A SHED? 0? THE HARMVOOB FREE VEREER AND HWIQQE} lNDBSYRY lifé Mfie’ZHéfifisN AND WSSCONSIN Thesis far the Degree at? P51. (3. §3§§CéHGN€ STATE-I UNEUERSWY [£1553 E": HEN {131653 1W2? , 0.4-!!! WWW/W This is to eertifg that the thesis entitled A STUDY OF THE HARDWOOD FACE VENEER AND PLYWOOD INDUSTRY IN MICHIGAN AND WISCONSIN presented by Lewis T . Hendricks has been accepted towards fulfillment of the requirements for Ph.D. degree in Forest Products ' ,. -. _ v gig/12x fry/j- /¢’ 9/ [t {’ Majbl/ professor Date April 25, 1967 0-169 \ v. 0... Lu ...C P;“" ‘ M«.¢ HA. - p—Y “‘ A cm vhlfll ' ‘l '1': rev {‘1‘ cl“ ‘ W ABSTRACT A STUDY OF THE HARDWOOD FACE VENEER AND PLYWOOD INDUSTRY IN MICHIGAN AND WISCONSIN by Lewis T. Hendricks Since the end of World War II, the hardwood veneer and plywood industry in the northern Lake States (primarily northern Wisconsin and Michigan's Upper ~ Peninsula) has undergone some significant changes. For the most part, the raw material resource for these mills has changed from old-growth hardwoods to stands which are predominately second—growth material. In other areas, there have been equally important developments. Employment in regional mills, for example, has either declined or remained static during a period in which domes- tic hardwood plywood consummion has increased dramatically. Imports have grown to the point where they now account for over 50 percent of the hardwood plywood consumed in the United States each year, and profit margins have become unrealistically low. Thus, it would appear that many new and unquantified vari- ables are influencing the hardwood face veneer and plywood industry of the northern Lake States. The identification of these factors, a study of the inter- relationship between them, and the effect they are having on the status of this important regional industry were among the more important objectives of this study. This study of the hardwood veneer and plywood industry was divided into CAI“ .v- 2‘? WE w PI.— Fm H. 59"“ ~Q‘.‘ p. 0"“. tfis “A - fir §... 7). Lewis T. Hendricks four segments: (1) An analysis of the factors contributing to the closure of mills in Michigan and. Wisconsin since 1950, (2) an analysis of the veneer log resource available to the regional mills, (3) a general survey of the hardwood veneer and plywood industry in Michigan and Wisconsin, and (4) an analysis of raw material and production costs for selected regional and foreign mills. Eight mill closures were found to have occurred over the past 15 years and were equally divided among Michigan and Wisconsin. No single factor, it seemed, was responsible for the closures. The competitive position of each firm appeared to be weakened by several external factors (imports, substitutes, raw materials). When these were combined with a series of inapprOpriate management decisions, the mill closed. The general decline that has occurred in the veneer log resource during recent years did not appear to be a major factor in any of the closures. Hardwood face veneer and plywood mills in Michigan and Wisconsin utilize a number of species, with hard maple, birch and red oak being among the more important. Competition between sawmills and veneer mills for the available log resource has intensified in recent years and prices have risen proportion- ately. Regional resource data indicate that basswood and yellow birch are both in short supply, and that the future availabflity of red oak and elm are also in question at this time. Overall, it would seem that the industry must adopt a technology that would allow it to economically process logs of both small diameter (11-14 inches) and low quality. In 1964, there were 24 hardwood face veneer and plywood firms in Wis-— cousin and 8 in Michigan. Executives interviewed during the course of the study C" r“) 3:: vi" a“; 3‘ |._\ 7‘~v~ 543i A I N. (“a a '1 Lewis T. Hendricks cited many problems which they believed confronted the industry today. Among the more- important were the low-cost imports entering the country, the decrease . in quality of the raw material supply, the export of native log species such as » walnut, the continued rise in labor costs, the lack of trained manpower, and the relative absence. of a suitable supply of regionally manufactured veneer core stock. Over 90 percent of the veneer produced by either the veneer or the veneer and plywood mills in Michigan and. Wisconsin was the rotary type. Altogether, more than 600 million square feet (surface measure) of commercial-type veneer was produced by these mills in 1964. The investigation showed that 3-ply veneer plywood constituted a large portion of all plywood manufactured within the region and that this material was extensively used in prefinished hardwood plywood panels. One of the most significant findings of the mill survey was related to the age of veneer and plywood machinery being used by regional manufacturers. Data collected during the study showed that veneer lathes, driers and plywood presses averaged 12 years or more in age. These results would seem to indi— cate that veneer and plywood manufacturers need to take a close look at their machinery, both in respect to age and capability. The regional industry produces a multitude of veneer and plywood products, and the markets they serve are equally varied. A large portion of all veneer and plywood manufactured by mills in the survey was made—to—order, with wall paneling, doors and kitchen cabinet stock being among the more important products. Five basic distribution methods were identified as being commonly luv“ ”cc-4 0\ U': the house Alt? grand 3.31.13: gets, an 2515 MI". Lewis T. Hendricks used by these mills: The agent or broker, the parent-firm, company salesmen, the house account and the wholesaler. Although wall paneling, doors and kitchen cabinet stock comprised a major portion of the product-mix, specialty plywoods are becoming increasingly impor- tant. Among other products, curved or molded plywood for chairs, sofas, church pews, and wall paneling fall into this category. It is expected that further emph- asis will be given to the production of specialty plywoods in future years. A STUDY OF THE HARDWOOD FACE VENEER AND PLYWOOD INDUSTRY IN MICHIGAN AND WISCONSIN By .I,_ —.'T Lewis T.’ Hendricks A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Forest Products 1967 uri— ACKNOWLEDGMENTS It is said that knowledge crowns those who seek it. But the mere seeking of this knowledge is not enough; one must have good guidance in doing so. During the course of this study, several men gave freely of their time and advice. Their efforts are deeply appreciated and deserve special recognition. Dr. Aubrey Wylie - academic advisor, consulter, and friend, who guided this project to a successful completion at Michigan State University. Dr. Dean Quinney — Project Leader and Principal Forest Economist at the Duluth office of the North Central Forest Experiment Station, whose timely remarks and reviews gave added strength to the final manuscript. Dr. Lee James - Professor of Forestry at Michigan State University, for his views and Opinions on problem selection and data collection. Eugene W. Fobes — Forest Products Technologist and valued friend, whose candid remarks and broad experience gave pragmatism to the study. The author is also indebted to the North Central Forest Experiment Station for providing the Opportunity to complete this work. A further note of appreciation is extended to my wife, Suzanne, whose encouragement and understanding made the task somewhat easier. Lastly, one cannot forget his parents, who really d_i_d_ make it all possible. ii 3cm :5: 0 LIST 0 "L. o- {Nit-1L:- TABLE OF CONTENTS ACKNOWLEDGMENTS . LIST OF TABLES . LIST OF ILLUSTRATIONS . Chapter I. A STATEMENT OF THE PROBLEM AND THE OBJECTIVES OF THE STUDY . The Problem. Study Objectives . II. LITERATURE A Summary of the National Hardwood Plywood Industry . Imports and the Controversy Surrounding Them . Consumption of Veneer Logs and Veneer . Veneer and Plywood Uses The Hardwood Veneer and Plywood Industry of Michigan and Wisconsin Veneer Log Production and Consumption Additional Considerations III. HARDWOOD FACE VENEER AND PLYWOOD MILL CLOSURES 1N MICHIGAN AND WISCONSIN SINCE 1950 Methodology. . Historical Background . . Primary Problems of the RegiOn' 3 Mills . Raw Material Supplies . . . Competition from Imports and Substitute Materials . Corporate Management Decisions and Policies . Reasons for Each Mill Closure Shortage of Quality Veneer Logs . . Competition from Irnports and Substitute Materials . Management Oriented Decisions and Policies . iii Page ii vi ix {0014} 1 O 11 11 14 18 18 19 20 20 21 23 24 25 25 26 Chapter IV. THE VENEER LOG RESOURCE AVAILABLE TO HARDWOOD MILLS IN MICHIGAN AND WISCONSIN . Methodology . . . - - . . . The National Hardwood Veneer Log Resource . Consumption - . Sawtimber Volume and Quality . Growth-Cut Balance . . Meeting the Demand. . . . . . . The Veneer Log Resource in Michigan and Wisconsin Consumption- ~Production Sawtimber Volume and Quality . Growth-Cut Balance - Meeting the Demand - Resource Trends Summary . . V. RESULTS OF A GENERAL SURVEY OF THE HARDWOOD FACE VENEER AND PLYWOOD INDUSTRY IN MICHIGAN AND WISCONSIN Methodology. . General Characteristics of Industry Groupings Veneer Mills . . Veneer and Plywood Mills . Plywood Mills . . Specialty Plywood Mills Plant Production Characteristics of Industry Groupings Veneer and Plywood Production Veneer Thickness . Location of Mills Veneer Log Transportation . Wages and Employment Production Capacity. . . Veneer and Plywood Machinery. Market Oriented Characteristics Of Industry Groupings . Veneer and Plywood Manufactured for Stock and Order Purposes Average Inventory of Veneer and/or Plywood Mills . Distribution Methods End-Uses . Summary . iv Page 2 8 28 3O 30 31 33 35 36 38 41 49 55 59 63 65 65 66 66 68 69 71 72 72 75 77 79 79 82 83 89 89 92 94 97 100 Chapter VI. AN ANALYSIS OF RAW MATERIAL AND PRODUCTION COSTS FOR SELECTED REGIONAL AND FOREIGN HARDWOOD FACE VENEER AND PLYWOOD MILLS . Methodology Raw Material and ProductiOn COsts for Two RegiOnal Mills . Raw Material and Production Costs for Two Canadian Firms. Raw Material and Production Costs for Several Philippine Firms. . . . Raw Material and Production Costs for Domestic Mills. A Comparison of Production Costs Between Selected Domestic, Regional, Canadian, and Philippine Hardwood Plywood Mills . . . . . . VII. SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS Summary . . Mill Closures . Veneer Log Resources . Survey of Hardwood Veneer and Plywood Mills Conclusions Recommendations BIBLIOGRAPHY . APPENDIX A . APPENDIX B . 103 103 106 118 12 1 125 129 134 134. 134 135 136 137 141 143 148 156 Chapter II. Chapter III. Chapter IV. Table 1. IO. 11. LIST OF TABLES U. S. market shipments, imports, emorts, and consumption of hardwood plywood, 1951-1964 . Consumption of logs and purchased veneer in the manufacture of hardwood plywood, 1965 . Veneer log production and consumption in Michigan and Wisconsin for selected years . Census of manufactures statistics for the veneer and plywood industry of Michigan and Wisconsin for 1954, 1958, and 1963 . . . . . . . . Annual veneer log production in Michigan and Wisconsin for selected years . ' Annual veneer log consumption in Michigan and Wisconsin for selected years . Hardwood plywood: United States rates of duty under the Tariff Act of 1930, in specified years 1930 to 1955 Annual cut of hardwood sawtimber for Michigan and Wisconsin in selected years by product~type . Net volume of hardwood sawtimber on commercial forest land in the Lake States by species and quality class, January 1, 1963 . . Net volume of hardwood sawtimber on commercial forest land in the Lake States by species and diameter class, January 1, 1963 . Net volume of hardwood sawtimber on commercial forest land in Michigan and Wisconsin by species, January 1, 1963. vi . Page 12 16 22 23 24 40 43 45 47 Chapter V. Table 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Net volume of live hardwood sawtimber on commercial forest land, by diameter class and Species, Michigan, 1955 . . . . . . . . . . Net volume of live hardwood sawtimber on commercial forest land, by diameter class and species, Wisconsin, 1956 . . . Net annual growth, annual actual and desirable cuts of hardwood growing stock on commercial forest land in Michigan, by species, 1954 . Net annual growth, annual actual and desirable cuts of hardwood growing stock on commercial forest land in Wisconsin, by species, 1956 Net volume of hardwood growing stock on commer- cial forest land in the Lake States, by species and diameter class, January 1, 1963 . Net annual growth and cut Of hardwood sawtimber on commercial forest land in Michigan and Wisconsin . Estimated volume of hardwood sawlogs suitable for veneer in Michigan and Wisconsin Veneer log production in Michigan and Wisconsin in 1963, by Species . Estimated qualities of veneer and/or plywood manufactured in Michigan and Wisconsin in 1964, by industry groupings . Wage and employment data for veneer and/or plywood mills located in Michigan and Wisconsin in 1964, by industry groupings . Estimated percent of total capacity which veneer and/or plywood mills in Michigan and Wisconsin achieved in 1964, by industry grouping . Estimated quantities and percentages of veneer and plywood made for stock and order by mills in Michigan and Wisconsin in 19 64, by industry groupings . . . Vii Page 48 49 51 52 54 56 58 60 74 81 83 91 Table Page 24. Estimated average inventory of veneer and/ or plywood mills in Michigan and Wisconsin in 1964, by industry groupings - - - - - - - - - - - - - . 93 Chapter VI. 25. Average costs encountered by Mill A in manufacturing 1000 square feet (surface measure) of 1/4—inch hardwood plywood wall paneling - - - - - - - - . - 108 26. Average costs encountered by Mill B in manufacturing 1000 square feet (surface measure) of 1/4-inch hardwood plywood wall paneling . . . . . . . . . . 115 27. A comparison of costs encountered by Mills A and B in manufacturing of 1/4-inch yellow birch hardwood plywood wall paneling . . . . . . . . . . 117 28. Comparison of raw material and production costs for two Canadian hardwood veneer and plywood mills manufacturing 1/4-inch prefinished walnut wallpaneling.................. 120 29. Comparison Of raw material and production costs for several Philippine hardwood veneer and plywood mills manufacturing 1/4-inch lauan wall paneling,1962.................. 124 30. A composite statement of income, based on net sales for 26 hardwood veneer and plywood firms in the United States in 1963 . . . . . . . . . . . . 126 31. A composite statement of operating income, based on net sales and measured in dollar costs, for domestic mills in 1962 and 1963 . . . . . . . . 128 32. A comparison of production costs between selected regional, Canadian, and Philippine hardwood plywood mills - - - - - - . - - - . ~ - 130 viii (ha; Chapter IV. Chapter V. LIST OF ILLUSTRATIONS Figure 1. Volume of hardwood growing stock in eastern United States in 1962, by diameter class Net annual growth and cut of hardwood sawtimber in eastern United States in 1962 . . . . . . Estimated veneer production in various thickness manufactured in Michigan and Wisconsin in 1964, by industry groupings . Location of hardwood face veneer and/or plywood mills in Michigan and Wisconsin in 1964 Estimated quantities of logs transported to veneer and/or plywood mills in Michigan and Wisconsin by various modes of tranSpor~ tation in 1964, by industry grouping Estimated average age of machinery found in veneer and/or plywood mills in Michigan and Wisconsin in 1964, by industry groupings . Estimated quantities and percentages of veneer and plywood marketed by mills in Michigan and Wisconsin through various market channels in 1964, by industry groupings . End—uses for products produced in veneer and/or plywood mills in Michigan and Wisconsin in 1964, by industry, groupings . ix Page 32 34 76 78 8O 85 95 98 LIST OF APPENDIC ES Appendix Page A Questionnaires Used for Interviews 148 B Forms for Cost Data 156 CHAPTER I A STATEMENT OF THE PROBLEM AND THE OBJECTIVES OF THE STUDY The Problem Since the end of World War II, the hardwood veneer and plywood industry in the northern Lake States (primarily northern Wisconsin and Michigan's Upper Peninsula) has undergone some significant changes. For the most part, the raw material resource for these mills has changed from old—growth hardwoods to stands which are predominately second—growth material. Although a number of mills have ceased Operations during the past 20 years in the region, the total number remains essentially the same as that of the immediate post-war period. . In many cases, new mills have sprung up to take the place Of those closing out Operations. More significant than the number of mills, however, is the economic impact these Operations have had on the regional economy of which they are a part. For example, even though the total number of veneer and plywood mills in Michigan remainted constant between 1954-1958, the number of employees in this industry decreased by about 75 percent during this period. The value added by manufacture in Michigan in 1958 was only one—fourth of the 1954 level while new capital expenditures in 1958 were less than one—half of the '354 a“..- 1.... l- 1..... sh.“- ~ "V II»: . s 7“” . j :4 (9" I: p_‘. 1 2 1954 figure. 1 This decline in employment and value added by manufacture, and the ensuing loss Of income earned through payrolls, has severely upset the eco— nomic equilibrium of those regions in which the mills were located. More recent figures show the Michigan industry to be more healthy than in 1958, but still Operating at a level below that achieved in 1954. The current status of our regional veneer and plywood industry is a paradox when one considers the great increase that has taken place in the past decade in the domestic consumption of hardwood plywood. On the national scene, foreign imports of hardwood veneers and plywood have changed considerably over the past two decades. From a total of less than 50 million square feet of hardwood plywood in 1945, these imports have risen to over 1. 9 billion square feet in 1964. More significantly, imports have amounted to over 50 percent of the hardwood plywood cOnsumed in the United States in recent years. Thus, it would appear that many new and unassessed variables are influencing the hardwood face veneer and plywood industry of the northern Lake States. How these factors are interrelated, and how they affect the present and future status of this important regional industry is a subject of much conjecture. Some sources speculate about the suitability or inadequacy (both economic and physical) of the second-growth hardwood resources in the region, while other point at the apparent loss Of domestic markets to foreign imports of hardwood 1U. S. Department of Commerce, Bureau of the Census, "Area Statis- tics," Census of Manufactures, Volume IIIII 1954I 1958. (Washington: U. S. Government Printing Office). (Wisconsin figures for 1954 are known to be inaccurate, so no parallel comparison can be made.) If? the c . 1.“ -‘ ‘ § f? to 3 plywood. Another conjecture, it appears, is that the domestic mills have failed to remain competitive because they lack efficiency in their operations. Whatever the causes of the situation—-whether it be resource, import and/or production oriented--little is known about the manner in which these factors tend to influence this vital industry. Study Objectives Stated briefly, the study Objectives include the following: 1. To ascertain the adequacy (both qualitatively and quantitatively) Of the forest resource as it relates to sustaining and/or enlarging the hardwood veneer and plywood industry in the northern Lake States region. 2. To determine the reasons for the mill closures that have taken place in the study region during the past 15 years. 3. To determine and evaluate specific characteristics of the existing hardwood veneer and plywood industry within the study region, including type of product produced, origin of raw materials used, capacity, technological efficiency, management structures, and marketing patterns. 4. TO Obtain and compare detailed production cost data (raw material and manufacturing costs) on a selected number of Lake States veneer and plywood mills. In addition, production cost data Of certain foreign plants will be Obtained for comparative purposes. 5. TO combine and interpret all research data collected during the course of the study so as to provide a comprehensive analysis of the present and probable future economic status of the hardwood veneer and plywood industry in the northern Lake States region. CHAPTER II LITERATURE A Summary Of the National Hardwood Plywood Industry There are two major factors which are generally believed to have a controlling effect upon the national hardwood plywood industry. These factors include: (1) an increasing scarcity of quality wood as raw material; and (2) an increasing amount of hardwood plywood being imported into this country. Imports have increased from about 67 million square feet surface measure in 1951 to over 1. 4 billion square feet in 1962. 1 For 1962, total imports exceeded domestic production and amounted to 54 percent Of the hardwood plywood con- sumed in the United States in that year. The situation for domestic producers worsened slightly in 1965 when imports accounted for 55 percent of the total domestic consumption. With the depletion of much Of this country's virgin timber, the hardwood plywood industry has had to face the problem of an increasing scarcity of quality wood as raw material. Log diameters and log quality have both decreased to the point where many of the better NO. 2 lumber logs are being used for veneer 1U. S. Department Of Commerce, Business and Defense Services Administration, Hardwood Plywood (Washington: Business and Defense Services Administration, Forest Products Division, 1963), p. 2. 4 5 and the average diameter seldom reaches above the 16-20 inch range. Production costs have risen sharply in the past decade for the industry, but competition from low priced imports has prevented increases in prices necessary to compen- sate for rising costs. Consequently, the ratio Of net profit before taxes to net sales for hardwood plywood Operations has dropped sharply from 7. 8 percent in 1955 to about 2. 4 percent in 1958. 1 Since the basic conditions that brought about this decline are still present, it is likely that the ratio of net profit to net sales is at the same level today (or lower) as that found in 1958. Imports and the Controversy Surrounding Them In addition to raw material resource problems, foreign imports appear to be causing a great deal Of concern on the part of our domestic manufacturers. Over the past 35 years, tariffs on imported hardwood plywood have decreased considerably. The last major changes occurred in 1951 when the tariff rate (percent ad valorem) was either halved or nearly halved on most Species of imported plywood. Under the General Agreement on Tariffs and Trade (Torquay) effective June, 1951, the tariff rate on birch was set at 15 percent, and that on most other hardwoods at 20 percent. 2 Significantly, it was in 1952 that imported hardwood plywood began accounting for an increasing percentage of 1U. S. Tariff CommiSsion, Hardwood Plywood: Report on Escajg- Clause Inves_tigation No. 77 Under Section 7 of the Trade Aggements Exten- gion Act of 1951, as Amended (Washington: U. S. Tariff Commission, 1959), p. 42. . 2U. S. Tariff Commission, The Production Importation and Marketing Of Hardwood Plywood in the United States (Washington: U. S. Tariff Commission, 1955), p. 11. 6 domestic consumption. By way of comparison, imports represented about 8 percent of the total U. S. consumption of hardwood plywood in 1951 and about 55 percent in 1964.1 On this basis, then, one might speculate that up until 1951 or 1952, domestic hardwood plywood was competitive with imports chiefly because of the tariff on imported hardwood plywood. More recent deveIOpments related to hardwood plywood tariffs include a proposal to reduce the current tariff levels by 50 percent.2 If such prOposals are enacted, they would undoubtedly have a profound effect on the domestic industry. In the past, reductions in hardwood plywood tariffs have been accom- panied by substantial increases in the flow of imported hardwood plywood into the United States. For each of the last several years, imports have exceeded domestic production of hardwood plywood (Table 1). The United States immrts plywood from several countries, but in past years, Japan has supplied over 3 times that of any other foreign country. Japanese exports of plywood to the U. S. in 1957 amounted to 41 percent Of our domestic consumption. In 1962, this figure had shrunk to 30 percent, but overall imports (as a percentage of domestic consumption) remained fairly constant. 3 It has largely been a matter of speculation whether or not the growth 1Clark E. McDonald, "Hardwood Plywood: 1. 5 MM, " Forest Industries, LXXXXII (January, 1965), p. 46. , ' 2Proposed at the Kennedy Tariff Round, Geneva, Switzerland. 3Figures reported by the Hardwood Plywood Manufacturers' Association and based on U. S. Bureau of Census data. 7 TABLE 1. --U. S. market shipments, imports, exports, and consumption of of hardwood plywood, 1951—1964 (In thousands Of square feet, surface measure) Ratio of Apparent imports to U. S. market U. S. U. S. Year shipments IInports Exports consumption consumption Percent 1950 752, 908 (E) 57, 835 365 810, 378 (E) 7 1951 805,249 (E) 66, 761 553 871, 457 (E) 8 1952 794, 857 (E) 84, 931 260 879, 528 (E) 10 1953 819, 107 218, 862 463 1, 037, 506 21 1954 755, 464 426, 064 431 1, 181, 097 36 1955 933, 948 617, 936 325 1, 551, 559 40 1956 886, 640 695, 515 496 1, 581, 659 44 1957 791, 431 840, 962 393 1, 632, 000 52 1958 803, 572 907, 165 1, 129 1, 709, 608 53 1959 976, 717 1, 318, 035 1, 951 2, 292, 801 57 1960 944, 028 1, 014, 853 1, 845 1, 957, 036 52 1961 1,088,561 1, 097, 445 1,556 2,184,450 50 1962 1, 230, 502 1, 438, 964 2, 707 2, 666, 759 54 1963 1, 414, 260 1, 620, 158 3, 640 3, 030, 778 53 1964 1, 598, 007 1, 946, 697 3, 156 3, 541, 548 55 (E) - Estimated Source: Compiled from reports Of the U. S. Bureau of Census and the U. S. Tariff Commission. 8 in hardwood plywood imports has occurred at the expense Of domestic manufacturers. The United States Tariff CommisSion, in a split decision, concluded in its report NO. 77 on the Escape-Clause Investigation that hardwood plywood imported during the past decade has been supplemental to a significant extent to the domestic supply. The Commission also concluded that the great expansion in consumption of hardwood plywood in the production Of flush doors would not have been possible if producers had been dependent entirely on domestic plywood. Door skins and wall panels, constructed chiefly of Philippine Mahogany (lauan), have constituted a substantial prOportion Of the hardwood plywood shipped to the United States in recent years. 1 One of the attractive features of lauan plywood has been its low cost relative to domestically produced hardwood plywood. Domestic manufacturers have long argued that imports have succeeded in replacing many of their traditional markets, largely because Of their price advantage over domestically produced plywood. The low cost Of imported ply- wood, especially lauan, is thought to be due to the low cost Of labor in producing it. Moreover, there appears to be considerable substitutability among the several species of hardwood plywood. Apparently, the Tariff Commission felt that lauan plywood was serving a market that domestic manufacturers could not enter without operating at a deficit. Thus, they felt that a curtailment of imports would by no means result automatically in an increased demand for domestic plywood. 2 1U. S. Tariff Commission, Hardwood Plywood: Report on Escape—Clause Investigation NO. 77. . . , 1959, p. 18. 2Ibid, p. 34, for a more complete study on this point. 9 Consumption Of Veneer Logs and Veneer For a number of years, the Bureau of Census has compiled statistics on hardwood plywood production and shipments in the United States, but 1965 marks the first time producers have been requested to report consumption of logs and veneer (Table 2). TABLE 2. --Consumption of logs and purchased veneer in the manufacture of hardwood plywood-—1965 Quantity Logs consumed (1, 000 bd. ft. , log scale) Hardwood Logs: Domestic 245, 559 Imported 16, 937 Softwood Logs: 89, 803 Total, Logs Consumed 352, 299 Quantity , Purchased veneera 1, 000 sq. ft. , 1, 000 sq. ft. , surface measure 1/4" basis Hardwood Veneer: Domestic 3, 023, 932 643, 737 Imported 1, 297, 877 356, 303 Total, Hardwood Veneer 4, 321, 809 1, 000, 040 (1,000 sq. ft. , 1" basis) Total, Softwood Veneer 165, 068 Source: Hardwood—Plywood. Current Industrial Reports, U. S. Depart- ment of Commerce, Bureau of the Census. Series M24F(65)-1. January 6, 1967. - aIncludes veneer transferred from other plants Of the consuming company as well as veneer purchased from plants not affiliated with the consuming company. 10 ' Note that roughly one-third Of the hardwood veneer consumed in the U., S. in 1965 was imported (Table 2). This is somewhat less than the import-con— sumption ratio for hardwood plywood in recent years (Table 1). Softwood veneer has been included in the data because of its increased use and importance as a core material in the construction of many types of hardwood plywood. Veneer and Plywood Uses In a survey conducted by the Hardwood Plywood Manufacturers' Associa- tion, plywood manufactured in 1964 by mills throughout the nation fell into these major categories: Percentage 1. Wall paneling a. Prefinished 49 b. Unfinished 17 2. Cut-tO-size 23 3. Mobile home 05 4. Container grade 02 5. Block flooring 03 6. Miscellaneous __(_)_1_ 100% Door skins, it appears, have not been included in the breakdown. Nearly 700 million square feet, surface measure, Of domestically produced plywood was used in door manufacture in 19 64. United States market shipments Of hardwood plywood, excluding the door material, reached nearly 1. 6 billion square feet in 11 the same year (Table 1). Although the exact use-patterns for imported hardwood plywood are not known, it is generally believed wall paneling and door material are among the most important. The Hardwood Veneer and Plywood Industry of Michigan and Wisconsin Veneer Log, Production and Consumption A survey1 completed in 1959 by the Lake States Forest Experiment Station* showed that veneer log production in the Lake States amounted to approximately 53 million board feet in 1958. This cut was about one—third less than in 1956 and was the smallest recorded since the mid-thirties. This declining veneer log production may have been partially due to mill closures in the Lake States region. According to the survey, 15 Of the 90 mills in the region had closed down Operations since the mid—fifties. However, only 3 Of these 15 mills pro— duced commercial, utility, and special type veneer. The other 12 were con- tainer veneer plants. Overall, the survey concluded that the mill closures, as well as the lower production of the active plants, appeared to be caused mainly by uncertain business conditions, stiff competition from other areas and products, and a short supply of quality timber. Total production Of hardwood veneer logs has remained fairly stable in Wisconsin in recent years (Table 3) while Michigan production has fallen Off 1A. G. Horn, Veneer Log Production Declines Sharply in Lake States as a Result Of Mill Closures, 1958, Lake States Forest Experiment Station Technical NO. 567 (St. Paul: U. S. 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Sate $26 .25.” «a; mean 355 was cows 2:5 mama can: 33 82 82 £2 82 $2 82 we? 82 $2 83 82 $2 82 82 $2 cowuafismcoo :OEODGOSQ 2539:5980 ~830st mowooam 528mg? :«wEBE 3:: m3 seats} Saragossa 38 Base 388:: and?» @0823 no“ 528023 use 5&3ch 5 coflngmcoo use :OSBGOHQ MS .3237: .m Hamish. 13 slightly. Wisconsin is a net importer of veneer logs while Michigan is a net exporter. About half of Michigan's export of veneer logs is shipped to Wisconsin mills with the remainder going to mills outside the lake States region, primarily to Indiana. Even with this quantity of exports, however, mills Operating in Michigan have annually imported as much as 3 1/2 million board feet of veneer logs from Canada and other nearby states. 1 At one time (1952) veneer log production in Michigan totaled over 40 million board feet annually. The 15. 3 million board feet produced in 1963 repre— sents a Sizeable reduction in comparison to the 1952 figures. Wisconsin, too, has experienced a similar decline in veneer log production. The reasons leading to the relative static or declining condition of the regional veneer and plywood industry are speculative at this time. Perhaps the raw material supply has decreased over the years, thus making less logs available to the mills. There is also the possibility that there has been a. decline in the quantity of logs demanded by regional mills, either due to closures or a change in business conditions. Undoubtedly, the influx of low~cost imports has caused a change in the marketing structure and product lines Of the regional mills. It is not known whether these changes have resulted in lower demands for logs or whether some other combination of factors, such as increasing raw material costs and production inefficiencies, has led to the present Situation. k5;,l1"l'l-‘L_L"' 1V. E. Findell _e_t al. , Michigan's Forgsj Regources, lake States Forest Experiment Station Paper No. 82 (St. Paul: U. S. Forest Service, 1960), p. 21. 14 Additional Considerations With few exceptions, Michigan's hardwood veneer and plywood industry is very similar to the National industry. In 1961, the average annual wage in Michigan for a worker in the hardwood plywood and veneer industry was $4, 598. 1 By 1963, this figure had risen to $4, 705.2 The 1961 average for the industry (covering 30 states, 390 plants, and 34, 592 employees) was $3, 495. The differ— ence between the Michigan annual wage and the National average reflects, to a certain degree, the industrialized base Of Michigan's economy. Veneer thicknesses produced depend on end-use requirements. For the most part, hardwood face veneers are 1/28 inches thick, but some woods are cut to thicknesses of 1/20, 1/24, and 1/ 36 inches. Principal species used include birch, maple, oak, elm, basswood, walnut, cherry, beech, and ash. Estimated veneer production for plants in Michigan during 1964 Was about 100--110 million square feet surface measure, with nearly 60 million square feet of this amount being produced by a mill located in the Upper Peninsula. In 1961, the average annual wage in Wisconsin for a worker in the hard- wood plywood and veneer industry was $3, 827. The total annual payroll for all workers employed in this Wisconsin industry during 1961 totalled nearly $14,000,000.3 1Statistics provided by the Hardwood Plywood Manufacturers’ Association, Arlington, Virginia. zen. 310E. 15 By 1963, the averageannual wage had risen to $4, 050, but the total annual - payroll for the Wisconsin industry had dipped to approximately $11, 000, 000. Cen- sus of Manufactures statistics show that there were 27 veneer and plywood mills located in Wisconsin in 1958 with 22 having 20 or more employees. Figures for 1963 show a slightly smaller number. 1 Estimated veneer. and plywood production for 1964 totalled 500-525 million square feet (surface measure) and 225-250 million square feet, respectively. Prior to the initiation of this study, no infor- mation was available concerning the amounts and types of plywood manufactured although it was known that at least 5 mills had equipment for making prefinished hardwood plywood. The latest (1963) Census of Manufactures statistics for the veneer and ply- wood industry Of Michigan and Wisconsin are compared to the 1954 and 1958 figures in Table 4. According to these data, Wisconsin had 10 veneer and ply- wood mills in 1954 and 17 more, or 27, in 1958. In contrast, data collected by the Lake States Forest Experiment Station2 show that there were 21 standard veneer mills3 in Operation in 1954. Another 3 or 4 mills manufacturing plywood only were not included in this figure. Experiment Station data for 1958 Show 25 1U. S. Department Of Commerce, Bureau Of the Census, ”Area Statis— tics," Census Of Manufactures, Volume II, 1963 (Washington: U. S. Govern- ment Printing Office). 2Robert G. Knutson, Veneer Log Production in the Lake States Continues General Decline, 1963, Lake States Forest Experiment Station Research Note LS-54 (St. Paul: U. S. Forest Service, 1964), p. 1. 3This figure does not include mills which manufactured plywood only. The data also applies only to standard type veneer mills as Opposed to container veneer mills. mesa _ 2:: .raa u .Tsan- Hush u-uq‘P-po.-d:-\(/ —v:d.- P-u—I-n-{v—uxfi .us- \fi--VI:-u:q u»av~u>?>-—A— u:- : Lawsvu-mvxr .v-..~ i-Avi anv-ulflu-dwum Marvffifiu~u~dhu~ufl--- had Ewen-nuhrdl-f ewe \.N‘~M~d\~ 63.888 8:08 93 .88 088:8 one? monufipqoaxo $388 83qu 888 3 cosuemsoo on “on 3:93 98 somewowmmmflo 3833882 no 8550 a 3:03.83 magma 8an 60an as: as? 3858 S has. a. so 9386 es. 8 see 3883 as as: see 32 cheeses 8558:. 8.5 £85 .82: .32 .32 .880 masses 388350 .m .O accesses? 3 £230.33an mo memento : .mosmfifim no.3? .8800 on» mo 388m 60.88800 mo “aegamaom .m .D "consom neon «8.8 mean can; So; 2:. 8....“ as e 2 82 e832: 3. ammo .m «as .H as men 2: 28 EN m A $2 53222 8 e255 mass mead we: was $35 an e e 83 53:32 m 8: 83.3. 25.5 8.; cams 82a 8:: when 8 S 83 8888? son amuse 33.8 mama mate «.8 .m 85.8 2.5 as Z, 83 8882.5 can 53.2.. ommd So...“ so; as: :36 mg; 2 2 $8 88823 68 is 884% 38 .Ha 88 it 88 .3 88 .He nonsense 53.» as >58 ©8828 9808 0.88 .8 38m .3 3888098 3808.83 6.88.8588 $me :82 89852 20.3mm 888:2 on 5:5 858 83338 8880 we .3 pence who HOB :8 c: on m .m a 6003.39 38> 38> x .u p m we OH 8O :< 828:: was .8085 neccsannnsaam "A {All 5 " .33 68m .923 4.63 no“ 88003? was 8&322 mo .8888 c0238 98 some? 9: 8m mofimfifim 3888888 no @5800: .v mqmflw 17 veneer and/or plywood mills in Operation rather than the 27 reported for Wisconsin in the Census of Manufactures bulletin for that year. Assuming that the Experi- ment Station data are a more accurate measure of the number of mills in Wiscon- sin for the years cited, the veneer and plywood industry in that state has re— mained more static than. the Census of Manufactures data would lead one to believe. Another interesting facet of the data presented in Table 4 is the apparent decline of the Michigan veneer and plywood industry between 1954 and 1958. At least part of this decline in Michigan was due to the closure of several veneer and plywood mills owned by the Atlas Plywood Corporation. The reasons behind these closures appear to be a matter of conjecture. However, the fact remains that these closures were economic hardships to those areas affected. Appar- ently, the Michigan industry has improved considerably since 1958 even though the majority of the 1963 figures are still less than the 1954 data. CHAPTER III HARDWOOD FACE VENEER AND PLYWOOD MILL CLOSURES . IN MICHIGAN AND WISCONSIN SINCE 1950 Methodology A listing of hardwood face veneer and plywood mill closures occurring in Michigan and Wisconsin since 1950 was formulated with the aid of data supplied by the North Central Forest Experiment Station. * The mill closure study was initially designed to investigate a total of five firms, but since only eight clo— sures were found to have occurred over a period of 15 years, the experimental procedure (and subsequent survey) was altered to include the total pOpulation. These mills were equally divided among Michigan andWisconsin. One or two former officials associated with each of these firms were interviewed to learn the chief reasons behind these closures. A second inter- view served as a means of confirming opinions secured from the first inter- viewee. How available raw material resources affected the closures was a primary point discussed. Information pertaining to markets, products manu- factured, affiliations with larger companies and reasons for closure was solicited. In addition, historical data on each company were recorded, including information I L *Maintained by the Forest Service, U. S. Department of Agriculture at St. Paul, Minnesota, in cooperation with the University of Minnesota. 18 19 regarding disposal of plant equipment and resettling of employees after the mill closed. A sample questionnaire used in the closure study has been included in the appendix. liatorical Background In recent years there has been a great deal of concern about the closure of numerous hardwood face veneer and plywood mills in Michigan and Wisconsin. As 'part of an overall study of that industry in the northern Lake States region, the basic reasons leading to the closure of these mills were investigated. In the past 15 years, there have been eight known mill closures1 Within the study area with an estimated total employment loss of 1, 600 pe0ple. Presumably, each of these closures affected the economic equilibrium of the geographic areas in which they were located. The products made by these firms did not fall into any Special category, although each mill was primarily a hardwood plywood producer. Some pro— duced a mixed line of door and wall paneling, whereas others manufactured cabinet and lumber core plywood. In one case, the product-mix included the fabrication of plywood boxes for certain specialty items. The products of these eight mills were marketed in a number of geographical areas, and some were even sent abroad for foreign consumption, 1The number of closures was equally divided among Michigan and Wis— consin. The total number of hardwood face veneer and plywood mills in the region has varied little in the past 15 years, with the total p0pulation remaining at approXimately 30 to 32 mills. This relatively narrow range is largely due to either the creation of totally new Operations or reactivation of closed mills under new management. 20 All of the mills closed their Operations within 10 years of one another; that is, between the years of 1953 and 1962. Four were owned by the same company and ended production within 4 years of one another. These four mills were part of a large—scale closure operation conducted by the parent company throughout the nation. Three Of the other mills were independently owned by one or two individuals or by local stockholders. A fourth was absorbed by a large national firm and closed shortly thereafter. There appeared to be no correlation between the size Of the firm (in terms of the number Of employees) and closure inasmuch as some mills employed as few as 30 and others as many as 300 peOple. Primary Problems of the Region's Mills The interviews, plus study of data and literature on the industry, disclosed several problems that are Of primary importance to mills in the region. These problems are discussed below, while specific reasons for each mill's closure are offered in the next section. Raw Material Supplies A study of the veneer log resource showed that there was a declining trend in the quality Of the raw material supply available to regional mills. 1 As the quality becomes poorer, the mill manager is faced with numerous alternatives. He may find that veneers needed for various markets and Operations can be obtained only by more intensively managing his manufacturing operations. Unit costs normally increase when such action is taken. On the other hand, the A; 1For more information on this subject, see Chapter IV. isthis nmri ether (319531 4+ ‘ he -‘,I as.“ plicat E) 53 (1‘ Expa: (3 fa ‘ i if I) l, 21 mill operator can utilize the material from the poorer logs and expect his final products to be altered accordingly, but they must still be marketable. The quantity of veneerlogs available is also an important consideration. As this raw material supply dwindles, mills either seek new sources of logs or enter into stiff competition with one another for the available log supply. In either case, the result is higher unit costs. Data on veneer log production and consumption in Michigan and Wisconsin show sharp declines in the 11—year period, 1952-1963 (Tables 5 and 6). At least part of this declining veneer log production may have been due to mill closures within the Lake States region, but even after the bulk of the closures had taken place (up through 1958) a decline was still evident. To further com- plicate matters, the downward trend in the region has occurred in a time when domestic conSumption of hardwood veneer and plywood products has greatly expanded. Competition frOm Imports and Substitute Materials In 1951, a reduction in the tariff on. imported hardwood plywood (Table 7) apparently resulted in an, increased flow of low-cost foreigi hardwood plywood into the United States, mostly in the form Of wall panels, door material, and kitchen cabinet stock. Tariff rates for birch and "other" hardwood plywood were either-halved or nearly halved between 1945 and 1951. Significantly, imported hardwood plywood began accounting for an increasing percentage of domestic consumption in 1952. By way of comparison, imports represented about 8 percent of the total U. S. consumption of hardwood plywood in 1951 22 and about 54 percent in 1964. 1 TABLE 5. --Annual veneer log production in Michigan and Wisconsin for selected years W Veneer log production Year Thousand board feet, Intl. 1/4” 199.1% Wisconsin Michigan Total 1952 29,956 40,219 70, 175 1954 27, 109 34, 499 61, 608 1956 30, 403 39, 655 70, 058 1958 23, 740 19, 958 43, 698 1960 25, 467 18, 486 43, 953 1963 25, 203 15, 300 40, 503 1965 24, 405 22, 367 46, 772 Source: Compiled from North Central Forest Experiment Station data presented in numerous Research and Technical notes for the years indicated. In addition to the imports, the markets of hardwood veneer and plywood have been threatened by many types of substitute products. Steel, plastics, aluminum, and composition materials have captured many traditional wood markets. Their effect has been felt at one time or another by nearly every hardwood veneer and/or plywood manufacturer in the region. 1Clark E. McDonald, "Hardwood Plywood: 1. 5MM," Forest Industries, LXXXXH (January, 1965), p.46. 23 TABLE 6. -—Annual veneer log consumption in Michigan and Wisconsin for selected years Veneer log consumption Year Thousand board feetLJntl. 1/4" scale Wisconsin Michigan Mai 1952 60, 629 28, 338 88, 967 1954 59, 572 21, 872 81, 444 1956 53, 234 10, 838 64, 072 1958 43, 063 12, 597 55, 660 1960 51, 298 12, 075 63, 373 1963 41, 918 7, 598 49, 516 1965 43, 104 12, 428 55, 532 Source: Compiled from North Central Forest Experiment Station data presented in numerous Research and Technical notes for the years indicated. Corporate Management Decisions and Policies When profit margins diminish, corporate management decisions and policies take on added meaning. Most Of the factors associated with mill closures mentioned thus far may be termed as "external to the firm." Cor- porate management decisions and policies, on the other hand, represent some- thing entirely different. As the quality and quantity of the raw material resource decline, the mill manager and his associates must decide what action should be taken. When the company's product line falters, changes must be made. Undoubtedly, some corporations are better managed than others, and 24 TABLE 7. --Hardwood plywood: United States rates of duty under the Tariff Act of 1930, in specified years 1930 to 1955 (Percent id valorem) Tariff Rate Item In 1930 On Jan. 1, 1945 In 1955 Birch 50 25a 15b Alder 50 50 25° Spanish Cedar 4O 40 40 Other 50 40 20b Source: U. S. Tariff Commission. The Production, Importation and Marketing of Hardwood Plywood in the United States (Washington: U. S. Tariff Commission, 1955), p. 11. aTrade Agreement with Finland, effective November, 1936. Agreement terminated May 24, 1950, after Finland acceded to the General Agreement on Tariffs and Trade, pursuant to Annecy negotiations. bGeneral Agreement on Tariffs and Trade (Torquay), effective June, 1951. 0General Agreement on Tariffs and Trade (Annecy), effective April, 1950. the degree to which they are effectively managed is of utmost importance. Of all the factors mentioned in regard to closure, management decisions and policies are perhaps the most important and yet, least subject to quanti- fication. Reasons for Each Mill Closure In this investigator's opinion, no single factor was responsible for the closure of regional mills. The competitive position of each firm appeared to 25 be weakened by several external factors (imports, substitutes, raw materials). When these were combined witha series of inapprOpriate management decisions, the mill closed. One might question whether Obsolete equipment may have been a factor in some Of the closures. The investigation showed that the majority of the firms were either less than 10 years old at the time of closure or had some equipment and buildings renovated in a 5-year period preceding termination of Operations. In many cases the equipment in these closed mills was quickly sold to other veneer and plywood manufacturers within the region. Shortage of Quality Veneer Logs The general decline in the veneer log resource during recent years did not appear to be a major factor in any of the closures investigated. Four of the firms made no mention of the raw material supply as being a factor in the decision to close down operations. The remaining firms, all part of a nationwide veneer and plywood complex, had (access to considerable quantities of company- owned timber within their normal procurement areas. In the process of liqui- dation, this timber was sold on the market with the parent firm realizing a substantial profit. Competition from Imports and Substitute Materials All of the former executives interviewed believe that their firms were affected by competition from imports and substitute materials. An executive of the company that once Operated four plywood mills within the region stated his belief that at least two of the mills would be in operation today if it were not 26 for competition from imports. In addition the plywood box line that these firms manufactured lost markets to domestically produced paper products which per- formed as substitutes. Another firm experienced competition from "fir" ply- wood as a construction material in the mobile home industry. Our entire regional veneer and plywood industry almost certainly has been affected by the influx of imported hardwood plywood. But some mills, with their enlightened and informed management, have met this challenge quite adequately. Others have seen their profit margins diminish, but still remain in business. In the opinion of this investigator, the competition of imports with domestically produced hardwood veneer and plywood was but a contributing factor in the closure of some operations. Management Oriented Decisions and Policies In the previous section, mention was made of a situation in which a company official felt that imports were basically responsible for the closure of two mills. Closer examination of the circumstances surrounding these closures, however, proved interesting. The parent company had operated "in the black" for some 25 years, but personnel changes in the tOp management and the firm's auditors had produced an apparent loss of $10 million during one year. 1 As it turned out, closure of the four regional mills was but a part of a liquidation policy set up by the new management of the parent company. Whether all four mills were Operating at a loss at the time of closure is not known, but at least ____r_ 1"The Mess at Atlas Plywood," Fortune, LVII, NO. 1 (January, 1958), p. 118. 27 one was having some difficulty maintaining acceptable quality standards. In at least two of the other four mills, management decisions and policies appeared to play a major role in their closures. Heavy investment in capital equipment left one company short of funds to meet weekly payrolls and other short- term contractual agreements. In time, the company's financial status and credit rating deteriorated. The other mill faced a somewhat different problem. Appar— ently, the owner did not realize the extent to which imports were competing with his firm's products. Loss of markets and failure to alter the product-mix soon resulted in mill closure. Over the past 5 years, mill managers have become increasingly aware of the advantages of sound management practices. They have come to accept the fact that wood raw material supplies and the flow of low-cost imports are, for the most part, factors which they do not control. These mill Operators are now examining their production methods and management policies. HOpefully, small changes in these areas can substantially improve the overall profit picture. CHAPTER IV THE VENEER LOG RESOURCE AVAILABLE TO HARDWOOD FACE VENEER AND PLYWOOD MILLS IN MICHIGAN AND WISCONSIN Methodology The veneer log resource available to regional mills is a subject which might best be described both as problematical and vague. Forest surveys were last completed for Michigan and Wisconsin in 1955 and 1956, respectively. The data collected in these surveys were interpreted by the North Central Forest Experiment Station and 10—year projections of the forest resource were made. Basically, the projections provide a statistical estimate of the quantities and types of trees that may be safely harvested each year without excessive drain on the resource. At the present time, a new forest inventory is being completed for Michi- gan while plans for a similar survey have been completed for Wisconsin. It is expected that when these new data become available, several major changes will have occurred Since the last surveys in 1955 and 1956. These changes, in turn, may greatly affect the patterns of regional wood—use in future decades. In the absence of new survey data, it becomes necessary to depend quite heavily on the Older surveys. Publications by the North Central Forest Experiment Station (formerly 28 29 the Lake States Forest Experiment Station) were used extensively in this study. This organization, along with the Conservation Departments of Michigan and Wisconsin, collected the basic data for the 1955 and 1956 surveys. Unfortunately, little regional resource data make direct reference to veneer log volumes. TO overcome this deficiency, certain assumptions were made on the percentages of veneer logs that one would normally find in given volumes and species of saw— logs. These assumptions will be discussed in greater detail in another section. In order to examine present trends in the regional resource, national and state forest personnel were requested to furnish data on sawlog volumes. Although these state and federal lands account for a very small portion of the total sawlog volume harvested each year, their statistics can provide us with indications of how some individual species are faring on managed lands. As may be expected, the Forest Survey that is carried Out by the state and federal agencies is based on a scientific sampling pattern. A Although sawtimber volumes are important indicators of the state of the forest resource, they need to be supplemented with statistics on poletimber trees. These trees are commercial species in which the diameters at breast height (d.b. h.) range from 5. O tO 10. 9 inches (hardwoods only) and contain 40 percent usable volume. Including poletimber stands in this study is one way in which we can effectively measure the long-range potential of the forest resource. Substantial volumes of this stand-size class move into the sawtimber class each year. Historically, the hardwood veneer industry has utilized logs in the larger diameter classes, notably those 20 inches and larger. In recent years, the log situation has been such that the average hardwood 3O veneer log diameter has moved down into the lower sawlog classes and to some extent, into the higher ranges of the poletimber classes for certain species. The National Hardwood Veneer LogResource Consumption In the past few years hardwood veneer log consumption has risen rapidly, but domestic veneer log production has remained rather static. TO be more precise, consumption of hardwood veneer logs, including the log equivalent of the net imports of plywood and veneer, has about doubled in the past decade. 1 In 1963, domestic hardwood veneer log production amounted to 972 million board feet (International 1/4-inch scale). Sweetgum, it is estimated, made up 25 percent of this cut. 'Yellow pOplar contributed about 20 percent and hard 2 maple, combined with yellow birch, added another 15 percent. The Southeastern portion of the United States accounted for nearly 50 percent of all domestic hard- wood veneer log production in 1963. The Central and Lake States regions (which includes both Michigan and Wisconsin) produced about 115 million board feet Of hardwood veneer logs in 1963. Although this amount represents some- what less than 12 percent of the national total, these regions were important sources of yellow birch, cherry, hard maple, and walnut veneer logs. In the future, the Forest Service predicts that hardwood veneer log con-‘ sumption will gradually increase from a 1962 level Of 1. 8 billion board feet to 1Dwight Hair, "Projected Demands for Hardwood Veneer Emphasize Research - Management Needs, " Forest Products Journal, XVI (January, 1966), p. 28. 31 5. 9 billion board feet in the year 2000-—a rise Of over 300 percent. 1 At least part Of this projected increase in consumption is based on the expectation that per capita income will double during the period mentioned and as a result, a rising demand for hardwood veneer and plywood in fine furniture, paneling, and other products will occur. Sawtimber Volume andQuality The volume of hardwood sawtimber in eastern forests was estimated to be about 430 billion board feet in 1962. Of this amount, about 185 billion board feet of the sawtimber was in the preferred veneer log species. Although these figures represent a considerable volume of timber, not all of it is available for utilization. Some is considered to be inaccessible while other quantities are found on private lands where cutting would be in conflict with certain land uses. It is estimated that roughly 75 percent of all the preferred veneer log species (oaks, maples, birch, ash, walnut, cherry, sweetgum, and yellow poplar) is in the diameter class below 19 inches. 2 Generally, the larger diameter veneer logs are sought because they are more economical to process, but their availability and quality frequently leaves something to be desired. Consequently, our national veneer industry is utilizing smaller diameter logs each year. This is eSpecially true in the northern regions of our country where the majority of the veneer logs being processed are perhaps less than 17 inches in diameter. In the Lake States, this figure may run as low as 15 inches. Figure 1 illustrates 1.112s. ZLid. p. 29. 32 ca .3 d .62: 5955 E .3553. 98.095 «nouns ...neooz 20803523090000“ Ougmanafim u00e0> @0220qu no“ 028809 03003.5: 3303 Bug ”oousom «00h 03:0 :02de 3. o _ _ _ 8832a: 350 Swag was 00:05 c .3 - 00:05 o .ma 3 c .3 a 00:2: o .3 3 c .3 m 3:2: o .2 8 o .m D 0000.20 00:35 38m 33:.» "5.9095 520 x35 ‘5 .3503 figs :85 Bonn» and 3%: En: 830 com and 333 ”.038 0020 08080:. an .N03 5 033m v33: 53000 5 0.030 95.396 @8320: «c 08387.. .H 0.39m 33 the volume of eastern hardwoods, classified by diameters and species, that was included in a survey of growing stock in 1962. Growth-Cut Balance For the most part, it is rather meaningless to measure our timber resource only in terms of growing stock or sawtimber volumes. An equally important aspect of this resource is the quantity of timber that is being harvested each year. In 1962, eastern sawtimber growth was somewhat greater than out for most hard- wood species, but a considerable amount Of this growth occurred on the smaller diameter trees. In 1962, the total growth of all oaks 5. 0 inches and larger was almost double the cut while the growth of oak sawtimber trees (11 inches and up) exceeded the cut by only 40 percent. 1 Unfortunately, nearly three—fifths of all hardwood timber growth in 1962 was concentrated in the less desirable species such as beech and hickory. Figure 2 presents data on net annual growth and cut of eastern hardwood sawtimber. The veneer log cut has been separated from the growth and "other" products categories. Most of the logs cut in the latter grouping were sawlogs, but substantial volumes were also used for pulp, cooperage, piling, fence posts, charcoal, and fuelwood. Very small quantities of the total sawtimber cut in these eastern hardwoods were classified as veneer logs. It is a general concensus that further declines in tree size and quality will result in the next few decades if timber cut and growth follow the projections and management 1914. 34 .8. .n .082 .5880 Ex .888. 32580 08.80 ...%82 E080w802|508000m 08000005 u0000> 00030050 00m 005809 08003.5: .50: 2955 "00.88 009m 208 uofium OH m 0 # N O _ E q a q q 1 d 1 . 5 \ 8 \ u \ Q ‘ \ J v.» .\ .0. .I\-I...qu.“ .I \N...\d \f-Nt. n t \ a. u \H ‘2": 5|; W no. \ a \I I: \ phhfl.l:....wvh Vthqu. \W..\ .Ja... ~I\ s. Hun—MUM. “htn‘. “9 88898 .850 8 80 m 80 m3 u0000> % 5580 U N03 5 moufim 0355 800000 5 Mme—83300 Ethan mo «:0 08 530.5 H9880 «02!. 88328 .850 scion 30:0» 839095 .830 8.8 28 .2883 .53. 8.8 338» 28 3.82 88 98 50 as 383 8888 .u 9:88 35 of the resource continues at recent levels. 1 To cite an example, it is estimated that the cut from hardwood trees above 15 inches in diameter will fall from 52 per- cent of the total cut in 1962 to 33 percent by 2000. Meeting the Demand There are several variables to be considered in discussing the national hardwood veneer log resource and its adequacy in meeting future demands. The first of these variables is the intensity with which our timber resources are managed. It is commonly believed that there is room for improvement in this area, both on public and private lands. A second variable concerns the tech- nology that is being used to convert the log to veneer and/or plywood. The gen- eral thinking here is that our wood processing firms cannot remain static and still remain competitive with either imports or substitute products. For all practical purposes, improvement of timber management practices is a long—term solution in meeting projected demands for hardwood veneer and plywood. In the next 5 to 15 years, our veneer and plywood producers will be faced with the prospect of utilizing log sizes that are considered as marginal in today's operations. The very fact that such a situation will exist creates a demand for improved technology. It takes three 12-inch logs to produce the same amount of veneer that can be cut from one 20-inch log. With the use of smaller veneer logs, our domestic mills will be faced with different log handling requirements. Another area which needs to be investigated is the use of some of our less desirable hardwood log species. This includes some of the hickories and 1220. 36 American beech. To a large extent, these less desirable species are not utilized because there are no markets for them as veneer and/or plywood. As was men- tioned earlier, there are indeed many variables affecting our domestic veneer log resources. The Veneer Log Resource in Michigan and Wisconsin For all practical purposes, the veneer log resource in Michigan and Wis- consin is composed mainly of hardwood Species. Trees of veneer log quality are located primarily in the western Upper Peninsula of Michigan and in north- eastern Wisconsin. Sugar maple, yellow and white birch, basswood and aspen are the principal hardwood Species found in these regions. In addition, oak, elm, maple, and other species of veneer log quality are found in the lower por- tions of both states. Unfortunately, raw material resource data seldom make any distinction between sawlogs and veneer logs. Instead, they are combined to form the tree classification known as "sawtimber. " Over the past few years, there has been a marked increase in the quantity of No. 1 sawlogs and veneer logs being harvested from managed stands. 1 At the present time, the breakdown by log grade from an average Northern hardwood timber stand (mixed species) may approximate 5 percent veneer, 10 percent No. 1 sawlog, 35 percent No. 2 sawlog, and 50 percent No. 3 sawlog.2 In most instances, the No. 1 sawlog is considered a very suitable veneer log. The percentage of 1Wisconsin Department of Resource Development, Wisconsin Forest Products Marketing Bulletin, No. 33 (Madison: Dept. of Resource Develop- ment, 1965), p. 1. 2.11029. 37 veneer logs found in a given quantity of sawlogs may vary over a large range for different species. This percentage will also vary with the extent to which forest lands are managed. Discussions with log procurement men in the region indi- cate that as much as 40 percent of the yellow birch sawlogs in the area forests would yield suitable veneer logs. For hard maple, it would run from 15 to 20 percent. In addition basswood and red oak sawtimber volumes may contain 30-35 percent veneer logs. Based on current information for veneer log use, it is reasonable to expect that at least 15 percent of the sawlogs harvested in the region each year would be available and suitable for veneer purposes. It is important to note, however, that this statement applies only to those Species which are currently being commercially utilized for veneer in the northern Lake States region. Veneer mills and sawmills commonly compete with one another for the No. 1 logs marketed in the region. The lumber manufactured from these logs is mixed with that coming from the No. 2 and No. 3 grades. This gives the sawmills more flexi- bility in marketing their lumber and at the same time, somewhat reduces their operating costs. Veneer mills also find it more economical to utilize these larger and better grade logs. In the future, we can expect a somewhat greater percent of the total sawlog volume to be classified as veneer logs. There are several reasons for this. In the past, there has been a gradual reduction in the Specifications for veneer logs. This is largely due to the increasing demand being placed on the veneer log resource. There appears to be no reason why this will not continue into the future. Also, there is a somewhat greater value in converting a No. 1 sawlog into 38 veneer rather than lumber. As this investigator sees it, these trends will continue into the next decade. Hard maple and yellow birch are the dominant veneer log Species in the region today. The yellow birch cut has declined steadily over the past decade. Basically, these logs came from old-growth stands which once prevailed in the area. Natural regeneration of yellow birch has been hampered for several reasons. This species is a favored browse material for deer herds in the region. In addition, yellow birch seeds require certain site and climatic conditions be— fore successful germination can take place. For the most part, these conditions do not occur as frequently today as they did in the original old—growth stands. Other veneer species found in the northern Lake States include basswood, elm, red oak, ash, soft maple, and aspen. Overall, the hard maples are expected to become the dominant hardwood veneer log Species in the coming years. They are considered a tolerant* species and their presence in the region is wide- spread. Consumption - Production The subject of veneer log consumption in Michigan and Wisconsin was treated briefly in the literature section in an earlier chapter. Veneer log con— sumption in Wisconsin amounted to 41, 918 thousand board feet in 1963. This was nearly 10, 000 thousand board feet less than the last previously recorded year, 1960. Production in Wisconsin totaled 25, 203 and 25, 467 thousand board feet in 1963 and 1960, respectively. Wisconsin is a net importer of veneer logs, *Characteristic of trees which can stand much shading and competition. 39 consuming more than it produced in each of the years mentioned. Michigan, on the other hand, is a net exporter of this commodity. In 1963, Michigan consumed 7, 598 thousand board feet of veneer logs while producing nearly twice as much. The 1960 figures showed a consumption of 12, 075 thousand board feet and pro- duction of 18, 486 thousand board feet. Unpublished figures on veneer log pro- duction and consumption for Michigan and Wisconsin in 1964 are Similar to those of 1963. Earlier discussions on resource data for the region have pointed out the lack of up-to-date statistics on this subject. Nevertheless, the available data may be used to Show approximate relationships. Presented below are figures on the annual cut of sawtimber in Michigan and Wisconsin for 1954 and 1956, respectively. Note that the largest portion of the annual cut of sawtimber in both states is for sawlogs and saw bolts. Veneer logs and bolts accounted for 9. 1 percent of the total hardwood sawtimber volume in Michigan and 10. 9 percent in Wis- consin the years indicated. These percentages are somewhat misleading in that the pulpwood, fuel wood, piling, etc. , included in total sawtimber out are not suitable for use as veneer logs. They merely meet the diameter measurements for the sawtimber classification (11 inches and up). The primary source of veneer logs in the region is from sawlogs and saw bolts delivered to the saw- mills. These sawlogs are sorted according to their size and quality and the potential veneer logs are usually removed. Hence, a better measurement of what one can expect in the way of veneer logs in a given quantity of sawtimber is obtained by expressing the hardwood veneer logs volumes of Table 8 as a 40 TABLE 8. --Annual fmti of hardwood sawtimber for Michigan and Wisconsin in selected years, by product type (thousand board feet, International 1/4-inch log rule) Annual cut of Annual cut of Timber product hardwood sawtimber hardwood sawtimber in Michigan in 1954 in Wisconsin in 1956 Sawlogs and Saw Bolts 280, 100 172, 286 Veneer Logs and Bolts 35, 387 30, 382 Pulpwood 20, 148 35, 549 Fuelwood 33, 644 25, 414 Piling 1, 606 411 Poles 0 0 Posts 90 2, 32 1 Miscellaneous Industrial Wooda 13, 149 11, 990 Mine Timbers 5, 908 305 Total 390, 032 278, 658 Source: Compiled from data presented in V. E. Findell _e__t a1, , Michigan's Fomgt Resources, lake States Forest Experiment Station Paper No. 82 (St. Paul: U. S. Forest Service, 1960), p. 43, and R. N. Stone and H. W. Thorne, ms- consin's Forest Resources, Lake States Forest Experiment Station Paper No. 90 (St. Paul: U. S. Forest Service, 1961), p. 51. 3‘Includes hewn ties, chemical wood, cooperage logs and bolts, wooden- ware, handle stock, cabin logs, etc. 41 percentage of the sawlog and veneer log quantities combined (the first two items in the "Timber“ Product" column). When this is done, we find 11.2 (Michigan) and 15. 0 percent (Wisconsin) were veneer logs in 1954 and 1956, respectively. Since the time of the Forest Surveys on which these figures were based, several changes have taken place that would cause an increase in these percentages. These changeswere discussed in earlier portions of this chapter. Briefly, they include an increasing volume of quality second growth timber, and gradual lowering of veneer log specifications and the somewhat greater value of con- verting No. 1 sawlogs into veneer rather than lumber. Sawtimber Volume and Quality All too frequently, newspapers and other public media discuss our forest resources only in terms of the timber volumes growing or being cut each year. The casual observer is led to believe that if the annual cut is less than the growth, then the resource is quite capable of meeting the demands being placed on it. On the contrary, there are many factors involved in determining the adequacy of this forest resource. Although the overall growth-cut picture may be quite favorable, certain regional species are currently being over-cut. Also, some timber is either not accessible or occurs in such scattered amounts that it is not economically desirable to harvest it. The quality of the timber is another factor related to the sawlog resource. The veneer and plywood industry, for example, cannot economically utilize the lower grade sawlogs while these same logs may be quite satisfactory for some other wood—using industry. Conse- quently, this "quality" aSpect of the sawtimber resource becomes quite important. 42 From time to time, the United States Forest Service issues an appraisal of the timber situation and outlook in this country. The most recent of these studies 1 was published in 1965 and reflects the situation of the forest resource as it appeared at the end of 1962. Unfortunately, much of the data in this report are based on broad regional classifications. These reports on the nationwide timber situation and outlook supplement the Forest Surveys of individual states that are conducted periodically by the Forest Service in COOperation with various state and private organizations. The quality classes of Table 9 refer to forest survey classifications based on standard log grades. Quality classes 1, 2, and 3 correspond to No. 1, 2, and 3 Factory lumber logs, respectively. The 4th quality class includes logs which are of the very poorest quality and yet still have some usable portions. The veneer manufacturer, as has been mentioned earlier, is highly dependent upon the better grade logs for profitable operations. Examining Table 9, we see that hard maple, combined with the preferred2 white and red oaks, accounted for nearly 40 percent of net volume of sawtimber on commercial forest land in the United States. Among these species, there is proportionately more hard maple in the first and second quality classes than is the case with the oaks. Overall, this large quantity of hard maple logs in the first and second quality classes in relation to other hardwood Species has an important bearing on the 1U. S. Forest Service, Timber Trends in the United States) U. S. Forest Service Resource Report No. 17 (Washington: U. S. Government Printing Office, 1965). 2For the white oaks, this includes Quercus alba and Quercus macrocarpa. For the red oaks, it includes Quercus rubra and Quercus palustris. 43 TABLE 9. --Net volume of hardwood sawtimber on commercial forest land in the Lake Statesa, by Species and quality class, January 1, 1963 (Million board feet, International 1/4 inch log rule) Species Preferred Other Ash, All white white walnut Quality hard- & red & red Yellow Hard &black Other classes woods oaks oaks Hickory birch maple cherry Hardwoods 1 4, 866 813 99 39 423 1, 119 266 2, 107 2 9,269 1,496 168 30 597 2, 077 489 4,412 3 19, 550 3, 882 482 124 836 2, 998 1, 074 10, 154 4 6, 465 2, 001 417 36 130 747 350 2, 784 Total 40, 150 8, 192 , 1, 166 229 1, 986 6, 941 2, 179 19,457 Source: U. S. Forest Service, Timber Trends in the United States, U. S. Forest Service Resource Report No. 17 (Washington: U. S. Government Printing Office, 1965), p. 170. alncludes Minnesota, Michigan, and Wisconsin, only. regional veneer log resource in the coming years. Presently, the more important veneer log species in the region include the maples, yellow birch, walnut, cherry, ash, and some of the oaks. Yet, in examining Table 9 we find nearly one-half of the total net volume of hard- woods in the region has been classified as "other hardwoods. " Such species as aspen, white birch, elm, basswood, butternut, and beech fall into this category. ASpen, of course, is one of the most under-utilized species in this 44 group and probably accounts for a large volume in the "other hardwoods" classification. White birch, a medium density hardwood, is sometimes cut for veneer and may be used interchangeably with yellow birch. One of the main problems with this species is that it is seldom found in the diameters most veneer producers would consider economical to process at the present time. In earlier sections, some mention was made of the desirability of harves» ting and processing large diameter logs for veneer. Log diameter is mentioned in nearly all hardwood log grading systems, and it is considered by many to be an important measure of log quality. Table 10 contains figures on diameter classes for the Lake States. Examining Table 10 we see that nearly 25 billion board feet of the hardwood species are 15 inches and under in diameter. This is roughly 60 percent of the total volume of hardwood sawtimber in the region. Preferred red and white oaks represent the largest single group of species, followed by the hard maples. Although relatively Small amounts of the oaks are currently being used for veneer, they will undoubtedly be utilized to a greater extent as supplies of yellow birch, walnut, and cherry diminish. There are already Signs that the hard maples are becoming more and more important to the regional veneer and plywood industry. Their use continues to rise and promotional programs are being rapidly developed in order to gain market acceptance of products manufactured from hard maple veneer. In presenting the tables in this section, no attempt is being made to predict any absolute amounts of veneer logs that would be available on an annual basis to regional veneer mills. Instead, the relative volume and quality of the various .000 .0 .. 2000000. 000808 003000 00000.0 .0 .D "000000 45 000 .3 $0 .0 $0 .0 £0 .0 000 000 .0 000 .0 «a. .2. 0380. 2: 0 8 00 I. 0 3. 3.0 +0 .00 0.: .m a: R: .0 2:. S 20 00° .0 $0 .0 o .00.... .2 $0 .0 $0 000 000 E :0 :0 0:. .0. o .38 .5 $0 .m 28 000 .0 in mm m: mam. .0 $0 .0 o .58 .00 000 .8 $0 000 .0 80. S 30 mm: .0 20 .S o .210 .8 mm: .0 moo .0 08 .0 $0. 00 0:. 08 .0 gm .3 c .008 .2 I t t .i .. .... i u- c .21; "000.30 00004 00003000: 000000 00008 0003 000x00: 0x00 0x00 8000. . 000003 .850 3803 0 080 8:00 80 0 000 0 88088 8503 0033. 0033 000 0000000 .000. 0050 0000000000 0000000 \I'l’ ||l I l‘ 830 03 85-8} 880883 .88 0.88. 8:85 0000 .0 0000000. .0030 00008000 000 0000000 .3 .0380 0:010 000 8 0000 000000 0000008800 80 00083300 00030000 00 0830.» 002 .00 mama; 46 Species are being examined. Even though the preferred oak and hard maple Species look promising in future supply considerations, one cannot overlook the large volume of material in the "other hardwood" category. A more detailed look at hardwood sawtimber volumes in Michigan and Wisconsin is presented in Table 11. Unfortunately, recent statistics are not available which define the quality of this resource on a state-by—state basis. The preferred red and white oaks, along with the hard maples, are among the more prevalent species in these 2 states. As we have already seen in earlier tables, this is true of the Lake States in general. One of the desirable features of the above table is that we are able to see the relative importance of some of the species that were formerly included in the "other hardwoods" category. For example, beech, ash, aSpen—cottonwood, and basswood are presented individually. It was previously mentioned that new surveys of the timber resource are either currently underway or are being planned for Michigan and Wisconsin. In the absence of these new data, the Timber Trends report remains the latest information on the subject. Although the latter is quite general. in many respects, there are occasions where statistics on individual states are presented. It seems appropriate to make comparisons between these Timber Trends figures and those of the 1955 and 1956 surveys of Michigan and Wisconsin where it is both appropriate and feasible. Shown below are data on the net volumes of live sawtimber on commercial forest land derived from the surveys of a decade or more ago. A brief glance at Tables 11 and 12 shows that Michigan's hardwood sawtimber 47 0001000 .00 32000000. 000800. .009000 0000000 .0 .3 “000000 wwod 0m mmw 0:. won 000 0.00 000.0 000 N00 mam II wwvfi 00N.0 000.3 500000003 00.0.0. 00 00.0 000.0 000 000.0 000 .0 «00.0. 000.0 0.0.0 00.0 .i 2.0 .0 «00.0 000.00 000000002 00003000: 00503 0003 00000 00¢. 0000000 00008 00008 00003 00000000 0000 0000 0000 00.00 00003 00.30 000:0 0005 0005 00.0 0000 000: 30:0» 000 000:3 000 00003 :0000 0003 0050 0050 00000.0 000000 :0. :00300 I00n0 00.0 0000300000 630 03 020-0.) 05808035 .080 0080 8:006 mme .H \nhmscmw .mmeQQm ha .cmmcoomma fig cwwwfiomz 0.0M 600.3 ”50.00% 30.008800 no MODEM—Bum EUHB HO 080:9, ”6le .HH MHQ 3: m .o So so; as. E. .m Sofia 980 28m Bantam .2 m .2. H .H o .e was as: om .e Sofia . QHOUIHOQSA .HH mam RN m .H SS «.3 was" 650 g H .m 3:3 «4. cm.“ barn é o .3 m .H w .5 3 .2; o .mm B .S has 3 c8235 MOOSE, =< Sofia .n as 3: “38> 8&0 As we oi, Home; Sosa g was was 38 98” “86> beam 3 .805; .H am Marlow. .mdma momtsm .mdma GONE—”5m .mmoa Goats"... .mdma mommhsm say .3 .3 3% .t .3 3% é .3 Q» a .3 BOO We 38:58 Eco mo 382:8 “zoo mo 283mg «goo mo 98sz them 5 53536 13% E 33536 1.8% 5 33535 them 5 Eugene emssanmm eossfismm eosefipmm vagueness mag nmflmz vooia 5332mm mag 600:5 “Boga was HOOSO> ma: SOOSO> wfiqsonw 39363 g mafiasosw d . .3332: i3 .wmma 5 5283;? was 5&3sz 5 6833358 @8233 SEE“ soon? we 33353. caumnfimmi .om mamfib 75 the entire nation. U. S. Bureau of Census statistics1 show that nearly 2 billion square feet, surface measure, of all types of hardwood plywood were manu- factured in the UnitedStates in 1964. The North. Central region contributed about 320 million square feet of this amount. Data collected as part of this investigation show that Michigan and. Wisconsin accounted for nearly 230 million square feet or roughly 16 percent of the national total and 71 percent of the North Central total. It may be noted that Table 20 makes reference to "fire—core plywood. " This refers to plywood which is used in conjunction with fireproof material in the construction of certain types of doors. Also, under the veneer products, there appears a category designated as "other" veneer. Basically, this grouping includes veneers manufactured by the half—round process in which the cant or log is chucked off—center on a rotary lathe. Veneer Thickness A discussion of veneer production in Michigan and. Wisconsin would be incomplete without some mention of the numerous thicknesses which are manufactured by various mills within the region. Veneer mills, as Figure 3 illustrates, apparently channeled their production efforts towards the manufac- ture of the thinner veneers in 1964. Generally, these thinner veneers (1/28 - 1/20 inch) are used for faces and backs in the manufacture of plywood. Thicker veneers, such as 1/ 16, 1/10, 1/9, 3/ 16 and 1/8-inch material, are 1U. S. Department of Commerce, Bureau of the Census, "Hardwood-Ply— wood 1964, " Current Industrial Reports, Series M24F(64)-1 (Washington: U. S. Government Printing Office, 1965), p. 3. 76 Figure 3. --Estimated veneer production in various thicknesses manufactured in Michigan and Wisconsin in 1964, by industry groupings Thickness (Inches) 1/28 10.1% 1/26 31' 9% Veneer Mills (Estimated total quantity of “24 36° 0% g veneer produced -431. 5 million square feet, surface 1/20 10. 6% measure) 1/ 16 2. 3% 1/10 0. 3% 1/9, 3/16,1/ 8.8% Percent of Total 10 20 3O 40 50 1/28 10. 5% 1 26 8.47 / O Veneer and Plywood Millsa (Estimated total quantity of 1/24 18' 7% L veneer produced = 180.2 1/20 7. 7% million square feet, surface measure) 1/ 16 13. 5% 1/10 15.0% 1/9, 3/16,1/8 26.2% aFigures and percentages based on 8 mills since 2 mills did not have production data available. ‘r' 77 used for cores and crossbanding. During the course of the many mill visits made as part of this study, a number of plywood manufacturers expressed concern over the lack of domes- tically manufactured core material available to their Operations. The demand and supply situation has been such that imported core material is now being used by many of these regional mills. Veneer mills tend to concentrate their production in the more lucrative and profitable face veneers while veneer and plywood mills tend to produce a more uniform mixture of the various thicknesses. The latter situation gives the veneer and plywood mills a certain advantage over the plywood mills inasmuch as they are better able to COpe with the prob- lems associated with a core-veneer and crossbanding shortage. Presently, 1/6-inch core material that has been sorted for defects and edge-glued into sheets will cost the plywood manufacturer anywhere from $45 to $55 per thousand square feet, surface measure. These plywood mills frequently find themselves in a situation where rising veneer-core prices cannot be offset by increasing the price of the finished product. In other words, the competition is such in the plywood industry today that in many cases increased costs of production must be absorbed by the manufacturer rather than the ultimate consumer Location of Mills Geographically, the hardwood face veneer and/or plywood industry in Michigan and Wisconsin tends to be located within the central to northern portions of each state. In the early days, mills in this industry were often located within 78 heavily forested areas to take advantage of abundant natural resources. As time passed and the distance between mill and forest increased, truck and rail transportation played an important part in allowing these mills to continue operating profitably within the regions of their original establishment. Grad- ually a small nucleus of mills evolved within certain geographical areas and the formation of a skilled labor force soon followed. This pool of skilled and semi-skilled labor, familiar with processing of veneer and the manufacture of plywood, soon attracted other similar types of wood-using industries. Today, much of the veneer and/ or plywood manufactured in the North Central States comes from an area in Wisconsin that lies within a loo-mile radius of Green Bay, Wisconsin (Figure 4). Many container-type veneer mills and millwork Operations are also located within this area. Figure 4. --Location of hardwood face veneer and/or plywood mills in Michigan and Wisconsin in 1964 — nvwooo 7 —~ 950nm Pivwooo "\ m K - vmsza mo vaooo '\-/ O+>o 79 Veneer Logl‘ransportation Data collected during the study indicate that over 50 percent of the veneer logs received by mills in Michigan and Wisconsin in 1964 arrived by rail (Figure 5). Among the industry groupings, veneer and plywood mills received a larger per- centage of their logs by rail than did the veneer mills. There were perhaps several reasons for this difference. First, veneer and plywood mills were generally found to be located further from the resource than were veneer mills. Beyond certain distances, veneer logs are more economically moved overland by rail transportation than by truck. Secondly, the veneer and plywood mills were frequently located in areas of greater p0pulation concentration than veneer mills. On the average, a mill in the veneer and plywood industry grouping in 1964 employed 3 times as many people as did the veneer mills. Under these conditions, the average veneer and plywood mill would probably be better serviced by railroads and hence, receive more of its raw materials and ship more of its finished inventories by this means than veneer mills would. Mes and Employment Wage and employment data for veneer and/or plywood mills in Michigan and Wisconsin in 1964 are presented in Table 21. Veneer and plywood mills, as an industry grouping, average more employees, both of the blue and white- collar variety, than do the other groupings shown. Another interesting result of this portion of the study was that plywood mills, both of the Specialty and regular plywood type, offered higher average hourly wages than did either the veneer or the veneer and plywood mills. Perhaps part of this difference is 80 633226 83833 8352828» 952 «on Ev 3:8 m 005m Ema N. no woman mowficoonoa can monswmhw 63.. gas...) anflguofia .83 Econ @5532: an .3 n wouuoamcgu 33:35 38 couafiflmmv «2:2 cooia 98 .3055 ‘ .wmwuwfl dam. .. OS .5 ....H. - ..aav ... .H .. .. .H. 6 Goo .. f‘fi‘fi ..... 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In addition, some plywood mills are located within geographic regions where there is strong competition for the available work force. Average hourly wage rates for plywood mills in these areas must be such that they are at least competitive with other Opportunities available to the worker. Production Capacity In order to obtain some measure of the present level of activity in the regional veneer and/ or plywood industry, data on the production capacity of each firm were solicited during the course of the study. Interestingly, this term "production capacity" has been subject to several interpretations. For the purposes of this study, it was defined as that amount of veneer or plywood a mill could produce within a 24-hour period (3 shifts) using existing plant facilities. This definition does not exclude the possibility that additional workers might be added in order to achieve production capacity. As Table 22 illustrates, veneer mills in Michigan and Wisconsin operated at an average 72. 2 percent of production capacity in 1964. This closely approaches the 80 percent figure that some mill managers like to see their plants achieve. In contrast to the veneer mills, the plywood portion of the veneer and plywood mills were found to be operating at only 39 percent of production capacity. In fact, the plywood mills, as a group, were lower than the veneer operations. There are several possible explanations for this phenomenon. Mill managers have often expressed the view that low-cost hardwood plywood imports have replaced many of their 83 TABLE 22. —-Estimated percent of total capacity which veneer and/or plywood mills in Michigan and Wisconsin achieved in 1964, by industry grouping Industry grouping Estimated percent of capacity (‘70) Zen—e93 leood Veneer Mills 72 . 2 - Veneer and Plywood 66. 6 39. O . Plywood Mills — 60. 0 Specialty Plywood N.A.a N.A.a aEstimates not. available. own markets, and in doing so, have caused and sustained this excess capacity problem. Still another view is that plywood manufacture involves many more machines than does veneer manufacture. Thus, the down time due to mechanical failures would probably be greater for the plywood mills. Other factors reSponsible for excess capacity in plywood mills are related to the product-mix of these Operations. Because hardwood plywood is basi- cally a consumer good, it is subject to a much wider range of markets than is veneer. The heterogeneity of markets which results usually means that ply- wood mills must build flexibility into their production schedules. At times, efficiency must be sacrificed to meet customer orders and down time for machine change~overs often occurs. Veneer and Plywood Machingy During the course of the mill survey, the age and type of machinery in 84 each of the veneer and/or plywood mills was measured and recorded. These data are presented in Figure 6 and, as in some of the preceding figures and tables, are. based on industry groupings. The average age Of machines in these industry groupings has been calculated and has been weighted to reflect the fact that many mills have. more than one machine performing a given operation. Lathes and drying equipment found in veneer mills tended to be somewhat newer than their counterparts in the veneer and plywood mills. Overall, the average age of all machines in veneer mills was less than that of the veneer and plywood mills but greater than those in the plywood mills. The reason for these differ- ences is probably due to a number Of factors. For one thing, the plywood mills do not have any lathes or drying equipment in their Operations. Secondly, the plywood industry in the. Lake States does not have as long a history as the veneer industry. In addition, when new veneer mills are established, they frequently lean. toward the purchase Of used lathes, clippers, and driers. Ply- wood mills, on the other hand, Often invest: in new machinery. Apparently, there is a feeling amony many veneer mill operators that these machines have changed little over the past 20 years and are a satisfactory substitute for new equipment. Another process in which machines were found to be quite Old was the plywood pressing Operation. Again, the feeling Of many mill Operators was that newer machines do not have any distinct advantages over those now in use. Figure 6 also shows a large difference in the age of sanding machines among the veneer and plywood mills as Opposed to the plywood mills. This is perhaps largely due to the types Of products each manufacture. For the most part, 85 was Sofia 5 $550.82 mo ow< omwno>< “Boga one .805; S 3:332 mo om< ow§o>< was noono> 5 moaned—z mo 93.. ougo>< mflag banana ll, Ilir t..- s .m m .3 a .2 85:32 5. . 03 «was: . _ . _ as ” Tm... 823m .« _ . ._ «.3 wanna A _ _ _ _ .. «sagas Sofia .O _ _ _ _ we _ «.2 385.3 .m _ 2: _ was. «53.5 .m — «.3 9:36 .v d 52 9.62% .n «.2 2552. .s _ ....S 9.338 A _ _ " 230$:ch cairn .m _ _ _ _ m4. — 23 main .m _ _ H fifi _ ...»; Mateo .... I] . no . _ _ N 2 7 m 3 £3 a _ u . r ad “ m6 , wad—yam .« _ _ Fm. _ ma , $33 385 Esp .H , _ r T P t“ t p. . L . T u . . $53330 9530 .332, .< 3 on 2 S m 3 on 3 S m o 3 an 3 S m 1 .285 A285 was Anzac nofigono no anon—€309 mo 08.92 mafiasouw P3965 .3 .33 5 5238;» was 93332 3 3:8 ©0233 ~3qu some? 5 938 .323an we owe Omaha: cox—«8337: .o charm 86 plywood mills located within the region manufacture wall paneling and door skins. These products require modern and efficient sanding operations in order to meet rigid product specifications. Sanders developed within the past 5 years seem to be best suited in meeting these demands. The productwmix for veneer and plywood mills contains much less paneling than plywood mills but considerably more of the "specialty" types of plywood. Women's shoe heel stock and golf club heads are examples of the latter. Products of this type require much less sanding than does paneling or door skin material. In the preceding paragraphs, some mention was made of the age of veneer and plywood machinery used in the regional industry. This subject is quite important and deserves additional comment. Data presented in Figure 6 show that veneer lathes, driers, and plywood presses found in the regional veneer and/or plywood industry average 12 or more years in age. The question arises as to whether many of our regional mills are operating with outdated equipment. It is a situation somewhat similar and analogous to that of an individual who must decide whether it is economically desirable to replace an old automobile with a new one. The decision to buy must; be made in light of the technological advances which have been made since the old machine was purchased. In addition, the variable costs associated with each alternative must be tabulated so that valid comparisons can be made between them. Over— all, the decision to replace machines requires planning and economic cost data. Technologically, there have been numerous improvements in veneer lathes in recent years. Two of the more noteworthy developments include the dual spindle lathe and the back-«up roll. The incorporation of a second spindle 87 on the lathe enables logs to be cut to smaller diameters than was previously possible. The lathe is designed so that one spindle is telescoped within the diameter of a larger one. When a veneer log is placed in such a lathe, both spindles are dogged into the log. (Each end of the log is grasped in such a manner.) Initially, when a log is placed in the lathe, the outside spindle provides the necessary torque to turn the log. As the diameter of the log diminishes to about 8 inches, the larger Spindle is retracted and the smaller Spindle is used to reduce the core to about 4 inches. Prior to the deve10pment of this type of lathe, the log could only be safely turned to about 7 inches. Frequently, the log had more veneer on it, but the mechanical limitations of the machines restricted the final core diameter. Used in conjunction with the dual spindle is the back-up roll. This device is basically a pressure bar that supports the log when the diameter reaches 10 inches and below. Logs six feet and longer frequently bow when the diameter of the core reaches a certain point. When this occurs, the veneer out under such a condition is not uniform in thickness. The back-up roll largely eliminates this problem and when used with the dual spindles, allows the lathe Operator to reduce the core to a uniform diameter of 4 inches. Other improvements in veneer processing machinery include high-Speed clippers which are capable of making several hundred cuts per minute. Under certain conditions, a much smoother flow of material from lathe to drier can be obtained with these clippers. Additional innovations include the "jet drier" which is gas fired and speeds the flow of veneer through the drying process without any appreciable degrade in the material. Also, between the basic 88 veneer manufacturing machines, one now finds numerous mechanical materials handling devices. These include a device for prepositioning logs at the lathe (lathe charger) and mechanisms for feeding veneer driers. There have also been new deve10pments in plywood laminating presses which should not go unmentioned. Among the more important are improvements in press hydraulic systems which allow for faster closing and opening times. The former greatly reduces the possibility of pre-set in the glue lines while the latter keeps pro~ duction moving at a quick pace. New presses also have an added advantage in that the platens have been designed to provide more uniform temperatures across their faces. This insures a more evenly cured glue line and a better quality product than obtainable with presses not having these features. Overall, the mill manager should strive to utilize machinery which maximizes profits and minimizes costs for given units of production. The data presented in Figure 6 indicate that many mill managers need to look more closely at the capabilities of their machines. The external pressures on the regional veneer and plywood industry are such that this avenue of approach seems most logical. Veneer log quality and quantity are apparently decreasing and low—cost imports still account for over 50 percent of our national hard— wood plywood consumption. This means that our industry will be turning to smaller logs and that these veneer logs need to be utilized more intensively. Likewise, our regional industry must become more competitive with foreign producers by becoming more efficient in its operations. Machinery plays an important part in either case. 89 Market Oriented Characteristics of Industry Grogings Marketing may be looked upon as a process in which the demand for goods and services is: (l) antimpated or identified and (2) increased and satisfied throws the creation, promotion and physical exchange of goods and services. At best, the marketing process may be thought of as a very broad function in which there are several levels of acceptable performance. Part of this perfor— mance, of course, is somewhat dependent on the type of product and the size of the firm. The mills in our regional veneer and/or plywood industry are really quite small in comparison to the giants of the steel or automobile indus- tries, but. their overall. marketing goals are very similar. Veneer and Plywood Manufactured for Stock and Order Purposes Prudent business managers are keenly aware of the need to minimize the time that elapses between the receipt. of an order for goods and the filling of that order. Frequently these managers attempt to analyze the market demand for their firm’s products and build inventories which will meet potential orders. Generally speaking, the more homogeneous a given product line is, the greater the possibility that production will be geared to stock items rather than to items made for specific order. On the other hand, heterogeneity within a given line of products usually means that. production is geared to orders which have been received from the firm‘s customers. In general, our regional veneer and/or plywood industry manufactures products which are more heterogeneous than homogeneous. There are many 90 species and thicknesses of veneer which can be manufactured and the mill manager cannot possibly turn out large quantities of any given thickness or species without some assurance that he can sell it at a profit of some sort. This assurance usually comes in the form of orders for his firm's products. As veneer is processed into plywood, the number of variables associated with the product increase. Not only must species and thickness be considered, but sizes, shapes, glue types, finishes and core materials must be taken into account. Plywood is much closer to being an ultimate consumer good than veneer is and hence, the variety of possible products broadens considerably. As Table 23 shows, the face veneer industry in Michigan and Wisconsin made more veneer for orders than for stock in 1964. Some of these mills are owned by large plywood companies which determine the type and amount of veneer to be produced. Other mills have written or oral agreements With ply- wood producers for specific quantities and types of veneers. Overall, the largest portion of veneer produced is made to order. Veneer manufactured in veneer and plywood mills is usually reserved for plywood production in these mills. Again referring to Table 23, note that over 95 percent of the veneer manufactured in regional veneer and plywood mills was made to order. Plywood manufactured by the regional mills also was found to be produced on an order basis for the most part. Approximately 71 percent of the plywood made by the firms in the veneer and plywood industry grouping was based on orders while nearly 99 percent of the production of firms comprising the ply- wood industry grouping fell into this classification. The difference between the two groupings is perhaps due to the considerable amount of specialty plywood 91 63253. magma 02005080 9:3 00: 30 238 a 005m mafi w :0 0093, 0030340 o .03 o .o o .03 ow .03 o .03 m .3 o .03 0 .v5 0 .03 on .23 «00003 H.808 0.03 0.0 m.wm 3.5: at: mém 0.3 mam: 0.3 3 .mmm. 000.5 00 00.02 u 1 H4 mm; w.wm 0.3 «.w 5;. 06m mméwa xoopm .80 one: .mmma medium .mmwa oomtdm .mmoa 00.3.35 .mmma moansm .mmma moatflm as .3 .3 as 3 .3 as .3 .3 as .3 .3 A00 3 .3 0000 m0 235E «:00 m0 0:03:00 “:00 m0 203mg «:00 “0 000336 «:00 no 00358 38% 5 330.000 «Mom 5 33530 them 5 330050 Inom 5 33:98 Inom 5 330030 coumgumm wouwfiflmm woumsflmm woumfiflmm counsfimm 00025.3 .8935 0030200an wooing 33E: 3 09$. 338% .232 000235 nooia 05“... 00003, 0:32 Home?» mfiasonw 30265 $50005 3300005 .3 €me 3 500000;? was “89:32 5 mag r3 .820 can x003 you 0068 000:3 was .5003 m0 mowficoonom 000 $330.35 coemfifimmuu .3 9:33. 92 manufactured by the veneer and plywood mills. Many Specialty items, like shoe heel stock and golf club heads can be manufactured for stock inasmuch as species and design vary little from order to order. The mills in the plywood industry grouping, on the other hand, manufacture very little specialty plywood and con- centrate more on wall paneling and doors; products in which consumer demand is likely to vary quite frequently and where numerous product characteristics I may be found. 1 Average Inventory of Veneer and/or . Plywood Mills r As part of the study on the regional veneer and/or plywood industry, mill managers were requested to furnish information on their inventories. This term "inventory" is taken to mean a list of goods on hand which may con- sist of stock and/ or ordered items. The average veneer inventory of veneer and plywood mills was found to be somewhat larger than that of the veneer mills. Some of this difference was due to the fact that veneer and plywood mills utilize nearly all of the veneer they manufacture. These mills tended to carry higher inventories in order that their plywood Operations might be adequately supplied. In regard to plywood inventories, it was noted that veneer and plywood mills carried inventories averaging nearly 3 times those of the plywood mills. The difference between these industry groupings is again due to the specialty products produced by the former. One might suSpect that most of the plywood inventory carried by the veneer and plywood mills is in the form of stock specialty items. Inventory data for the industry groupings is pre- sented in Table 24. 93 .030m020 .300 >n300>5 0>0n 000 0:0 058 m wfifiwae 0g 0050 0220 m 00 000.3 m0§wwm0 8m .2. . can .3.” 8c 6% A2388 0000.30 Sum .00V #8033 000:3 0w000>< coo .omo .m 000 .03 .m 8.30008 003.30 . .0“ .03 >0800>£ 00000> 0w0n0>< 3:2 0052 000255 3~§000m mag 000:5 . 000233 000. 000q0> 0:32 H0000> 0&8 00:00.5. wfimsouw 3300008 ll I mwfiasohw >500?“ ms €02 E 500000;? 0:0 003022 5 038 000330 ahead a0000> mo r3852: 0w000>a Ugmqfimmuu ..vm Hamid. 94 Distribution Methods Regional veneer and/or plywood mills use five basic distribution methods: The agent or broker, the parent-firm, company salesmen, the house account, and the wholesaler. The agent or broker serves the smaller mills and charges a fee for his services, usually about 5 percent of the invoice valuation of the goods. The parent—firm is a company that usually has a controlling interest in the veneer and/or plywood firm and takes all its production. The producing mills is frequently referred to as a "captive" operation under these conditions. Company salesmen are employed by the producing firm to sell" veneer and plywood. In the house account method, no soliciting actually takes place. As a producing firm becomes well established in the business, it often finds that certain buyers become loyal to the firm. No salesmen need contact this type of customer to secure the order unless technical services are requested by the buyer. The wholesaler buys plywood from the regional mills and redistributes it on a cost—plus basis. His markets are usually retail lumberyards or other market channels that sell directly to the ultimate plywood consumer. Data on distribution methods for veneer mills show that company sales- men marketed nearly 40 percent of the total veneer produced in 1964 (Figure 7), and agents or brokers handled about 18 percent. The smaller veneer 95 Figure 7. --Estimated quantities and percentages of veneer and plywood marketed by mills in Michigan and Wisconsin through various market channels in 1964, by industry groupings Percent of Total 0 10 20 30 40 50 60 Agent or Broker 18. 4% Veneer Mills (Estimated total quantity of veneer marketed = 431. 50 million square feet, surface measure) Captive Outlet 26. 5% Company Salesmen 37. 9% House Account 17. 2% Agent or Broker 6. 1% h— Veneer and Plywood Millsa J Captive Outlet 45- 9% (Estimated total quantity of plywood marketed = 52. 70 I Company Salesmen 0.2% million square feet, surface measure) House Account 39. 3% Wholesalers 8. 5% Agent or Broker 17. 7% Plywood Mills Captive Outlet 23. 6% (Estimated total quantity of plywood marketed = 169. 80 million square feet, surface measure) Company Salesmen 42. 1% House Account 15. 5% Wholesalers 1. 1% Speciality Plywood Mills (Estimated total quantity of plywood marketed = 6. 00 million square feet, surface measure) Agent or Broker 8. 3% Company $lesmen 62. 5% House Account 29. 2% aFigures based on 8 mills inasmuch as 2 mills did not have production data available. In addition, figures on veneer market channels are not shown for this industry grouping since all or most of the veneer manufactured by these mills was sent to their own plywood operations. 96 mills1 frequently utilize brokers oragents because they provide a means of distributing veneer at a lower cost than is possible by other methods. ~ Main- taining a sales staff can be a costly venture if the product volume is low. For the veneer and plywood industry grouping, most of the plywood is handled through the house account (39 percent) and parent-firm (46 percent) arrangements. These data are substantially weighted by the output of 2 large mills that market through the parent-firm--that is, send their plywood directly to company-owned warehouses for further distribution. Because many of the regional veneer and plywood mills are large and well established, they also utilize the house account arrangement rather extensively. Company salesmen market a considerable amount of the production of the firms making up the industry grouping for plywood mills. For the most part, these mills lack the marketing network that some of the larger veneerand plywood mills seem to have. Also, they are less likely to be part of a large integrated forest products company, although their plywood production may equal or surpass that of the veneer and plywood mills. Consequently, they rely heavily upon company salesmen to market their products. The smaller ply- wood mills, like the small veneer mills, lean toward the use of agents or brokers. Specialty plywood mills in the region produce a variety of items that go 1For the purposes of this study, mills are classified by size (annual production in million square feet, surface measure) as follows: Veneer mills (veneer production)--small, up to 15; medium, 16-50; large, more than 50. Veneer and plywood mills (plywood production)--small, up to 1; medium 1-9; large, more than 9. . Plywood mills--small, up to 3; medium 3-35; large, more than 35. 97 into the construction of both residential and nonresidential furniture. Most of this is in the form of curved or molded plywood for chairs and sofas. Among other products, they also manufacture church pews and curved wall paneling. These specialty mills account for only a small part of the total plywood manu- factured in Michigan and Wisconsin. Company salesmen market most of the material produced by these mills; house accounts are also an important mar- I keting method. . l End-Uses for the Products ’ Hardwood veneer manufactured in the region is incorporated into many kinds of plywood. Wall paneling, doors, and kitchen cabinets are the more common uses (Figure 8). This veneer is consumed, to a large extent, by plywood Operations in Michigan and Wisconsin, but some is shipped to firms outside the region. . Veneer and plywood mills have faced increasing competition from abroad in the form of low—cost plywood imports. In an attempt to minimize the effect of these imports, regional plywood mills have either customized some of their traditional products or have included many specialty items in their product lines. Wall paneling and door skins are being imported into the United States in considerable quantities and account for roughly 50 percent of all domestic hardwood plywood consumption. Whereas stock paneling, doors, and kitchen cabinets were once the mainstay of the regional veneer and ply- wood industry, they are now being replaced by specialty items or being modified to some extent. For example, some firms are currently manufacturing doors 98 Figure 8. --End-uses for products produced in veneer and/or plywood mills in Michigan and Wisconsin in 1964, by industry groupings Veneer Millsa (Estimated total quantity of veneer produced = 401. 55 million square feet, surface measure) Veneer and Plywood Millsb (Estimated total quantity of plywood produced = 52. 70 million square feet, surface measure) Plywood Mills (Estimated total quantity of plywood produced = 169. 85 million square feet, surface measure) aData and percentages based on 10 mills. Percent of Total 60 bData and percentages based on 8 mills. 810 190 Wall Paneling 35. 0% Doors 24. 7% Kitchen Cabinets 19. 6% Furniture 10. 3% Crossbands-Cores 10. 4% Wall Paneling 38. 7% Doors 10.1% Kitchen Cabinets 3. 6% Furniture 7. 4% Die Boards 4. 6% Speciality 35.6% Wall Paneling 65. 6% Doors 28.2% Kitchen Cabinets 0. 8% Furniture 3. 7% Die Boards 1.2% Speciality 0. 5% 99 which are specially machined to allow direct placement into the opening for which they were intended. Prefinished-plywood manufacturers are using new coating techniques and materials on wall paneling and doors. The net effect is the creation and expansion of markets not served by the imports. Specialty products, such as shoe heels, golf club heads, and die boards (a form of ply- wood used by the printing industry) are also growing in popularity among the regional mills. Altogether, these specialty products accounted for nearly 25 million square feet (surface measure) of plywood in 1964. Over 65 percent of the nearly 170 million square feet of plywood pro- duced by plywood mills was in the form of wall paneling (Figure 8). The product-mix, however, is heavily weighted toward this particular product by one mill which manufactured only wall paneling and accounted for a large per- centage of the total production of the seven mills in this industry grouping. Significantly, it was the only plywood mill exclusively engaged in the manufac- ture of wall paneling, one area in which low-cost imports have been most competitive and have accounted for large volumes of plywood. This same firm operates its own core and crossbanding mill in Africa and is geared to high- speed production techniques, both here and abroad. The face veneer used in this mill is mostly domestic, but some quantities are imported. In future years, Specialty items may comprise a greater percentage of the total plywood volume manufactured in the region. Kitchen cabinets will probably also grow in importance in the product-mix, largely because wood is again becoming the preferred material for this popular consumer item. The enactment of a prOposed reduction in the tariff on hardwood plywood will place 100 increased presure on regional mills manufacturing wall paneling and doors. Technological innovation and production efficiency will be needed to offset rising log andlabor resource costs. The region is also currently going through a phase of "expansion by acquisition" in which some veneer and/or plywood mills have been purchased by large national wood products firms. The net effect on the distribution methods is that more veneer and plywood will probably be marketed under the parent—firm arrangement in the future years. Undoubtedly, distribution methods and end-uses for hard— wood face veneer and plywood will continue to shift. Summary In 1964, there were 24 hardwood face veneer and plywood firms in Wis- consin and 8 in Michigan. As part of a general survey of the industry, each firm was visited to obtain information in a number of subject areas. Mills were classified according to the general type of product being made at the time of the visit: There were 11 veneer mills, 11 veneer and plywood mills, 7 plywood mills, and 3 specialty mills. Executives interviewed during the course of the study cited many prob- lems which they believed confronted the industry today. Among the more impor- tant were the low-cost imports entering the country, the decrease in quality of the raw material supply, the export of native log species such as walnut, the continued rise in labor costs and the lack of trained manpower. Also mentioned as a problem area was the competition being received from such plywood substitutes as printed board and plastic laminates. In addition, the executives 101 contended that low-cost imported wall panels and door stock have been responsible for many mills switching from the profitable and traditional panel lines to various specialty plywood items. Over 90 percent of the veneer produced by either the veneer or the veneer and plywood mills in Michigan and Wisconsinlwas the rotary type. Altogether, more than 600 million square feet (surface measure) of commercial-type veneer was produced by mills in Michigan and Wisconsin in 1964. In relation to ply- " .m ...-—-Q h. I wood production, the investigation showed that 3-ply veneer plywood constituted a large portion of all plywood manufactured within the region. The 3-ply material I was extensively used in prefinished hardwood plywood panels. Perhaps one of the most significant findings of the mill survey was related to the age of veneer and plywood machinery being used by regional manufacturers. Data collected during the study showed that veneerlathes, driers, and plywood presses averaged 12 or more years in age. Technologically, there have been numerous improvements in veneer manufacturing machinery in recent years, especially among the lathes. The results of this study would indicate that veneer and plywood manufacturers need to take a close look at their machinery, both in respect to age and capability. The regional industry produces a multitude of veneer and plywood products, and the markets they serve are equally varied. _ A large portion of all veneer and plywood manufactured by mills in the survey was made to order, with wall paneling, doors, and kitchen cabinet stock being among the more important products. Five basic distribution methods were identified as being commonly used by these mills: The agent or broker, the parent-firm, company salesmen, 102 the house account, and the wholesaler. Although wall paneling, doors and kitchen cabinet stock comprised a major portion of the product-mix, Specialty plywoods are becoming increasingly impor- tant. Among other products, curved or molded plywood for chairs, sofas, church pews, and wall paneling fall into this category. It is expected that further emphasis will be given to the production of Specialty plywoods in future years. It was also noted during the course of the study that the region is currently going through a phase of "expansion by acquisition" in which some veneer and/ or plywood mills have been purchased by large national wood products firms. It appears that this trend will continue in future years inasmuch as the causal elements behind the acquisitions continue to remain. Among these elements is a general reluctance on the part of some mill managers to risk capital on needed improvements in plant facilities. This is eSpecially true in the firm where there has been a pattern of family ownership, but for some reason, no member of the family is interested in continuing the operation. Then, too, profit margins have been quite low in the veneer and plywood industry in recent years. Undoubt- edly, this has severely hampered many firms in their desire to implement capital improvement programs. Under these conditions, some regional mills have become susceptible to acquisition and generally speaking, all concerned have benefited. u CHAPTER VI AN ANALYSIS OF RAW MATERIAL AND PRODUCTION COSTS FOR SELECTED REGIONAL AND FOREIGN HARDWOOD FACE VENEER AND PLYWOOD MILLS A considerable amount of variation was found to exist among the costing methods used by hardwood veneer and plywood firms that were included in this study. There are perhaps several reasons for this, but the size and complex- ‘ ity of the firm are among the more important. It was generally observed in the study that firms producing 5 million or more square feet of hardwood ply- wood, annually, could be expected to make use of fairly detailed cost accounting systems. The regional veneer and plywood industry, we have seen, is faced with a number of problems. Some are resource related while others appear to be caused by overaged equipment and loss of traditional markets. It is hOped that a study and comparison of costs associated with plywood manufacture will corroborate earlier observations made regarding the regional industry. A study of costs encompasses most of these problems and should prove valuable in further identifying specific areas where more research is needed. . Methodology Statistics for 1964 indicate that 44 percent of all domestic hardwood ply- wood production was in the form of 1/4-inch veneer-core plywood and that 49 103 104 percent of this domestic production was manufactured into prefinished wall panels, the majority of which were standard 4' x 8' panels. On a volume and dollar basis, prefinished 4' x 8' wall panels of 1/4-inch veneer-core plywood represented one of the most important hardwood plywood product types produced in 1964. For this reason the above produce was initially selected for this portion of the over- all analysis of the regional industry. There are several reasons for including product cost data in an analysis of the regional veneer and plywood industry. First, there is the value of the data itself in determining the percentages of raw material, labor, fixed, vari- able, and administrative costs in the selling price of a given quantity of hard- wood plywood. A second major reason for collecting this cost data is that it might be used in making a comparison of regional and foreign manufacturers. Thirdly, the costs of regional and foreign mills could then be compared to our national industry. Overall, the cost comparison study was designed to discover major areas of difference between regional, domestic and foreign producers of hardwood plywood. In doing this, perhaps some of the major problem areas of the regional manufacturers could then be substantiated and/or identified. Then, too, the validity of the methods used in conducting this type of research might also be tested. In 1964, there were only 5 mills in Michigan and Wisconsin known to have produced prefinished hardwood plywood. Of this group, only 3 were found to have cost data that might be used in the study. But due to differences in species used in plywood manufacture and the preciseness of the cost data, only two regional mills could be compared in the final analysis. Even among these two 105 mills, there were wide diversities among the data. Total cost information on yellow birch and walnut wall paneling (1/4-inch, 3-ply, veneer—core, NO. 1 Face and NO. 4 back) were obtained from these two mills. Cost data were based on units Of 1000 square feet, surface measure, and tabulated on prepared forms (see Appendix B). A survey of the literature indicated that Japan, Canada, Finland and the Philippines account for a major segment of the hardwood plywood consumed in the United States each year. Our domestic producers, as a group, look upon hardwood plywood imports from these countries as a major concern, both in relation to their manufacturing Operations and their plywood markets. The study was initially designed to include cost data on wall paneling from each of the 4 countries. Two Canadian firms were visited as part of the study and cost data were collected on prefinished 1/4-inch walnut paneling. As in the case Of the regional mills, data were tabulated on prepared forms. Neither Of the two Canadian Operations were able to provide cost figures on yellow birch. Cost data on the production of 1/4-inch lauan wall paneling in the Philip- pines were obtained from a report on that industry. The cost classifications were very general, but proved useful in the analysis. Limited data on the Finnish plywood industry were Obtained, and again, the cost classifications were general. There is no known cost data available on the Japanese industry and attempts to obtain it proved futile, both through the Imported Hardwood Plywood Association and the Japanese Hardwood Plywood Association. After the cost data on the regional and foreign hardwood veneer and 106 plywood mills had been collected, the results were compared to a report on Operating income factors for the national industry, the latter having been pre- pared by the accounting firm Of Seidman & Seidman for the Hardwood Plywood Manufacturers Association. Raw Material and Production Costs for Two Regional Mills Two regional mills provided information on the cost Of manufacturing 4' x 8' hardwood plywood wall paneling. This wall paneling was of 3-ply, veneer-core, l/4-inch construction with a NO. 1 face and a NO. 4 back. Species included walnut and yellow birch. We shall refer to the two mills as merely "Mill A" and "Mill B". Mill A is one of the largest veneer and plywood mills in Wisconsin, both in relation to its production and the number of people it employs. In 1964, there were 738 production workers and 110 staff members on the payroll. The average wage of the former was $1. 98 per hour. This figure includes fringe benefits which amounted to roughly 10 percent of the base salary. Although the firm had 4 rotary veneer lathes in use, no veneer production figures were available. The mill consumed 15 million square feet, surface measure, Of rotary-cut veneer in 1964. Another 23 million square feet of sliced veneer was also used. Roughly 7. 7 million square feet Of all types of hardwood plywood was manufactured by Mill A in 1964 with about 36 percent Of it in the 3—ply classification. Approximately 60 percent of all plywood pro- duction went into various types of doors, the remainder was used in the manu- facture of plywood panels. The four lathes averaged 36 years in age while 2 driers and 3 presses averaged 23 and 33 years, reSpectively. Virtually all ‘P~ --—-——.——_—T 107 plywood manufactured in the plant was made to fill orders already on hand. Mill B employed 135 production workers and maintained a staff of another 25 people. The average hourly wage paid to production workers was $1. 87, including fringe benefits. The mill used 6. 5 million square feet of rotary-cut veneer in 1964. An additional 2. 5 million square feet of sliced material was also consumed. The firm produced 16 million square feet of I rotary-cut veneer in the same year, the excess of production-over-consumption i being sold to other plywood manufacturers. Plywood production totaled 2 I million square feet, roughly 50 percent of it being 3-p1y construction. About , 5 percent of the total plywood production was in the form of standard 4' x 8' wall paneling. Another 15 percent of the plywood went into flush doors, the remainder being distributed among such products as desk tOps, architectural panels and light shields. Mill B had two rotary lathes, one drier and two presses in operation. They averaged 17 , 30 and 20 years in age, respectively. Ninety-five percent Of all plywood was made-to-order. Cost data for Mill A are presented first (Table 25). In all probability, it represents the most detailed cost accounting system used by any hardwood veneer and plywood firm in the region. 108 TABLE 25. —---Average costs encountered by Mill A in manufacturing 1000 square feet (surface measure) of 1/4-inch hardwood plywood wall paneling (face veneers of either yellow birch or walnut, 3~ply, veneer-core construction, No. 1 face and No. 4 back) Cost per thousand square feet (dollars) Operation 1/2 8-inch 1/ 2 8-inch 1 / 2 8 -inch 1 /6-inch birch face walnut face back (birch) lauan center Log Run Veneer $13. 37 -- -- ~— Conversion to Gradea (68. 92%) -- -- —- Face Veneer 19. 40 $ 66.20 $ 2. 80 $39. 90 Mfg. Yieldb (57. 7%) (34. 5%) 170. 4%) 475. 1%) Finished Veneer $33. 66 $191. 86 $ 3. 97 $53. 10 Tape . 49 -- . 50 -- Glue (splicing) -- .26 -- .26 I. Total Material $34. 15 $192. 12 $ 4. 47 $53. 36 1 Peel Veneerc $10. 51 $ 5.91 -- Roller Dry Veneer 3. 06 1. 73 $ 2. 34 2 Redry Veneer 1. 68 1.. 39 -.-. Dry Clip 2.81 1.99 3. 10 Joint 1. 92 -~ 1. 87 Match 5. 42 ~~ ---- Splice 3.26 3.31 2.40 Inspect 4. O3 2. 06 2. 54 Face Repair 2.26 —- -—- Size Clip 1. 20 . 31 (Wide~belt (Sanding—2. 37 Dept. Serviced 7o .70 .70 II. Total Labor $36. 85 $ 22. 87 $17. 40 $16. 12 Variable Expensee 1 Veneer Mill is 5.43 -~ $ 3.06 ~— Single Ply 6. 98 --— 2. 93 $ 5. 89 Preparation and Mfg. III. Total Variable Exp. $12.41 $ 6. 86 $ 5.99 $ 5. 89 Direct Cost (Sum of I, II, III) $83. 41 $221. 85 $27. 86 $75. 37 109 TABLE 25 r-Continued IV. Panel Fabrication Direct Cost (from separate sheet) = $32. 68 (birch or walnut) ' V. Natural Finish (from separate sheet) = $45. 59 (birch or walnut) VI. Wrapping-Bagging Direct Cost (from separate sheet) = $4. 35 (birch or ~walnut) . Total Direct Cost (Sum of I, II, III, IV, V, VI) $269.26 (birch); $407.70 (walnut) Fixed Expensef (18% of Direct Cost) $48.47 (birch); $73.39 (walnut) Total Cost (f .O.b. mill) - $317. 73 (birch); $481. 09 (walnut) aCOnversion to grade - that percent of log run veneer that is suitable for face veneer prior to green clipping Operations. bManufacturing yield - the percentage of veneer that is intended for faces, backs or centers that is used in that manner after wet clipping Oper- ations take place. In the case of walnut, the veneer is purchased in a flitched and dried condition, the major loss occurring in the trimming of sapwood from the veneer. The lauan is also in a dry condition. cIncludes through green clip. dDepartmental Service -'(includes non—productive labor used in single ply preparation and manufacture from redry to size clip Operations. eVariable expense - includes indirect labor, repair, and maintenance labor, Operating supplies, purchased utilities and fuels, etc. fFixed expense - includes factory supervision, rentals Of Space and equipment, taxes, property insurance, depreciation of fixed assets, etc. The panel fabricating cost (IV) of Table 25 consisted of the following costs: Cost per thousand square feet of paneling A. Material (glue) $ 5. 00 B. Labor: Line up 1. 98 Mix glue . 59 ...—‘37 'K7 fir ”um-m 110 Cost per thousand square feet ofjaneliig B. Labor: (Cont.) Spread glue 3. 2 1 Hot press 1. 54 Drum-sand back 2. 50 Size panel 1. 62 Patch 3. 65 Speed polish & inspect 3. 36 Total Labor $18.45 C. Variable Expense 9.23 Total Direct Cost Of Fabricating $32. 68 The natural finishing costs* (V) of Table 25 consisted Of the following costs: Cost per thousand square feet ofJganeling A. Material (lacquer finish) $11. 30 B. Labor 23. 65 C. Variable Expense __1_Q:_6_4 Total Direct Cost Of Finishing $45. 59 The wrapping cost (VI) Of Table 25 consisted Of the following costs: Cost per thousand square feet of paneligg A. Material (bags) $ 1.51 B. Labor 1. 96 C . Variable . 88 Total Direct Cost Of Wrapping $ 4. 35 \ *Seal-sand-Z tOpcoats, back seal. 111 The costs for items IV, V, and VI are the same, regardless of whether the species is birch or walnut. The total costs for the backs and centers are also the same, even though the face species of the panel may be different. Direct costs (the sum of items I - VI in Table 25) are added to fixed eXpenses to arrive at the total cost, f. o. b. mill. A profit margin has been included in the fixed expense, probably accounting for just over one-half of the total figure. . ‘ 5" EA: When logs are turned on the lathe, not all of the veneer that is out can be used. Furthermore, not all Of this veneer can be used for faces. The cost l accounting system of Mill A is designed to reflect these differences in uses. ' For example, the log run veneer cost for yellow birch was $13. 37 per thousand square feet. Experience with this Species enable Mill A to arrive at the 68. 92 percent figure for conversion to grade, or in other words, only 68. 92 percent of the veneer coming from the lathe would be suitable for faces. The firm uses a residual costing system at this point which, in effect, says that the face material left must carry the cost of the material that is "lost". 1 The cost for this $13. 37 (per thousand square feet) log run veneer then becomes $13. 37/ . 6892 or $19. 40. After wet clipping of the faces is completed, another loss Of material occurs. This amounted to 57. 7 percent of what remained after con- version tO grade. The finished green veneer then cost $19. 40/. 577 or $33. 66 per thousand square feet based on the residual costing system. Because Mill A does not cut walnut veneer, there are no log run figures. The walnut face veneer, as they purchase it, costs them $66. 20 per thousand 1The material at this point is not really lost; at least a portion of it may be used for backs. 112 square feet, but a manufacturing yield of 34. 5 percent pushes the ultimate cost of this veneer up to $191. 86 per thousand. This walnut veneer is purchased from a walnut manufacturer on a flitch basis. It has already been dried to a moisture content of 7 to 10 percent and needs to be trimmed and clipped to meet mill specifications. The low manufacturing yield for walnut is largely due to the characteristics of the wood and how it is being used. First, sapwood must generally be removed from the veneer before it can be used in the better paneling grades. This is certainly true where a No. 1 face is required. Secondly, walnut tends to split more easily than birch does and losses in jointing, Splicing and clipping are somewhat greater. Nearly all of the $22. 87 labor cost for walnut (Table 25) can be attributed to these Operations Since the veneer was neither peeled (sliced) or dried by Mill A. Core stock consisted of 1/ 6—inch lauan (philippine mahogany) for both the walnut and birch panels. AS was the case with walnut, the material was purchased dry and must be reworked by the mill in order tO suit its own needs. The finished core material cost the firm $53. 10 per thousand square feet. Glue costs added another $.26. Cost item III (Table 25) is a sum Of variable expenses (outside of direct labor) associated with the manufacture Of veneer. Variable expenses are also included in cost items IV, V, and VI. In the case of all four, these expenses may include all or part of the following: A. Repair and maintenance labor B. Other indirect labor (fireman, watchmen, sweepers, etc.) C. Allocated payroll costs (pension, compensation, insurance,etc.) 113 D. Repair and maintenance materials, outside contracts E. Operating supplies F. Small tools G. Purchased utilities and fuels Fixed costs, in contrast, include the following: A. Salaries and wages for (1) factory supervision (2) plant maintenance B. Rentals of Space and equipment C. Taxes D. Insurance - prOperty E. Depreciation Of fixed assets F. General and administrative (1) factory management (2) production control (3) purchasing (4) personnel (5) technical services (6) accounting and payroll The plywood output of Mill A goes directly to warehouse locations through the United States. One Of these is located in Chicago where the birch described in the cost analysis is sold to wholesalers at $450 per thousand square feet. Recommended retail price for this same material is $675 per thousand. The 114 walnut, on the other hand, wholesales for $520 per thousand square feet and retails at $780 per thousand. Mill B, in contrast to A, uses a much less SOphisticated method of costing (Table 26). The products being compared are quite similar, with only the back species differing. The only difference in the cost of the walnut and birch paneling produced by Mill B lies in the cost of material for the faces. Yet, Mill A notes a $22. 87 charge for labor in preparing its walnut. Part of the difference may be due to the fact that Mill B purchases walnut which needs little trimming or any other alterations prior to its use. Mill B, like A, also cuts its own yellow birch veneer. The reader may readily note the lack of detail in Mill B's costing system. Unfortunately, such a system can do little more than give one a rough idea Of how the costs are being allocated. Throughout the region, the efficient management Of hardwood veneer and plywood mills is perhaps being hampered by inadequate cost accounting systems. Cost item C (Table 26) is termed "overhead" and is figured at 80 percent of the total labor cost. Overhead is basically another name for fixed costs, the components of fixed cost for Mill B being the same as those listed for A. Admin- istrative costs for Mill B were noted to be 8 percent Of the total manufacturing costs. These costs, too, may be regarded as fixed and include all of those mentioned under General and Administrative costs for Mill A. The selling prices, f. o.b. , for panels manufactured by Mills A and B cannot be compared until two further modifications are made to the cost data 115 TABLE 26. --Average costs encountered by Mill B in manufacturing 1000 square feet (surface measure) of 1/4-inch hardwood plywood wall paneling (face veneers of either yellow birch or walnut, 3-ply, veneer—core construction, NO. 1 face and No. 4 back) Cost per thousand Cost item square feet, surface measure Material: Face - 1/28—inch birch $ 76 walnut ($250) Back - 1/24-inch basswood or hard maple 15 Center - 1/6-inch lauan 56 Glue for panel fabrication 5 A. Total Material $152 Labor: Face $ 12 Back 6 Center Handling 1 Glue Application 3 Trim and Sand 10 B. Total Labor $ 32 C. Overhead (80% of total labor) $ 26 D. Total Manufacturing Cost (A+B+C) $210 E. Administrative Costs (8% of Mfg. Cost) 17 F. Selling Price with 10% Profit ($227/. 90) 252 G. Selling Price with 5% Insurance Added ($252 / . 90) 265 Selling Price, f.o.b. for Birch $265 Selling Price, f.o.b. for Walnut 439 116 of B. First, Mill B does little prefinishing of plywood wall paneling and as a result, does not keep cost data on this process. Secondly, no protective wrapping costs were included for Mill B. Prefinishing costs for Mill A, we noted, were roughly $45 per thousand square feet while protective bagging and wrapping added another $4. 35. More than likely, the prefinishing cost reported by A is consid- erably above average. This would appear to be the case since another mill (not .—._—...,_‘ :1‘ used in this study because most of the cost data were not detailed enough) did repofit finishing costs of nearly $25 thousand square feet. A conservative guess would be that prefinishing costs and protective wrapping would add another $30 ' to the f. O. b. selling prices of both walnut and birch for Mill B. A comparison of costs between Mills A and B reveals some interesting aspects of the costing system each uses (Table 27). The analysis is based on figures presented in Tables 25 and 26. At first glance (Table 27) it would seem there are perhaps only a few comparable cost areas for Mills A and B. Total selling prices, for example, are very close to one another. The material costs for the centers are also very similar. However, each of the totals for all three major cost items (materials, labor, fixed costs) vary greatly. The basic differences are apparently the result of the costing systems employed by each. Mill A uses a very precise system that is capable of finely dividing its labor costs while Mill B chooses to use a much more simplified system. Undoubtedly, some of the labor costs of Mill B have been included in material costs, eSpecially in the case of face and back material. This statement is based on the assumption that Mill A's costing . system more adequately presents the true division of costs between labor, TABLE 27. --A comparison of costs encountered by MillsA and B in manufacturing 117 of 1/4-inch yellow birch hardwood plywood wall paneling . ‘7 A— _7 Cost per thousand square feet Cost item (dollars) Mill A Mill B Material: Face $ 34. 15 $ 76. 00 Back 4. 47 15. 00 Center 53. 36 56. 00 Glue for Panel Fabrication 5. 00 5. 00 Total Material $ 96. 98 $152. 00 Labor: (Direct & variable) Direct Variablea Faces $ 36. 85 $ "12.41 $ 12. 00 Backs 17 . 4O 5. 99 6. 00 Center 16. 12 5. 89 1. 00 Gl‘fe Applicatmn) 18.45 9. 23 10. 00 Trim and Sand ) — ""'—_ “——“'— Total "Labor" $ 88.82 + $ 33.52 $ 32.00 Fixed Expenses $ 48.47 $ 81.00 Total Selling Price, f.o.b. Less Prefinishing and $267. 79 $265. 00 Protective Wrapping 21The method Of costing used by Mill A uses the variable cost concept. Most of this cost is for indirect labor, although some material costs are also included. For purposes of comparison, all were assumed to be labor costs. 118 material and other cost elements. Overall, the diversity of costing systems in Mills A and B tends to stymie further comparative analysis between the two Oper- ations . Raw Material and Production Costs for Two Canadian Firms Two Canadian hardwood veneer and plywood mills were included in the cost study. To preserve their identity, they will be referred to as Mills C and D. Mill C produced 66 million square feet Of rotary-cut veneer in 1964, 65 per- cent Of which was exported. It manufactured 15 million square feet Of hardwood plywood the same year, and 75 percent Of this was in the form Of wall paneling. Most of the paneling was a 3-ply, veneer-core construction. Two rotary lathes and 2 driers were in Operation. The average age of both the lathes and driers was 18 years. The firm also had 2 plywood presses (average age Of 20 years). Approximately 400 production workers were employed and received an average hourly wage of $1. 80 per hour (U. S. dollars) fringe benefits included. Another 50 persons were classified as staff, Office or supervisory personnel. In con» trast to the two regional mills included in the study, only 20 percent Of Mill C's plywood was made for orders on hand. All plywood was marketed through a company-owned warehousing system. Mill D both rotary-«cuts and slices veneer, manufacturing a combined total Of roughly 60 million square feet in 1964. Plywood production totaled 13 million feet for the same period, 80 percent being manufactured with a particleboard core. Wall paneling accounted for 30 percent of the production while kitchen cabinet plywood and custom furniture stock each made up 35 percent. Two 119 rotary lathes and two slicers were being used by the firm at the time of the visit. The lathes were an average 10 years Old while the slicers were but one—half that in age. Three driers and five presses averaged 3 and 5 years in age, reSpect— ively. Mill D employed 225 production workers and 48 staff members. The average hourly production wage was $1. 30 (U. S. dollars) including fringe bene- fits. All Of the plywood was made-to-order with 80 percent of it being marketed through a warehouse system. The remainder, consisting Of cut—tO-size material, was sent directly to those firms utilizing it. The product—type used in the cost comparison of Mills C and D is essen- tially the same as that used in the regional analysis--1/4" prefinished wall paneling. The species is restricted to walnut because one mill was unable to report cost figures on yellow birch (they did not manufacture any). Although Mill C utilized a veneer core material, Mill D did not. Instead, a hardboard center measuring 1/ 6~inch in thickness was used. The core Species used by Mill C was 1/6-inch ceiba (Ceiba pentardra Gaertn.), a wood commonly called fuma and endemic to West Africa. Cost data (Table 28) have been converted to U. S. dollars for purposes Of comparison in a later section. The exchange rate used was 92 U. S. cents per Canadian dollar. There is a significant difference between the costs of Mills C and D. Face material costs for the latter are $25 less than those of Mill C. This may be partially due to the fact that Mill D slices its own walnut whereas the other one does not. Under these conditions, Mill D can utilize the shorter pieces Of veneer cut at the lathe in other types Of plywood construction (kitchen cabinet 120 TABLE 28. --Comparison of raw material and production costs for two Canadian hardwood veneer and plywood mills manufacturing 1/4-inch prefinished walnut wall paneling (No. 1 face and No. 4 back, 4' x 8' panel) Cost, in U. S. dollars, per Cost item thousand square feet Mill C Mill D 1. Face Material (1/28-inch) $101. 85 $ 76. 85 2. Center Material (l/6-inch) (Fuma) 44.42 (Hardboard) 39. 81 - 3. Back (1/28—inch) 15.85 16.67 4. Labor: Faces and Backs 25. 13 25. 00 Center 4. 55 none 5. Glue 4. 44 5. 56 6. Variable Expense Faces and Backs 27. 52 14. 81 7. Prefinishing and Bagging 11. 01 17. 59 8. Fixed Expenses 22. 76 21. 30 Total Manufacturing Cost $257. 53 $217 . 59 Selling Price, f.o.b. Mill $351. 85 $287. 04 and furniture stock). The net effect is that this mill can substantially reduce the cost it charges its wall paneling Operation for the face material it receives. Mill C, on the other hand, must purchase its face veneer and has little or no shorts which can be used in its other plywood manufacturing Operations. 121 Center material costs Mill D somewhat less than its counterpart, the difference being at least partially due to the material itself. Hardboard is not currently used to any great extent in panel construction, but there seems to be little reason why it will not gain wider acceptance in future years. The use Of this material by Mill D enabled it to save labor costs on the center because it needed no further preparation before being used. Variable expenses for Mill D were also lower than those Of Mill C. You will recall that repair and main- -. tenance labor and other indirect labor costs are included in this cost category. In addition, certain payroll costs are also included. Mill D, with its newer machinery, might be expected to incur less of this type of cost than Mill C. Then, too, Mill D has achieved both a veneer and plywood production similar to that of Mill C, but employs 125 fewer production workers. This would almost certainly have an effect on all costs, but particularly the payroll costs. You will note that the selling price, f. o.b. , for the plywood produced by Mill D is considerably lower than that of Mill C. The buyer of Mill D's ply- wood, however, will be forced to absorb a greater freight cost than if he pur- chased from Mill C. This additional cost may vary between $10 and $20, depending on the market being served. It is due to the relative remoteness Of Mill D to pOpulation centers and markets in comparison to Mill C. Raw Material and Production Costs for Several Philippine Firms Lauan or Philippine mahogany is the principal Species1 used by the Philippine veneer and plywood industry. Over 2, 800 million board feet of logs 1Technically, there are many species comprising the Philippine mahogany grouping and all are commonly called lauan. 122 of this species were cut in,1962, 46 percent of which was exported in log form to manufacturers of lumber, plywood and veneer in Japan, the United States, Italy, France, Korea, Taiwan and Australia. Japan, however, is by far the largest importer of lauan logs, consuming over 80 percent of the Philippine export Of this Species. In 1961, there were 9 veneer mills and 18 veneer and plywood mills in the Philippines. Nearly all of the plywood mills concentrate on the manufacture Of 3-ply veneer-core paneling of either 1/4- or 3/16-inch construction. The 1/4-inch panels are made from several combinations of veneer thicknesses such as 1/16-inch faces and backs and 1/7-inch centers or 1/20-inch faces and backs and 1/6-inch centers. Philippine mills are apparently equipped with some very modern equipment of American, German and Japanese make. American lathes, including. such well-known names as Coe and Capital, are used by some Opera- tions. The 1961 plywood production for the Philippines totaled 260 million square feet with 111 million square feet of it being exported. Philippine mills manu- facture very little prefinished plywood, preferring instead to allow this process to be done by the country importing their plywood. Apparently, the veneer log resource in the Philippines is largely owned by the government, and logs are harvested on a concession basis. This tech- nique closely resembles the same process by which our domestic mills buy timberfrom the U. S. Forest Service. The lack of a well developed tranSporv- tation system for moving logs from forest to mill has created a Sizeable differ- ence in the raw material costs among the mills (Table 29). A mill close to a concession area would normally pay much less for its logs. Whether or not a 123 mill owns its own timber would also be an important factor in raw material costs. Although these same factors affect our domestic firms in a similar manner, they do not cause as pronounced a variation in material costs in the United States as they seem to in the Philippines. Some Philippine mills operate without con- cession timber at all and are forced to purchase their logs from exporters at export prices so as not to endanger their mill Operations. In doing so, they pay a premium for their logs. Unfortunately, the cost data in Table 29 are based on all different grades of export plywood, the most common one being the C grade. A comparable domestic panel (U. S.) would probably contain a No. 2 face and a No. 4 back. As one can readily see, there is considerable variation in production costs among the Philippine mills. Mill B's log cost is the lowest Of the group while its direct labor cost is the highest. This would suggest that Mill B purchases a lower grade of log initially, either because it manufactures a lower grade of plywood or because it has no source of better material. In using the lower quality logs, more time must be spent in sorting, handling and cutting the veneer than if a better quality log has been used. Glue costs, as a percentage of the total production costs, were quite high for some firms. It is likely that-these mills used imported glues, the cost Of these being over 30 percent higher than those Of Philippine manufacture. Gross profitableness1 for Philippine plywood firms is notably high, averaging over 50 percent for most firms. Production cost figures in the Philippines are roughly 1Gross profitableness (%) = Total Sales - Cost Production 100 Cost Of Production x 124 00030000 00 .003 5 00000 on .m n 00:00 .0 .D 000 .0000 0wadaoxmn .am .a .880 0.5330 Ho owozoo 3.0530000 2: 0o 3333.5 "8503 .3239 9.8352 :0 202 00000> 000 0003.0?0 .00 0000000000 05030000002 00 N030 000003000. 03.00:; .00. 000000043. 20000 0000300000 .000... 000000 0000005 000 00 .000 n 0000002005 0.0 .0 .0200 000000 000095. e .2: 3 .30 e .2: S .30 o .80 mm .30 e .80 ea .03 e .80 me .000 0030. w .2 $0 0.3 3.3 0.0.0 em .0 en“ 2 .2 9: 3.0. 3330.0 3850 1000002 .0000 000000000 .0800 633800583. .0. 0:8. mm. on 3.. 0.0.. 3. 0.0 r 3.. 0.0. 3.0 3265 .n a...“ so.” as 8.0 as 8.0 on: 2.0 3. 8.0 8.800 .a 08.3 .m «.2 3.0 0.3 $0 0.3 «no 22 3.0. 90 3.6 2.00 .m 0.8 3.20 4.3. 3.20 0.3 3.4% 23 5.20 3.8 3.30 33 .0 :38 0o 38 038 0o 38 0o 33 0o 38 0o «000.00% .w>< 000000m 0000 300.00% 0000 «000.00% 0000 000000m 0000 .w>< 08388 0 :02 0 as. m a: ... :02 so: :80 0 .0 .0 .0 2:2 «000 000000 00000000 000 0.000200 .0 .D 00 .0000 20000 .0 x .0. .000000 :0 ... 0003.30 030000000000 00000 0030000 :03 00:00 000010} 0000300000000 038 000330 000 00000> 0003000: 05003005 00000000 000 00000 0003000000 000 00000008 300 00 0000000800): .00 mamfla 125 20 percent higher now than they were when the data for Table 29 were originally compiled. Raw Material and Production Costs for Domestic Mills At the request of the Hardwood Plywood Manufacturers Association of Arlington, Virginia, a study of operating costs for domestic mills was conducted in 1962 and 1963 by the accounting firm of Seidman & Seidman. A questionnaire and instruction sheet was sent to 57 companies in 1963, but only 26 of these submitted usable data. Certain data obtained in the study were summarized on a regional basis, using Department of Commerce geographical classifications. Seven firms in the East North Central region replied to the Seidman questionnaire; six were located in Wisconsin and the other was in Michigan. A composite statement of income for 26 veneer and plywood companies in 1963 showed that net income before federal income taxes was only 1. 94 percent of the value of net sales (Table 30) . The East North Central States fared much better in this respect with a net income calculated to be 4. 22 percent of net sales. "Other income" in Table 30 consists of interest paid on debts and interest and dividends received on investments. The net difference between the two was a negative sum for the firms surveyed in 1963. Manufacturing overhead is made up of indirect labor (including supervision), depreciation of production equipment, and other fixed expenses. The "cost of goods sold" is an intricate segment of the total production cost. It is comprised, as we have noted, of materials consumed, direct labor and manufacturing overhead. In the survey of 26 firms by Seidman & Seidman 126 .000000>0 00000000000000 Any 000 .00000 000000 Amy .0000000000 0000000000 Ad "00 0000000000 00 0000 00000 00 0000 000.0 0000000 00 000 00000 0000 0000000 000000000. 00000 00000000 0.30 000000000 0000000000 0000000001000 00.0.0 ...0 .0 .0000 0500000 08000000.. .000000000 000330 0003000: 000 00 000000000 000000 0000030003 ...0000 .0000000 0000000 000000000 00 00 00000 000000000 90000030000 8300000 0083.000 0.830000: 0000005800 00.0.0.0 800.80 00.000000 0 0.080.000 .8080 all 000.00 0.0 0.0.0.0 000 .0 000.0. $800 088:0 82 0oz - 008002603 02 .00 00.0. .00 a... .3 30.. 0 00. 0 208.00 .0200 «c .0 80.. .0 mm .0. 0o .0 m0. .0. 0.800 088:0 0.0002200 000000000 00500 000 0.0 .0 mm .0. 00. .0 00. .00 mo .00 03000000008000. 4000000 00 .00 mm .0 mm .5 00. .00 00. 0.0 00000 00 000000 00000 0.0 .00 E 0.0 00.00 0... .5 mm .00 00.0.0 00080 00 0000 08 .80 00.8 .80 00.8 .80 00.8 .80 00.8 .80 8000 $2 008.00 a 008.00 0.0 $800 .00 0.08.00 3 0.8.00 000 0800000000-:02 00.0080 .080 .0 0005.00... 000050 000080 5.82 .0 38080.. 0885 0000000000 :4 000 0000 .00000 000000 00000000000000 0000 00 000000 0000000 000 00 0000000 0003.000 000 00000> 00030000 00 000 00000 000 00 00000 .0000000 00 0000000000 0000000000 00?: .00 mama? 127 in 1963, the ratio of the cost of goods sold elements were as follows: , Materials consumed 55. 91% Direct labor 26. 67 Manufacturing overhead _1_7ig_ 100. 00% Overall, the combined cost of these 3 elements was 87. 34 percent of sales. The next step in the analysis of domestic costs is to combine dollar costs for each of the sales and income elements (Table 31). Using the ratio of elements of cost of goods sold, the figure of $36, 551 thousand dollars in 1963 is comprised of the following: (Thousands of dollars) Materials consumed (55.91%) $20, 436 Direct labor (26. 67%) 9, 748 Manufacturing overhead (17. 42%) 6, 367 $36, 551 The addition of general, administrative and selling expenses to the cost of goods sold yields a cost figure that closely reflects the total costs of produc- tion for the 26 companies covered in the survey. Technically, selling costs should not be included in this figure, but there is little choice in the matter with the Seidman data. 4 .J . 128 TABLE 31. --A composite statement of Operating income, based on net sales and measured in dollar costs, for domestic mills in 1962 and 1963 Sales, cost and income elements 1963 1962 (26 firms) (24 firms) Amount Percent Amount Percent (thousands) to (thousands to of dollars) sales (%) of dollars) sales (%) Net Sales (sales less returns and allowances) Cost of Goods Sold Gross Profit on Sales General, Administrative and Selling Expenses Operating Income Other Income or (deductions) - Net Net Income Before Federal Income Taxes $41,851 36, 551 5, 300 4, 033 1,267 (453) 814 100. 00% .1337, 904 87. 34 32: 526 12.66 5,378 9.64 3,078 3.02 2,300 (1.08) 87 1.94% 2, 387 100. 00% 6. O7 .23 6.30%; Source: Seidman & Seidman, Certified Public Accountants, "Hardwood Plywood Institute Participant's Industry Data as to Operating Income Factors, 1963. " Unpublished report presented to the Hardwood Plywood Institute, Arlington, Virginia, 1964, p. 7. 129 1963 (26 firms) Amount Percent of (Thousand of dollars) total (%) Materials consumed $20, 436 50. 35% Direct labor 9, 748 24. 02 Manufacturing overhead 6, 367 15. 69 General, administrative P ___. and selling expenses 4, 033 9. 94 , 1 $40, 584 100. 00% I These percentages will be used in the next section for comparative pur— , poses. A Comparison of Production Costs Between Selected Domestic, Regional, CanadianL and Philippine Hardwood PMOOd Mills You will recall that this cost comparison study was designed to discover major areas of difference between regional, domestic and foreign producers of hardwood plywood. Ideally, the products, Species and cost accounting systems associated with the comparison should all be the same. But, as we have observed, such an accord is difficult to achieve. In making this comparison of costs among manufacturers, the main emphasis will be on the percentages of materials, labor, etc. , in the total product cost rather than on the absolute dollar value of these variables (Table 32). Among the cost figures for Canadian and American mills in Table 32, Mill A's cost for materials (expressed as a percent of total cost) was lowest. Note, however, that this same mill had the highest labor costs of the four. Glue costs for Mills A, B, C, and D were surprisingly uniform while those 130 .00 0308 8 0000000 000% 0 00 000308 300030.00 000000000 000 @008 ”5000 05 0» H0000 000080 00 mp 0000035 .00 030A. 8 0000000 0003 0 00 000308 3000308 08008 030.8 0080000 000. 3 00000 000080 80 03 000000m0 :60 8.2: 8.2: 8.8% 8.82 8.8% 8.2: 8.8% 8.2: 8.8% 8.2: 8.8% 8088.838. m .8 8 .w 8 .8 8 .8 a .8 8 .00 a .8 08 .8 a .w 08 .00 80880 . 050000200032 0 08880 .888 0 .3 0030308080484 0 .N mm . . . . . . a .3 mm .00 «00.308 0 H am an N mm ca 3 . c .0“ v .0 00 .0 & H 3 00 mm 0 .mm mm .mm 0.00.30 "00004 0.00 «.3 _ 3.0 0.0 00.0 04 00.0 0.x 00.0 H.N , 00.0 030 «.8 8 0% a. .8 8.8% m8 8 8% m .8 8.5% «.8 8% % 002 03:8 .0000 #080002 33 Ho 33 mo 80068 :88 8 8863 083 8 0.8063 :38 8 0.3063 0.000000 H88 “0 0.00503 000000m 0000 000000m 0000 800.00% 0000 80000m 0000 .0a8 000000m 0000 0300800 Q U m < 808 8.000 cm no 80000 058 08000800 0080205 Ausflgv 058 00000000 3003 30:05 058 ~00030m I w 00 .03. $030000 :03 0000808001000 .0 0 .0 00810} no 000m 000000 0000005 .003 058 0003.30 00030000 0080205 000 0.800000 4000800 00000000 0003000 00000 00300008 00 000800800 <1: .mm mama‘s 131 of the Philippines were extremely high when considered as a percent of total production cost. Material costs for Mills B, C, and D were ahead of the com- posite figures for 26 domestic mills, but this might be expected because of the broad range of plywood products that the latter encompasses. One of the most striking aspects of the cost figures is the very low produc- tion cost involved in manufacturing 1000 square feet of lauan plywood. It is little wonder that even after profit margins and marketing costs had been added, this species tends to dominate the American hardwood plywood market. The average productivity of the 4 Philippine mills amounts to about 1. 8 panels per man per hour. In terms of plywood square footage, this is 58 square feet per man per hour or 17.2 man-«hours per thousand square feet. If we divide this latter figure into the average direct labor charge of $3. 69 per thousand square feet for 4 Philippine mills, we see that the hourly wage for direct labor becomes approx- irnately 22 cents per hour. The productivity of direct labor for Mill A, in con- trast, was 44. 9 man-hours ($88. 82/$1. 98) per thousand square feet. There are perhaps many reasons for a difference in productivity of this magnitude. Some of it may be due to the difference in species, but more than likely the quality of the final product and the machines used in manufacturing it are key factors. You will recall that we have priced a high quality yellow birch panel for Mill A' while that of the 4 Philippine mills was a somewhat lower quality panel made of lauan. The Philippine mills are also using much larger diameter logs, thus realizing an economy in this respect. Overall, the problem of productivity merits further study. Canadian mills were noted to have a fairly low percentage of total costs 132 assigned to the administration, Operating and fixed expense category. These same costs for Mill B were appreciably larger, perhaps partially due to a greater depre- ciation expense at that mill. Note, too, that Mills C and D also experienced simi- lar'costs for each of the major categories (materials, glue, labor, etc.). It would appear that the study of production costs among mills covered in the survey was limited by the variation in data. The method succeeded in identi- fying only the broader problem areas and differences existing between the firms. They include the following: 1. The absolute dollar costs for Philippine mills were Sigiificantly lower than either the American or Canadian firms. This was perhaps largely due to differences in wages paid to production workers. 2. For all mills, there seemed to be an inverse relationship between material costs and labor costs. The mills which paid less for their logs invariably ended up paying more for their labor. 3. Productivity differences apparently exist between domestic and foreign mills, but no one factor appears to be entirely responsible. Differ» ences in machinery, Species and product—types are all important considerations. 4. Profit margins for domestic mills were found to be quite low, especially when compared to alternate investment opportunities. These margins also vary widely from region to region, and were somewhat dependent upon the Species being used. 5. Canadian Mill D had lower center or core costs than did either American mill or Canadian Mill C. Part of this difference may have been due to the type of material (hardboard) used by Mill D. In View of the shortage of core material 133 existing in regional mills and the current low profit margins, the use of hardboard and particleboard as a core material merits further consideration. 6. Raw material. costs made up a significant portion of the total cost of producing a 1.000 square feet of 1/4-inch wall paneling, averaging 50. 4 percent for 26 domestic mills. Further study should be made of the factors influencing raw material costs so that areas of possible savings might be identified within this cost category. CHAPTER VII SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS The hardwood face veneer and plywood industry of Michigan and Wisconsin has undergone some significant changes in the past 15 years. An influx of low- cost plywood imports, declining margins of profitability, a shortage of quality timber, and the failure to participate fully in the growth of the hardwood ply- wood industry are but a few of the many developments that have unfolded during this period. Included in this chapter are: (1) a presentation of the results of the study (summary), (2) an interpretation and assessment of the results in regard to their significance (conclusions), and (3) identification of areas where further research would prove beneficial in studying the hardwood face veneer and plywood industry (recommendations). Summary Mill Closures Eight mill closures were found to have occurred over the past 15 years and were equally divided among Michigan and Wisconsin. No Single factor, it seemed, was responsible for the closures. The competitive position of each firm appeared to be weakened by several external factors (imports, substitutes, raw materials). When these were combined with a series of inappropriate 134 135 management decisions, the mill closed. The general decline that has occurred in the veneer log resource during recent years did not appear to be a major factor in any of the closures. Similarly, the influx of low-cost imported ply— wood could not be considered a major cause of closures, either. Veneer Log Resources Hardwood face veneer and plywood mills in Michigan and Wisconsin utilize I a number of Species. with hard maple, yellow birch, and red oak being among the more important. Regional resource data indicate that both basswood and yellow birch are in short supply. Red oak, although seemingly plentiful at this time, may be in short supply within the next 20 years unless manage- ment of this Species is improved. The future availability of American elm is also in question at this time because of the devastating effect the Dutch elm disease is having on this Species. Of all the species now in widespread use by the regional industry, only hard maple seems to be in relatively good supply. Aspen and soft maple are fairly abundant, but as yet there is little demand for them as veneer logs. The veneer and plywood industry in Michigan and Wisconsin has annually consumed 50 to 60 million board feet of logs in recent years. The resource appears to be capable of adequately meeting a sustained demand of this magni ~ tude well into the next decade if present use patterns are maintained. Roughly twice as much material was judged to be suitable for use as veneer logs as was being used. It is this investigator’s opinion that if the regional hardwood face veneer and plywood industry adopts a technology that would allow it to 136 economically process logs of both small diameter (1 1-14 inches) and low quality, it then could expand considerably in the next 20 years. If this technology is not fully developed, then any desire for future expansion (in regard to the resource) would be more directly related to the ability of the veneer industry to compete with other wood processing industries for the available log resource. Survey of Hardwood Veneer and Plywood Mills In 1964, there were 24 hardwood face veneer and plywood firms in Wis- consin and 8 in Michigan. Executives interviewed during the course of the study cited many problems which they believed confronted the industry today. Among the more important were the low-cost imports entering the country, the de- crease in quality of this raw material supply, the export of native log Species such as elm and walnut, the continued rise in labor costs, a shortage Of regionally manufactured core material, and the lack of trained manpower. Over 90 percent of the veneer produced by either the veneer or the veneer and plywood mills in Michigan and Wisconsin was the rotary type. Altogether, more than 600 million square feet (surface measure) of commercial—type veneer was produced by these mills in 1964. The investigation showed that 3-ply veneer plywood constituted a large portion of all plywood manufactured within the region and that this material was extensively used in prefinished hardwood plywood panels. One of the most Significant findings of the mill survey was related to the age of veneer and plywood machinery being used by regional manufacturers. Data collected during the study showed that veneer lathes, driers, and plywood 137 presses averaged 12 years or more in age. The results of the study would indicate that veneer and plywood manufacturers need to take a close look at their machinery, both in respect to age and capability. The regional industry produces a multitude of veneer and plywood products, and the markets they serve are equally varied. A large portion of all veneer and plywood manufactured by mills in the survey was made-to-order, with wall paneling, doors, and kitchen cabinet stock being among the more important products. Five basic distribution methods were identified as being commonly used by these mills: The agent or broker, the parent~firm, company salesmen, the house account, and the wholesaler. Although wall paneling, doors, and kitchen cabinet stock comprised a major portion of the product-mix, Specialty plywoods are becoming increasingly important. Among other products, curved or molded plywood for chairs, sofas, church pews, and wall paneling fall into this category. It is expected that further emphasis will be given to the production of Specialty plywoods in future years. Conclusions It has generally been established that the hardwood veneer and plywood industry of Michigan and Wisconsin has remained static during a period in which domestic consummion and production of hardwood plywood has increased markedly. Several factors seemed to have caused this Situation. It is this investigator’s belief that there has been: (1) Complacency on the part of manufacturers within the region. (2) A problem of Obtaining an economically suitable supply of 138 regionally manufactured core and crossbanding material. (3) A lack of desire or inability on the part of regional mills to participate fully in the product-area where greatest national growth has occurred - prefinished 1/4—inch wall paneling. The first Of these factors is difficult to measure. It appears that several regional firms have been in family ownership for a number of years, and that there has been some reluctance to incorporate new machinery and ideas into the manufacturing process. The lack of a suitable supply of core material may have been responsible for the loss of a portion of the region's stock panel industry to the West Coast where eastern hardwood face veneers are placed on lauan and fir core and crossbanding materials. In recent years, a great deal of the growth which has occurred in the domestic hardwood plywood'industry is directly the result of a surge in the market for prefinished 1/4--inch wall paneling. The northern Lake States region, for some unknown reason, never fully participated in this market. A large percentage of all the plywood produced by the plywood industry grouping came from one mill which Specialized in prefinished wall paneling. But, other than this one mill, the regional industry has not followed the national pattern. A general Observation has been that those firms which do Specialize in the manufacture of wall paneling are alike in two respects — they make only wall paneling and they seem to have access to an economically suitable supply of core and crossbanding material. The one regional mill which Specialized in the manufacture of wall paneling, you recall, operated its own crossbanding and core mill in Africa. Although the importation of hardwood plywood has had some effects on the 139 regional industry, this investigator believes that the impact has not been as great as some trade associations and mill managers would have one believe. It is my feeling that the domestic hardwood plywood industry could have met only a small segment of the demand that has deveIOped for hardwood wall paneling in recent years. The imports have been largely centered in the low-cost panel lines. It would seem that these imports have given the American public an opportunity to economically panel rooms which, because of cost factors, could not be previously done with domestically manufactured material. Our own manufacturers responded to the import situation with a greater variety Of panel products constructed of both wood and wood-base materials. The net effect was the creation of many new markets for domestic firms. The iinportance of cost accounting systems and management decisions cannot be overlooked. It is this writer's opinion that regional firms (as a group) lack the prOper information needed to make machine replacement decisions. Furthermore, it would seem that few of these firms have a sufficient know- ledge of their own production costs. I suSpect that management is being severely handicaped by the lack of this information and that it is one of the main problems of the regional industry today. The suitability and availability of the veneer log resource will have an important bearing on the future of the regional veneer and plywood industry. It is generally believed that the average diameter of veneer logs will continue to grow smaller while competition for the resource increases. The lower diameter logs, in turn, will create increased labor and production costs. Because of this, regional mills will need to make thorough studies on the 140 efficiency and capabflity of all production machinery. Major machine categories, such as the lathes, veneer driers, and plywood presses, Md be among the first to be scrutinized, but most firms will find that they have very little cost data on which they can base decisions regarding machine replacements. In other areas regarding the resource, Ifeel that future changes in consumer acceptability Of various grades, types, and species of veneer and plywood may have an important effect on the raw material supply available to the manu- facturer. For example, if a substantial demand for face veneers with knots and other natural defects can be generated, the net effect could be both that of extending the supply Of currently preferred veneer Species as well as bringing into general use the under-utilized species. The region, we have noted, is currently undergoing a phase of "expansion by acquisition" in which some veneer and plywood (mills have been purchased by national wood products firms. There is little reason to believe that this trend will not continue over the next 5-10 years. Profit margins in regional mills have declined in recent years, and undoubtedly, this has severely hampered many firms in their desire to implement capital improvement programs. Some mill managers have grown reluctant to risk capital on needed improvements in plant facilities because of the uncertainty involved. Under these conditions, some mills have become susceptible to acquisition. The market for plywood specialty products will increase and regional mills should participate in this growth. Profit margins on these products, however, will diminish for regional manufacturers because low-cost imports will penetrate this market much in the same manner as they did those for 141 paneling and door skins. The market for hardwood plywood sheathing will expand dramatically in the next decade, and it is believed that several new mills de— signed to manufacture this product will be Opened within the region. Overall, the number of commercial face veneer and plywood will remain fairly constant. Recommendations This writer believes that there are several areas in which further research would greatly benefit the regional veneer and plywood industry. They include the following: (1) (2) (3) (4) A study of core and crossbanding material requirements in the industry. This would include an investigation regarding the suita— bility and acceptance of hardboard and particleboard in plywood manufacture. A study of machine capabilities in the regional industry, determining under what conditions each should be used and the effects each has on various manufacturing processes. For example, is the quality of the regional resource such that it is economical to reduce core diameters to 3 1/2 - 4 inches ? Can fly-clipping be suitably used on high—quality northern hardwood veneers ? A study which determines the economic supply of veneer logs within given procurement areas for groups of regional mills. A study of cost accounting needs in the hardwood face veneer and plywood industry and the development of a system that will adequately reflect the information needed to make decisions at all levels of 142 management. (5) A study of productivity within regional mills, aimed at discovering areas where manufacturing efficiency can be improved and costs reduced. (6) A measurement of hardwood plywood production trends in the national industry and the significance of these trends to regional manufacturers. (7) A study of the effect that building codes are having on hardwood ply- wood markets . BIBLIOGRAPHY A SELECTED BIBLIOGRAPHY Findell, V. E., Pfeifer, R. E., Horn, A. G., and Tubbs, C. H. Michigan's Forest Resources. Lake States Forest Experiinent Station Paper No. 82. St. Paul: U. S. Forest Service, 1960. Fleischer, H. 0. ”Our Changing Veneer and Plywood Industry, " Forest Prod- ucts Journal, VI (February, 1956), 50—53. Fleischer, H. 0. Use of Small Logs for Veneer. Forest Products Laboratory. Research Note FPL-0101. Madison: U. S. Forest Service, 1965. Guilkey, Paul C. "Hardwood Resources in Michigan and Their Current and Potential Uses, " Forest Products Journal, VII (November, 1957), 23A-25A. Hair, Dwight. "Projected Demands for Hardwood Veneer Emphasize Research- Management Needs, " Forest Products Journal, XVI (January, 1966), 28-30. Hair, Dwight and Ulrich, Alice. The Demand and Price Situation for Forest Products-4963. Forest Service Miscellaneous Publication NO. 953. Washington: U. S. Forest Service, 1963. Harrar, E. S. Defects in Hardwood Veneer Logs: Their Frequency and Impor-- tance. Southeastern Forest Experiment Station Paper No. 39. Asheville: U. S. Forest Service, 1954. Haskell, Henry H. Usingthe FPL Hardwood Veneer Grades. Forest Products Laboratory Research Note FPL-025. Madison: U. S. Forest Service, 1963. Henley, John W., Woodfin, Richard 0. Jr., and Haskell, Henry H. Recom— mended Veneer Grades for the DeveIOpment of Hardwood Veneer Log Grades. Forest Products Laboratory Research Paper FPL-9. Madison: U. S. Forest Service, 1963. Horn, A. G. Veneer Log Production Declines Sharply in Lake States as a Result of Mill Closures, 1958. Lake States Forest Experiment Station Technical Note NO. 567. St. Paul: U. S. Forest Service, 1959. 44 145 Knutson, Robert G. Veneer Log Production in the Lake States Continues General Decline, 1963. Lake States Forest Experiment Station Research Note LS-54. St. Paul: U. S. Forest Service, 1964. Lord, William B. "Performance and Structure of Major Log Markets in the North Central States." Unpublished Ph.D. dissertation, School Of Natural Resources, University of Michigan, 1964. Mayhew, Wayne E. "A New and Revolutionary Method Of Allocating Costs to Veneer by Grades, " Forest Products Journal, VIII (April, 1958), 27A—31A. McDonald, Clark E. "Hardwood Plywood: 1. 5MM," Forest Industries, LXXXXII (January, 1965), 46—47. McDonald, Clark E. ”Hardwood Plywood Production Up 12 Percent, " Forest Industries, LXXXXI (January, 1964), 42-43. Seidman & Seidman, Certified Public Accountants. "Hardwood Plywood Insti— tute Participants' Industry Data as to Operating Income Factors, 1963. " Unpublished report presented to the Hardwood Plywood Institute, Arling— ton, Virginia, 1964. ' Stone, R. N., and Thorne, H. W. Wisconsin‘s Forest Resources. Lake States Forest Experiment Station Paper NO. 90. St. Paul: U. S. Forest Ser- vice, 1961. "The Mess at Atlas Plywood," Fortune, LVH, No. 1 (January, 1958), 118—119, 234,236. ’ Toole, A. W. q "The Lake States Forest Resource, ” Forest Products JournaL X (January, 1960), 51-54. '\ Truax, T. R. , and Fleischer, H. 0. "Trends in the Veneer and Plywood Industry of the North Central States, " 1954 Proceedings-—Society of American Foresters Meetigg (Milwaukee, Wis. , 1954), 97-101. U. S. Department of Commerce, Bureau of the Census. "Area Statistics," Census of Manufactures, Volume III, 1954. Washington: U. S. Govern- ment Printing Office. U. S. Department of Commerce, Bureau Of the Census. "Area Statistics," Census Of Manufactures, Volume III, 1958. Washington: U. S- Govern- ment Printing Office. U. S. Department Of Commerce, Bureau of the Census. "Area Statistics," Census of Manufactures, Volume III, 1363. Washington: U. S.- Govern- ment Printing Office. . 146 . Department of Commerce, Bureau of the Census. "Hardwood Plywood 1964," Current Industrial Reports. Series M24F(64)-1. Washington: U. S. Government Printing Office, 1965. . Department of Commerce, Business and Defense Services Administration. Commercial Standard 0835—61 for Hardwood Plywood. Washington: U. S. Government Printing Office, 1961. . Department of Commerce, Business and Defense Services Administration. Hardwood Plywood. Washington: Business and Defense Services Admin- istration, Forest Products Division, 1963. . Department Of Labor, Bureau of Labor Statistics. Case Study Data on Productivity and Factory Performance--Veneer and Plywood. BLS Report NO. 37. Washington: U. S. Government Printing Office, 1953. . Forest Service. Estimatingthe Weight Of Plywood. Forest Products Laboratory Technical Note NO. 260. Madison: U. S. Forest Service, 1956. . Forest Service. Timber Trends in the United States. U. S. Forest Service Forest Resource Report No. 17. Washington: U. S. Govern- ment Printing Office, 1965. . Forest Service. Veneer LogPrOduction and Receipts in Eastern United States, by State and Species, 1963. U. S. Forest Service Research Note WG—6. Washington: U. S. Forest Service, 1964. . Tariff Commission. Hardwood Plywood: Remrt on Escape-Clause Investigation No. 77 Under Section 7 of the Trade Agreements Exten- sion Act of 1951, As Amended. Washington: U. S. Tariff Commission, 1959. . Tariff Commission. Hardwood Plywood: Report on Escape—Clause Investigation No. 39 Under the Provisions Of Section 7 of the Trade Agreements Extension Act of 1951. Washington: U. S. Tariff Commission, 1955. . Tariff Commission. The Production, Importation and Market'mg of Hardwood Plywood in the United States. Washington: U. S. Tariff Commission, 1955. Villaflor, Armando A. Analytical Study of Manufacturing Operations of Plywood and Veneer Mills in Mindanao. University of Philippines: College of Forestry, Department of Forest Utilization Engineering, 1963. 147 Wisconsin Department of Resource Development. Wigconsin Forest Products Marketing Bulletin. Number 33. Madison: Department of Resource Development, 1965. APPENDIX A QUESTIONNAIRES USED FOR INTERVIEWS - _— —" 4 Date of Interview Name of Company Location Interviewee ' Title Address of Interviewee 1. Historical Bacgground (a) Date Of founding Date of closure (b) Last president or general manager (c) Chief products (percentages) (species) ((1) Principal markets (e) Affiliations with larger companies (f) Number of production workers Other (g) What was done with plant equipment, site, and workers after closure? 2. Reasons for Closure What, in your opinion, were the chief reasons for the mill's closure? Rank according to importance. 3. Additional Comments 149 150 Parent Company Address Plant Name Address Name Of Officials interviewed: 1. Title 2 . Title 3. Title Survey made by Date PART I. PLANT PRODUCTION INFORMATION A. Type of Products Manufactured. 1. 1 Enter below the estimated quantity of each type of veneer and plywood manufactured in the plant in 1964. Mark. ”none" for any products not manu- factured in the plant. Veneer ' Plywood Estimated Quan. (Sq. ft. Est. Quan. Product of surface meas.) Product (Sq. ft. s.m.) a. Rotary veneer a. All veneer b. Sliced veneer Plywood c. Half-round ' 1. 3—p1y veneer 2. 5—ply d. Other veneer 3. Other (Specify) (Specify) b. Lumber—core Plywood (Specify # of ply) c. Particleboard core (1. Other 151 1. 2 What percentage of the total veneer production or: inventory is used for manufacturing 4x8 plywood panels? What percentage is used for flush doors? 1. 3 Enter below what percent Of total veneer production each thickness consti— tuted and indicate by check mark whether commercial or figured face veneer, or core veneer. Thickness Est. % Face Back, Core and (inches) of Total Prod. Comm. Fig. Crossband Veneer 1. 4 List below finished products manufactured in this plant in 1964. Veneer Products Plywood Products B. Other Production Information 1. Enter below the types of wood used in this plant and approximate origin, 1964. Species OriLin Method of Transportation (Region and State) 2. Enter below the estimated production capacity of this plant, 1964. Product Amount (Sirface measure) 152 3. For each of the Factory Operations listed below, give a brief description of the machinery used. Machinery Used Manufacturer's Name, Name of Department Est. Age of Each NO. of or Operation Machine Units a. Veneer Cutting Operations Yard handling of logs Barking Lathe Clipping Drying wears b. Plywood Manufacturing Clipping J Ointing Splicing Gluing Pressing Trimming mmngr-I c. Plywood Finishing 1. Sanding 2 . Storage PART II. GENERAL PLANT INFORMATION A. Plant Employment Number of production workers Average hourly wage Number Of staff, office, and supervisory personnel B. MarketinLPractices 1. Enter below the estimated size (surface measure) of the minimum, average, and maximum order for 1964. Size of Order Veneer (Sq. ft.) Plywood ($1. ft.) Minimum order Average order Maximum order 153 2. Enter below the percent of total production of the reported product made for stock and the percent made to individual order. Size of Order ~Veneer (Sq. ft.) Plywood (Sq. ft.) 1964 1964 Made for stock (% of product) Made to order (% of product) 3. Enter below the estimated average inventory for 1964 by product type: Product Type Quantity (Sq. ft.) 4. By what means does this plant market its products? 5. What are the marketing channels used by this plant? Product Type of % Of Product Market Channel Marketed in this Channel a. Veneer (Specify types) b. Plywood (specify types) 6. Below list the various end—uses for this plant's production if such infor— mation is available. 154 Product Use % of Product Used in this Manner Veneer (Specify types) Plywood (specify typeS) In management's Opinion, what factors determine the markets for this plant's production? ‘13"71i‘. ~kt‘agr .' 9. PART III. NARRATIVE REPORT Production Planning What is the basis (business forecast, orders, etc.) on which the production of the reported products of the plant was planned for in 1964? Engineeringand Research If this plant (or parent company) has a special department to conduct research for the improvement of the product, plant layout, production methods, cost analysis, time and motion study, or for marketing analysis, describe the nature of their activities and state the number employed. Buildings and Erniipment a. Describe the size and type Of construction of the buildings. (Obtain the square footage of the production area, if possible.) b. Describe any major changes that have been made in the plant's buildings since 1950 and give approximate year in which the changes were made. 0. Describe any major changes that have been made in machinery and equipment for the past 15 years. Give the approximate year in which each change was made. 155 Describe the factors which in management's Opinion contributed the most to changes in productivity in this plant during the past 15 years. What has been the productivity pattern in this plant for the past 10 years ? In management's opinion, what are the major problems confronting the veneer and plywood industry today? APPENDIX B FORMS FOR COST DATA PRODUCT - 3 PLY 1/4-INCH PREFINISHED PLYWOOD (GIS) FACE BACK Center (operation _(probably 1/2 8") (probablLl/Z 8") (1/6") Cost Per Thousand Square Feet Log Run Veneer _leiversion to Grgdel/ Face Veneer -Mfg. Yield l/ Finished Veneer gape Glue (splicing) 1. Total Material 1 ( Peel Veneera/ 1 ( LRoller Dry Veneer 2 E Redry Veneer ( ( Dry Clig ( fioint ( ( Match ( ( Splice ( L InSpect ( ( Face Repair ( ( Size Clip ( ( Dept. Service fi/ II. Total Labor 157 158 FACE BACK I CENTER Operation Cost Per Thousand Square Feet Variable Emense i/ * T -.'.'. 1 Veneer Mill Single Ply 2 Preparation & Mfg. 111. Total Variable Exp. Direct Cost (Sum of I, II, III) IV. Panel Fabrication Direct Cost (from separate sheet) = V. Natural Finish (from separate sheet) = VI. Wrapping—Bagging Direct Cost (from separate sheet) = Total Direct Cost (Sum of I, II, III, IV, V, VI) Fixed EXpense é/ Total Cost (f.o.b. mill) + (add marketing costs where available - per M. sq. ft. basis) *Refers to combined Operations on previous page. .— IV. VI. 159 PANEL FABRICATION (Cost per thousand square feet) Glue (Urea or other) Line up Mix Glue Glue Spread Hot‘ Press Drum Sand Back Size Patch Speed. Polish & Inspect Total Labor Variable Expense Direct Cost (Sum of A and B) NATURAL FINISH (LACQUER) (Seal-sand-2 tOpcoatsy Back seal) (Cost per thousand square feet) Material Labor Variable Expense Total Direct Cost - Finishing PROTECTIVE WRAPJ6 per bag) (Cost per thousand square feet) Bag Labor Variable Expense Total Direct Cost Bagging 160 Footnotes y a. Conversion to grade — that percent Of log run veneer that is suitable for face veneer. b. Manufacturing yield - the percentage of veneer that is intended for faces, backs, or centers that is used in that manner after wet clipping Operations take place. IN \ Includes through green clip. Departmental Service — includes non-productive labor used in single ply preparation and manufacture from redry to size clip operations. ‘3 'fi Variable expense - includes indirect labor, repair, and maintenance labor, Operating supplies, purchased utilities and fuels, etc. Q Fixed expense - includes factory supervision, rentals of space and equip- ment, taxes, property insurance, depreciation of fixed assets, etc. "Illlllllllllllllllll