fun to ask our employees to list some of the uses for a Wood-Mizer mill that our customers have shared with us over the years. This is just a partial listing of the uses. Whatever the lumber need, if the 40,000+ Wood-Mizer mills in the field haven t cut it, we re sure you can think of it! Perhaps the most notable projects are the dozens of houses, log cabins, barns, garages and outbuildings that have been built using a Wood-Mizer. If you farm, you can use it to cut fence posts, railing, tobacco stakes, birdhouses, chicken coops, barn siding, barn framing, stall boards, and feed trough stock. A cabinetmaker can cut frame stock, door stock, shelving, face stock, drawer stock, and countertops. There is the craft market that needs carving blocks, picture frames, oval cross sections, crotch cuts, and burl. A post and beam or log home builder can cut two-, three-, or four-sided logs for wall construction, beams up to 100 long, and every structural beam needed for construction including tapered octagon posts. Any house, barn, or outbuilding can be covered with wood shingles cut on our mills. You can also cut scaffold boards, scaffold, bracing, picnic tables, lawn furniture, landscape timbers, form boards, furring strips, pallets, crates, bracing, and deck board. There are a number of specialty users who need gunstock blanks, violin parts, and golf club heads. For home improvements, you can cut hardwood flooring, stringers, railings, banisters, spindles, treads, etc., along with dimensional lumber for any number of projects like a mantle for the fireplace, hardwood paneled library, or laminated beamed ceiling. We could not be happier with our purchase and the customer support after the purchase. It makes running a business so much easier. Robert Weed Roosterhead Antique Heart Pine & Brick, Inc. Wood-Mizer is a great company and an excellent manufacturer of sawmill equipment with a second to none support system Jim Oseychuk Osprey Custom Wood Products If you build conventional frame houses, you can cut rafters, floor joists, plates, studs, purlins, ridge beams, headers, blocks, knee braces, king posts, trusses, facia boards, soffit trim, support girders, sills, beams, and siding lap, clap-board, board and batten, vertical, and horizontal. Any furnituremaker can cut lumber for chairs, desks, tables, clocks, dressers, beds, nightstands, chests, jewelry boxes, hutches, china cabinets, stereo stands, entertainment centers, shelves, and vanities. A trim or finish carpenter can cut his own casing, baseboard, chair rail, cove moulding, half round, quarter round, crown moulding, doorstop, doorjambs, and wainscot. As a business, you can cut for grade, custom saw, open a lumberyard, or manufacture a product. And the list goes on... For more projects and customer stories, check out our Personal Best winners. Go online at 25