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June 2003

Distribution Channels
Inner Workings of the Millwork Industry

Adding Value
It’s What Supply Chains Do
by Allen Dyer

Has the term “added value” become a cliché so familiar to millwork manufacturers, distributors and dealers that we gloss over its importance? After all, that is what we all do for a living—we add value to the products and services we pass on to our clientele. How we add value and how efficiently we do it are critical factors in determining our success or failure as an enterprise. Generally speaking, we must add more value than we add cost in order to be a supply-chain leader.

A Tree Grows
I like to use the example of a tree—still a favorite raw material of the millwork industry. Supply chains exist that harvest the tree, convert the wood to a finished millwork product and transport it to its point of use. Comparing the value of that tree to the value ascribed to the finished product by an end-user makes an interesting study. Let’s say that standing pine timber can be purchased in South America today for under $100 per thousand board feet. (Please don’t hold me to exact accuracy of these numbers; they are not backed up by formal research.) Now, drop by your local retail building products outlet and check the price of a finished finger-jointed pine moulding. 

If you calculate its cost on a per thousand board feet basis, you may find that it is worth over $2,500 per thousand board feet to the end user. Let’s see—$100 versus $2,500—wow, that’s a lot of added value!

Sure, the above example is oversimplified because portions of the standing tree are used to manufacture other products of varying values, but the point is still valid. The tree had to be harvested, sawn into lumber, kiln-dried, ripped, chopped, finger-jointed, resawn, and moulded into a finished profile—and those are just the manufacturing functions. 

The added value of the supply chain must include moving the tree to the sawmill, on to a moulding plant, then to a port and on a ship, just to move it to a U.S. port. There the more familiar supply-chain functions of domestic distribution and retailing begin. Don’t forget the value of matching up the supply with the demand, more commonly known as the marketing and selling of the product—an added-value function, too. 

Added Value
It is easy to overlook the fact that the added-value component of our millwork products has a much greater impact on its final value than does the cost of the standing timber. This helps explain the accelerating frenzy to find the most efficient supply-chain models and identify the most efficient functional operators within our supply chains. The opportunity to gain a competitive advantage through added-value supply-chain innovation is much greater than the advantage gained by finding a lower-cost raw material. 

Who can manufacture the product most efficiently? What method of ocean transport is most efficient? Which ports work best for each region? How is the product handled most efficiently? Where is the appropriate place in the supply chain to consolidate items from various countries and factories? What is the most effective method of getting the finished product into the hands of the end user? 

These are a few of the thousands of questions we all answer daily regarding added-value supply-chain functions. Sometimes potential competitive advantage lurks in seemingly minor changes to our methodology. New technologies offer opportunity to create new efficiencies. Occasionally, we may even identify technology-enabled breakthrough supply-chain models that introduce major, new added value or make dramatic reduction in current costs. 

I suppose the realization of the importance of “added value” is a “good news/bad news” story for all of us. It is bad news because most of the potential for competitive advantage lies in improving the functions we perform as manufacturers, distributors and dealers of millwork products, putting us squarely in the cross hairs of every innovator out there. However, it is good news, too. “Added-value” is not a synonym for “unnecessary cost,” as some may assume. 

What all of us do for a living really does add value to the millwork products enjoyed by consumers in their daily use. We simply must conceive and embrace added-value innovations at a faster pace than our competitors. 

 


Allen Dyer is president of ECMD Inc., a building products manufacturing and distribution company headquartered in North Wilkesboro, N.C.


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