Value Added Processing & Secondary Manufacturing. Jan Bartolome Andy Chan Paul Shives Robert Smidstra

Transcription

1 Value Added Processing & Secondary Manufacturing Jan Bartolome Andy Chan Paul Shives Robert Smidstra February 2,

2 Introduction What is value added/secondary manufacturing? The definition for secondary or added manufacturing is further processing of the primary stage of a material. For example, secondary manufacturing in a forestry aspect would be turning lumber into cabinets or furniture. Primary stage would be considered to be the process of converting raw logs into dimensional lumber. Why is it important? Value added manufacturing is important because it increases the GDP per cubic meter of fibre. This happens because secondary manufacturing creates a specialty product, which in turn boosts up the price. Depending on the product the increase of GDP will vary. For example, Canada s US$/Cubic meter is much lower compared to Japan. Also it provides for more jobs as more companies will be created to create these products. Breakdown of it in Canada and subsector/province. In Canada, our secondary manufacturing market is not as large as our neighbours down south. Currently our employment breakdown by sub sector is : 41% Wood Furniture, 23%Kitchen Cabinet, 14%Prefab Buildings, 7% Windows and the rest is other millwork. Looking at provinces, British Columbia, Quebec, and Ontario account for much of the sector in Canada. BC Characteristics In BC, about half of the secondary manufacturing jobs are located in Vancouver & the Fraser Valley. About 20% are in Kamloops, followed by 15% on the island. The rest are scattered in the Kootenays (Nelson, in particular), Northern BC and the Cariboo. About 12,400 people are employed in the sector. This is down 16% from 2006 levels. The average company size is 29 employees. In general, greater Vancouver s secondary manufacturing market tends to have more larger (50+ employee) companies. Outside of the Lower Mainland, small and medium 2

3 sized companies tend to make up a greater proportion of their respective markets, in general. The industry has about $2.8B in sales (down 11% from 2006). Over half of companies (55%) have sales in the $1M to 15M range just 10% of firms have sales over $15M. In terms of species used, as of 2012, SPF (construction grade grouping of Spruce Pine Fir) is currently the most used in terms of volume and has grown in use greatly since the late 90s, when cedar was by and large the most used species. SPF makes up nearly 30% of the volume used. Cedar, Spruce and Douglas fir comprise about 15% to 20% each of species volume. Lodgepole pine, hemlock, other softwoods and a small component of hardwoods form the remainder. Out of the 5 main manufacturing provinces in Canada (that would be BC, Manitoba, Quebec, Ontario and N. Brunswick), BC receives the least revenues per 1,000 cubic meters harvested and has been last for the past 20 years. The level is currently around $250/1000m 3. In comparison, Ontario receives just under $1000/m 3. Also, in terms of TOTAL forestry jobs (including logging, etc.) per 1,000 m 3, BC ranks last in Canada data has BC with around 0.8 jobs per 1,000 m 3, while Manitoba and Ontario s numbers are around 4.5 jobs per 1,000 m 3. This metric has steadily been decreasing in BC over the past 2 decades and has grown in most other provinces. The most jobs intensive secondary manufacturing type in BC is Cabinets and Furniture, which produce 38 jobs per 1,000 m 3. Millwork produces 35, engineered wood products produce 5.3 and shingles produce 1.7 jobs per 1,000 m 3. Of course, all of these are much higher than BC s total forestry average of just 0.8, which highlights just how dependent BC s forest industry has been on producing commodity lumber. 3

4 Markets Markets for Secondary Manufacturing Markets for secondary products are located all over the world. The largest can be found in BC. The next largest market is found in the USA. The rest of Canada follows after that. On an interesting note, Japan has a larger market than Europe and the rest of Asia. How much is from BC In term of percentage of total sales revenue, BC dominates the rest of the world. BC takes up almost half (almost 48%) of the total percentage. USA takes 20%. What s interesting is that the rest of Canada is 12% of the total sales revenue while the rest of the world in total takes 20%. Changes in Market In the 1990s, the BC market was the largest. For the next decade, it followed a declining trend, while the US market grew (larger than BC market by 1997). However, after 1999, the BC market started to grow once more and the opposite was seen in the US market. By 2012, the BC market towered over the US market. The rest of the world, and Canada, during this time, was constantly in the 10 20% range of the market. Conclusion Supply Chains Depending on the type product each manufacturer will have a different supply chain. For example, Engineered wood product manufacturers probably sell straight to the final client (end users) directly to contractors or home depot directly, while manufacturers of windows, doors and cabinets might sell to intermediate buyer/sellers like wholesalers, retailers or contractors which the sell the product further. Once manufacturers sell internationally then their supply chain becomes even more complicated and the path to the end user might quite long. Operational Costs The two main operating costs and manufacturer faces is wood and labour. These two costs can account for 50% 75% of a company's overall 4

5 costs to make their product. For cabinets, EWP, furniture and like products, other costs like other non wood materials or chemical treatments can cost a lot. In the end, each manufacturer has to aware to these costs and try to be as efficient as possible to keep profitable. Also, there a 7 wastes traditionally considered costly for manufacturers; Overproduction, Inventory, Waiting, Motion, Transportation, Rework, and Over Processing. The goal is to reduce the amount you do every one of these wastes to help keep the company profitable. Constraints to Growth There are 6 main constraint to growth for secondary manufacturers. The top 3 are fibre supply, labour costs, market characteristics, and then following by financing, management capacity and transport/distribution. Other technical challenges like drying, finishing, and quality control can also play a huge part whether a business is successful. Furthermore, cheap international imports reduce how competitive BC s manufacturers are which can be also a huge constraint in secondary manufacturing growth. Conclusion Overall the secondary manufacturer in the forestry sector is a lot smaller than lumber and log producers. Companies are usually small and how low profits. Markets play a huge role in the success of these companies and the USA is our main buyer and competitor. However, if we want to get the most of every cubic metre of wood we should invest more in our secondary manufacturers and learn to overcome the constraints to growth. 5