Unlocking the code to hardwood pulpwood supply : an analysis to determine if intervention in the stump-to-mill supply chain by NCT will increase hardwood pulpwood supply from its members in KwaZulu-Natal?
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Date
2006
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Abstract
NCT Forestry Co-operative Limited has experienced decreased yearly hardwood pulpwood volume sales over the last several years. This indirectly means NCT members have decreased their hardwood pulpwood volume trade to NCT over the last several years. Combined with the general under-supply of hardwood pulpwood from its members, NCT's
current systems do not accurately predict the monthly and yearly volumes from its members. This is because many factors play a role and influence the physical volume of hardwood pulpwood supplied during the marketing process from the stump to the mill. Two independent studies have been carried out by NCT, to determine the main factors causing NCT members to under-supply their hardwood pulpwood. Both reports sighted "price" as the
major factor and driver in contributing to NCT members making a decision to bank their timber or dispose of it elsewhere. Due to NCT's core business being export orientated, "price" is considered to be "exogenous" by nature or defined as an "uncontrollable variable" as the mill delivered price NCT offers its members is a factor of the macro economic conditions between South Africa, United States of America and Japan. More specifically the "price" NCT offers its members is a factor of the exchange rate between the South African rand and the United States dollar. The second contributing factor which was sighted by NCT members as to why they were
under-supplying their hardwood pulpwood was "operational issues".
"Operational issues" can be refined to issues pertaining to the stump-to-mill supply chain. "Operational issues" as apposed to "price" can be considered as a "controllable variable" as every component within the stump-to-mill supply chain can be controlled and managed.
This paper specifically undertakes to investigate, in more detail, what specific factors within the stump-to-mill supply chain are causing NCT members to under-supply their hardwood pulpwood to NCT. Mitigating research into the stump-to-mill supply chain as an area of concern for NCT is the fact that South Africa is currently and forecasted for the future, to have an under-supply and over-demand of hardwood pulpwood. This factor alone has many knock-on effects within the entire forestry value chain.
Combined with the under-supply and over-demand situation for hardwood pulpwood, is the fact that NCT's competitors define the profile of an NCT member, being mainly associated to the medium and small grower category, as the most liquid form of hardwood pulpwood resource available.
By understanding the problems the contracting fraternity faces in the value chain, further mitigates the focus on the stump-to-mill supply chain as a problem area for NCT. Research exposes that mainly "second economy" or "informal contractors" work in the environment of medium and small grower categories. For independent contractors, this environment is characterized by failure to reach economies of scale, lack of business skills, poor access to finance and training, difficulties in getting public
liability insurance cover and limited help from the large corporate grower organisations.
In general, NCT members falling into the medium and small grower categories will invariably experience un-professional service from independent contractors. This causes conflict in the stump-to-mill supply chain and can damage the marketing service NCT provides to its
members and markets. The loyalty of NCT hardwood pulpwood owning members will be tested as the sale of hardwood pulpwood moves more and more into a "sellers" market, which will inherently mean an increase in the bargaining power and leverage these members will enjoy. Buyers who
position themselves to satisfy these anticipated increased needs of private/independent growers will most likely enjoy competitive advantage. This study has found that competitive advantage partly lies in more control and management of the stump-to-mill supply chain. The study has also recommended that NCT adopt a combined strategy of backward vertical integration with keiretsu (a combined supply chain management
strategy that incorporates few suppliers and backward vertical integration in a coalition partnership) in its approach to gain more control of the stump-to-mill supply chain. The study further concluded that the orthodoxy of supply chain management (SCM) emphasises competitive advantage through increased operational control and efficiency combined with market responsiveness from production and distribution processes into the hands of NCT. Further, the paper found that anticipated future competition for NCT would be between the stump-to-mill supply chains rather than between firms. Indirectly this means NCT will have to increase the scope of service to its members and that means increasing its service in the stumpto-mill supply chain. An effective hardwood pulpwood procurement (marketing) strategy rolled out by NCT using a combination of backward vertical integration and keiretsu as supply chain management strategies, in a drive to gain more control and management over the stump-to-mill supply chain
was strongly recommended. This strategy will not only increase the control over the volume supplied to NCT but will also increase the sustainability of fibre by creating planned felling schedules. This strategy will also provide a stable environment for the "informal" or "second economy"
contractors to work in, while satisfying the increasing needs of NCT members, and in the process creating a competitive advantage by providing a much-needed additional service. By adopting the supply chain management approach of using both backward vertical integration and keiretsu as strategies will allow for benchmarking between the two strategies to take place, while at the same time due to increased planning, economies of scale will be achieved leading to cost savings. Cost savings in the stump-to-mill supply chain will allow NCT more flexibility in defending its
mill delivered prices. Hence, the key to unlocking the code to hardwood pulpwood supply from the NCT membership partly lies in the intervention of the stump-to-mill supply chain by adopting a dual supply chain management strategy of both backward vertical integration and keiretsu by NCT in the stump-to-mill supply chain. However, one can capture the hill by using "service" only, but this strategy will not necessary help you hold the hill. A combined strategy of "price" and "increased service" will more than
likely allow NCT to capture and hold the hill.
Description
Thesis (M.B.A.) - University of KwaZulu-Natal, Pietermaritzburg, 2006.
Keywords
Business logistics., Materials management., Forests and forestry--South Africa., Theses--Management.