Specific Uncertainties in the Distribution of Products from Renewable Resources: Insights from the German Forestry and Wood Cluster

Transcription

1 1 Specific Uncertainties in the Distribution of Products from Renewable Resources: Insights from the German Forestry and Wood Cluster Sebastian Ludorf, University of Goettingen, Germany, Waldemar Toporowski, University of Goettingen, Germany, Abstract The growing demand for products from renewable resources makes their efficient usage and distribution steadily important. In comparison to other raw materials, renewable resources exhibit a number of distinctive features, which also affect the design of the distribution system. The objective of this study is to analyse the specific uncertainties in the distribution of products from renewable resources. It shall be examined empirically for the first time to what extent companies in the German forestry and wood cluster are affected by uncertainties with regard to the availability, quality, prices and origin of the used renewable resources and what problems can be caused by these uncertainties in the distribution. Therefore, a survey was conducted at the level of the industrial associations and then evaluated in the form of a qualitative content analysis. The results show that the specific uncertainties with regard to renewable resources do in fact exist in the analysed industries and are considered to be significant. Furthermore, it could be shown that these uncertainties have a direct impact on the distribution. Finally, it became clear that the importance of the represented uncertainties for the companies and the distribution of the products will continue to increase. Keywords:, Renewable Resources, Distribution, Forestry and Wood Cluster

2 2 1. Renewable resources and their specific characteristics The global population growth and aspiring developing countries like China and India lead to a rising demand for raw materials. However, the availability of many traditional raw materials is limited. Therefore, the focus of the public and corporations has shifted more and more towards renewable resources. The usage of renewable resources is seen as one way to secure the raw material supply permanently. This results in a growing demand for renewable resources and makes their efficient usage and distribution steadily important. In comparison to other raw materials, renewable resources exhibit a number of distinctive features (Narodoslawsky, 2003) which also affect the design of the distribution system. On the one hand, renewable resources are subject to natural variations in quality that are due to different weather, growth or storage conditions for example. On the other hand, the availability of renewable resources may vary. Fires, pest infestation or severe weather may reduce the available offer (Dennis, Brown, Stage, Burkhart & Clark, 1985). These quality and supply fluctuations can, in turn, result in increased price fluctuations. Apart from these fluctuations, the origin of the renewable resources can also be of importance, as the example of illegally harvested timber clearly shows (Dieter, 2009). All these factors result in specific uncertainties that hamper the distribution of products from renewable resources. The mentioned uncertainties with regard to the availability, quality, prices and origin of renewable resources should be examined in this study in more detail. So far, these uncertainties were analysed mainly in connection with the development of stochastic mathematical models to determine the optimal amount of harvest or the optimal harvest policy (Mitra & Roy, 2006; Saphores, 2003). The developed mathematical models assume, for example, uncertain growth rates or variable environmental conditions. Frequent areas of application are within the forestry and agriculture (Lowe & Preckel, 2004) as well as the fishery (Sethi, Costello, Fisher, Hanemann & Karp, 2005). But the assumed uncertainties are usually not investigated further. The causes for these uncertainties as well as their significance and consequences for the companies are not discussed. To clarify the practical relevance of the uncertainties from a company perspective and to investigate the associated consequences for the distribution, empirical research is required, whereby the study presented here represents a first step in this direction. Due to the large number of renewable resources, the forestry and wood cluster will be exemplarily examined in the following. The forestry and wood cluster covers the industries participating in the wood-based value chains. In Germany, 1.3 million people are employed in this sector which is more than in the automotive industry (German Timber Promotion Fund, 2007). Within the framework of the study presented here, it shall be examined empirically for the first time to what extent companies in the German forestry and wood cluster are affected by the above-mentioned uncertainties and what problems can be caused by these uncertainties in the distribution. In particular, this study addresses the following research questions: RQ1: Do the uncertainties regarding availability, quality, prices and origin of the resources in fact exist in the forestry and wood cluster? What are the causes of these uncertainties and are all industries analysed affected by them to the same extent? RQ2: How significant are the uncertainties investigated to the respective industries? RQ3: Which concrete problems and challenges may arise for the businesses in the industries analysed due to the uncertainties observed for renewable resources? Which problems and challenges affect distribution in particular? RQ4: What expectations are there for the future on the part of the business associations interviewed concerning the uncertainties observed?

3 3 The remainder of this paper is structured as follows: First, we describe the methodology. Afterwards, we systematically present the findings of the study. We highlight the existence and causes of uncertainties with regard to the availability, quality, prices and origin of products from renewable resources in the forestry and wood cluster. Furthermore, we show the significance of these uncertainties for the different industries in the forestry and wood cluster. We discuss the various problems and challenges which may result from the specific uncertainties in case of renewable resources for the companies in general and specifically in the field of distribution. Finally, we present the future expectations of the business associations interviewed concerning the extent and significance of the uncertainties. We conclude the paper with a summary and suggestions for areas of further research. 2. Methodology To answer the research questions, six important industries within the German forestry and wood cluster were investigated. This enables an analysis along the entire value chain and a comparison between industries. In order to analyse the relevance of the represented uncertainties for the respective industry, independent of the situation of the individual companies, the survey was conducted at the level of the industrial associations. The following associations participated in the study: the German Sawmill and Wood Association (DeSH), the Association of the German Wood-Based Panel Industries (VHI), the Association of the German Home Furniture (VdDW), the Association of European Producers of Laminate Flooring (EPLF), the German Pulp and Paper Association (VDP) and the Association of German Corrugated Board Manufactures (VDW) (see Figure 1). DeSH VDP Pulp Paper VDW Packaging Sawmill VHI Wood Material VdDW Furniture WPC EPLF Laminate Figure 1. Examined industries and their respective industrial associations The six managing directors of the associations filled out a structured, qualitative questionnaire with open questions. For the factors of quality, availability, price and origin, it was asked if uncertainties do exist with regard to the distributed products, how significant they are for the companies, what problems can result due to this and what the expectations are for the future. Analysis was carried out in the form of a qualitative content analysis (Mayring, 2000). Qualitative content analysis is a method for systematic, rule-guided and theory-based evaluation of qualitative texts. Qualitative Data Analysis (QDA) Software supports both the actual evaluation as well as the subsequent documentation and therefore increases the verifiability and quality of the results. In this study, the most commonly used QDA Software in Germany MAXQDA was used. In the following, the findings of the study are presented. 3. Existence and causes of uncertainties in renewable resources As part of this study, it should be determined first to what extent there are indeed availability, quality, price and origin uncertainties present for the products distributed in the forestry and

4 4 wood cluster and what causes these uncertainties can be led back to. The answers provided by the associations are given below. Availability uncertainty. Four of the six associations stated that availability fluctuations occur for the resources required by them. As triggers for such fluctuations, besides general causes determining the availability of all types of resources such as transport problems or economyrelated demand fluctuations, also causes specific to renewable resources were given. These include availability fluctuations due to calamities (e.g. windthrow), weather conditions (e.g. long winters), silviculture (conversion of coniferous forests to deciduous forests) as well as increasing restrictions to forest exploitation (e.g. nature reserves). The most given reason for availability fluctuations in this study was competition in material and energetic usage. Quality uncertainty. Four associations additionally stated that quality fluctuations occur. Causes given for this were: differences in resource composition and processing, but also specific natural causes such as quality fluctuations due to calamities (e.g. insect infestation) or due to deterioration during transport and storage (e.g. drying up, fungal infestations). Only the laminate industry noted that no quality fluctuations occur. The reason for this is that the used medium-density fiberboards (MDFs) are relatively homogeneous products due to their production methods and structure, so that quality fluctuations are of minor importance in this. Price uncertainty. All associations stated that price fluctuations occur for the required resources and that these are generally due to fluctuations in supply and demand. Accordingly, the causes for price fluctuations given were economy-related demand fluctuations, demand developments in other countries and suppliers' capacities. Yet also in this category, causes were mentioned which occur specifically in renewable resources, such as price fluctuations due to calamities like windthrow or the existing competition in material and energetic usage. Origin uncertainty. All associations interviewed stated that proof of origin is fully or at least partly possible and also provided in conformity to legal stipulations. The VDP pointed out, though, that for recovered paper, provision of proof of origin is so far possible only to a limited extent because of the differences in registration systems world-wide. The DeSH also stated that traceability of the wood along the entire supply chain to the original felling location is not possible, as in part, only the immediate previous supplier is known. 4. Significance of the uncertainties to the forestry and wood cluster industries After describing in the previous section that availability, quality, price and origin uncertainties concerning distributed products do in fact occur in the forestry and wood cluster, the next step now is to examine how significant these uncertainties are to the various industries. Table 1 provides an overview of the associations' answers to this. Table 1. Significance of the uncertainties Significance Associations Availability Quality Price Origin DeSH very significant very significant very significant less significant VHI very significant significant very significant significant VdDW very significant very significant very significant significant EPLF less significant significant significant very significant VDP very significant very significant very significant very significant VDW significant significant very significant significant What becomes clear is that all uncertainties are considered to be significant or very significant. Yet, also in this, there are industry-specific characteristics to be considered. Thus, e.g.

5 5 proof of resource origin is less significant in the sawmill industry (DeSH) than in the paper industry (VDP). The reason why tropical wood or illegally felled wood is hardly a problem in the sawmill industry is that due to high shipping costs, sawmills have only regional procurement areas. In contrast, pulp for the paper industry is procured world-wide and to a great extent imported. Accordingly, proof of origin is much more significant in the paper industry. 5. Problems in distribution due to uncertainties concerning renewable resources So far, the existence and significance of specific uncertainties concerning renewable resources has been addressed. In the following, the problems resulting from these to businesses in general and specifically in the field of distribution will be examined in greater detail. Availability uncertainty. The problems due to availability fluctuations mentioned include complications in production planning and higher production costs, the danger of production shutdowns as well as greater difficulties in investment decisions. Problems also named were specific to distribution and sales. For example, in the event of availability fluctuations, more cost-intensive storage organisation is required. They also lead to price fluctuations and thus more complicated sales calculations, to supply problems and penalties for breach of contract as well as loss of orders and customers. A further striking fact is that serious problems were also mentioned which reach beyond the matter of distribution. Availability uncertainty can thus even lead to plant closures and the migration of entire industries to areas richer in resources. According to the associations, the first signs of this can already be observed. Quality uncertainty. According to the associations, quality fluctuations can limit the intended use of the resources and lead to operational faults in production, higher production costs, more complicated production planning and reduced quality in the end products. Further, distribution-specific problems were mentioned, such as the requirement of more cost-intensive storage as well as rejected deliveries and a possible loss of orders and customers. Price uncertainty. In the field of distribution and sales, price fluctuations lead to more complicated sales planning and calculation as well as to problems with having to pass on costs to the customers. These problems can have grave consequences and lead to funding problems, plant closures and shifts in the markets. This means an ongoing consolidation process in the industries, loss of jobs and relocation abroad with corresponding consequences also for distribution. As already mentioned, first signs of this can already be seen. Origin uncertainty. According to the associations, resource origin uncertainty leads to exclusion of certain intended uses. For example, recovered paper of unknown origin may not be used in the manufacture of food packaging due to possible harmful substance content. Additionally, it was revealed that problems in distribution occur especially due to origin uncertainty. In this respect, unknown resource origin may result in trade restrictions, loss of certifications and thus creating market access obstacles. There can also be a loss of orders and customers and greater difficulties in risk assessment concerning critical deliveries. 6. Future expectations concerning extent and significance of the uncertainties In conclusion to this study, the associations' expectations of future developments concerning extent and significance of the uncertainties shall be summarised. The answers provided by the associations are given below. Availability uncertainty. Four associations expect a future resource shortage and therefore an aggravation of the problems incurred in connection with it. The main listed cause of this was competition in material and energetic usage. Only the EPLF and VDW assume the supply level to remain constant. Once again, this demonstrates that there are industry-specific differ-

6 6 ences. Thus, the packaging industry almost exclusively utilises raw materials from recovered paper to produce corrugated board, for which no competition in energetic usage can be observed. In addition, an established recycling system for waste paper exists in Germany, meaning that a relatively stable resource supply is expected. This explains the answer of the VDW. Quality uncertainty. Four associations indicated that quality fluctuations will continue to gain in significance due to stricter legal stipulations concerning limits and standards. Accordingly, the problems in connection with this become more serious. Only the VHI and EPLF expect quality to remain constant in its significance. This shows again industry-specific differences. In this respect, the tolerance level concerning quality fluctuations is higher in the wood material industry than in the paper industry, which explains the VHI's answer. The EPLF's answer is also plausible, as its companies mainly use MDFs to produce laminate, whose homogeneous structure make quality fluctuations a factor of minor importance. Price uncertainty. Four associations expect resource prices to keep increasing, naming the cause of this to be the competition in material and energetic usage. This entails an aggravation of the problems already mentioned. This shows again the grave consequences of price uncertainty, leading to expectations among several associations of a change in market structures due to plant closures and industry migration, with according effects also on distribution. Origin uncertainty. All associations stated that in future, proof of resource origin will become significant or very significant, naming both customer requirements and legal requirements as causes for this. At the same time, the majority of associations declared that providing proof of origin will become easier in the future, as the appropriate certification systems and required infrastructure are being developed continuously due to legal pressure. 7. Conclusions The purpose of this study was to examine whether businesses are affected by availability, quality, price and origin uncertainty concerning products from renewable resources and what problems to distribution such uncertainties can lead to. This was done empirically for the first time by means of a broadly based study extending to several industries, using the concrete example of the German forestry and wood cluster. The results of the study show that the specific uncertainties with regard to products from renewable resources do in fact exist in the analysed industries and are considered to be significant by the associations. In this, though, industry-specific differences also need to be considered. Furthermore, it could be shown that these uncertainties have a direct impact on the distribution of the products. Thus, availability uncertainty can e.g. lead to cost-intensive storage and supply problems, quality uncertainty to rejected deliveries and loss of orders, price uncertainty to greater difficulties in sales calculation and origin uncertainty to trade restrictions. Finally, it became clear that the importance of the represented uncertainties for the companies and the distribution of the products will continue to increase according to the associations. There is a need for further research in the matter of whether and to what extent the specific uncertainties concerning renewable resources can also lead to information asymmetries between buyers and suppliers which make trade in these products more difficult. This can be investigated in future studies in the perspective of the principal agent theory. What became clear further is that several industries expect a future resource shortage and increased resource dependencies. Such resource dependencies and their consequences can be analysed in further studies by means of the resource dependence theory. Further, resource dependency leads to differences in corporate power. An analysis of the effects of such differences in power between the actors on the distribution of products from renewable resources provides an additional interesting field of research for the future.

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