Can we break the log-jam? The challenges of the timber supply chain...

Over the last months there has been increased focus on supply chains in all their forms. Most recently in the UK we’ve seen that even a plentiful supply of product (fuel) is irrelevant if a vital piece of the supply chain puzzle is missing.

It’s an uncomfortable reminder of the interrelationship between all aspects of the supply chain and something of a wake-up call as previously ‘invisible’ parts of these delicate processes become oddly visible through their absence or scarcity. We are seeing these strains and breakages across a wide range of supply chains.

I’ve spent some time looking at the timber supply chain - a supplier of everything from shipping pallets to paper, cardboard packaging to construction materials. Why? A tree surgeon friend was talking about the rising cost of mobile sawmill; my local builders’ merchant sent me an email about rising prices and reduced availability. It's also been a topic of conversation with my clients.

This industry is fast-becoming a case study on the impact of upstream neglect coming home to roost in the face of unanticipated demand. In many ways the issues with the timber supply chain are far from unique.

The root of the problem 

Over the last decades, the upstream elements (forestry, milling etc.) have been seen as having little value. The value went to converters and then to the consumer products companies. This lack of perceived value led to the classic issue of under-investment.

Over time, this chips away at the balance in the supply chain making the impact of shocks and disruption more pronounced. And this is what we have seen…

Not only have forests have come under pressure – climate change, droughts, fires, plagues (the pine beetle has killed c.100 milllion trees in California and British Columbia since 2010, for example) – impacting supply. But consumer behaviour has changed demand.

The steady adoption of online shopping increased demand for cardboard, while increasing home construction meant more and more wood was required. The industry achieved a balance – but it wasn’t very stable or resilient.  Steady rises in demand are manageable but, when a shock occurs, that leads to huge changes then the problems really start.

Cut down by COVID

As the pandemic took hold across the planet, the timber industry, like so many others, began to shut down. Mills shut down, forestry shut down, supply rapidly fell. After a short pause, demand rocketed. With so many of us stuck in our homes, those fortunate enough to do so realised some improvements wouldn’t go amiss. New furniture was ordered, long-held-off home improvement projects began in earnest (including in the Searle household, hence the email from my local builders’ merchant). In parallel, low interest rates made it a good time to build houses and, as many an interrupted Zoom call demonstrated, online shopping went through the roof, so more cardboard was required for packaging.

Even in the best of times, the value chain had little spare capacity to deal with a surge in demand like that. So, what can the industry do to recover?

Green shoots of recovery?

Ultimately, the lack of capacity and resilience in the network inhibits some chances of recovery. A supply-demand log-jam seems likely for the foreseeable future. Until appreciation of the true value of the upstream elements of the supply chain materialises, it will be hard to engineer the necessary resilience. And, recognising demand will settle in time, returns on investment will diminish. For the industry, it’s a time for reflection and considerable focus should be given to:

• Engagement. Building a complete and transparent picture of the entire chain and a robust understand of the pinch points and supply risks is critical. This requires end-to-end thinking and apportioning realistic value across the whole process;
• Resilience. While resilience may be dilutive to margins, in the longer term it will ensure sustainability of operations and, in some cases, business survival. Companies should be considering Tier 2 & Tier 3 sourcing to secure supply;
• Investment. If supply is critical to your business, be it wood or other commodities, you may want to consider securing supplies through vertical integration, JVs etc.;
• Harmonisation. Now is the time to think about how you can reduce the demands on your supply chain. Everyone has looked at SKU Rationalisation (cutting the tail) during COVID; but to have a real impact you need to look at how you can harmonise products and their bill of materials.

The pandemic has exposed genuine frailties in supply chains of all shapes and sizes. The quest for efficiency made the supply chain vulnerable and COVID exposed this and made risks a reality. The pandemic was not a Black Swan event; it was a highly anticipatable turn of events. Disruption is the new driver of business; preparing for the worst is the only sound strategy and finding agility and optionality in the supply chain is the only way to navigate uncertainty.