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Timber meets technology.

Oregon's oldest-economy industry extends its limbs into new economy ways of business

Most Oregonians would use the same sorts of adjectives to describe the state's wood- products industry. Huge. Profitable. Powerful. There's surely no denying the political force this industry wields -- witness the recent $100,000 contributions to the Bush campaign by Oregon timber executives. Nor is there any denying the industry's collective wealth: Six companies that manufacture wood products rank among the top 12 on this year's Oregon Business Private 150 list, with 28 in the rankings overall.

Their collective presence is indicative of timber's historical significance to the state. With Douglas fir to Oregon what wheat is to the Plains, timber has served as Oregon's traditional economic bellwether, a status that -- though bruised by increased regulations and decreased harvests -- the industry retains with pride.

In pioneer times, mills were like family farms -- small in size, built and run to serve their own communities. Over more than a century, the industry has burgeoned into huge business, reaching a peak in the late 1970s, when regional wood-products manufacturers -- sawmills, planing mills, millwork and miscellaneous products -- employed more than 80,000 Oregonians of the 1,088,700 in the work force.

Though automation and decreased timber availability caused industry employment to drop to 50,000 workers by 1998, and numbers are expected to decrease by another thousand this decade, the wood products industry remains crucial to Oregon's economic health. With a greater number of workers than any other single manufacturing category - people with an average wage of $32,500 - the industry is key to the survival of rural counties such as Douglas, Lincoln and Coos.

Rob Freres, vice president of 78-year-old family-owned Freres Lumber Company based in Lyons, east of Salem, acknowledges it's been a matter of survival of the fittest, but says the survivors are faring well. "Remaining wood products players are financially strong, well established, environmentally conscientious and have plants that are both high tech and highly productive," Freres says.

Though Asia's financial troubles meant decreased log exports, Freres says, the clouds bore silver linings. "There was an ample supply of logs for the mills here in Oregon," he says. "For the first time in 10 years, we saw finished product prices rise while timber and log prices remained fiat. The industry as a whole enjoyed near record profitability."

That's not to say it's had an easy time of it. With environmental concerns and forest management policies decreasing harvests, life hasn't been carefree for Oregon's wood products producers. On top of all that, the state's most traditional industry, like all industries today, is facing a marketplace that's increasingly technologically savvy and Web-oriented.

That leaves wood-products executives pondering the future of their companies, making key decisions to position themselves strategically in an industry that's become increasingly fast-paced, competitive and computerized. "Technology has changed every aspect of our business," says Roger Rutan, assistant vice president of marketing for 82-year-old Timber Products Company in Springfield.

The wood-products industry saw impressive gains over the last year alone - employment figures up 10%, net worth up a projected 25%, revenues up 8% and profitability up 5%. But the flip side of the healthy demand for products is a continuing pressure on raw-material supply. And that's malting timber people uneasy

"Fulfillment isn't just a wood-products industry issue," says Patrick Ball, president of the Coos Bay Lumber Company LLC, noting the many e-commerce companies this last year whose Christmas deliveries were two months late. "However, it is one of the biggest challenges that most Oregon producers face, one of the driving forces in our industry's consolidation."

It's also a driving force behind companies' ever-broadening reach to procure trees.

"Coos Bay Lumber couldn't survive if we had to depend on local sources of supply," Ball says. "Right now, we're having to bring in raw material from as far away as Northern California, British Columbia, Idaho, Washington and Alaska, which increases our transportation costs, complicates logistics and places unnecessary pressure on our profit margins."

Timber Products vice president Rutan seconds Ball's concern.

Rutan points out that 1.8 million acres of the Klamath National Forest produce 400 million board feet annually but provide only 40 million, or 10% of their sustained yield growth, to the wood-products industry.

"One of our biggest challenges is a stable source of wood fiber," says Rutan. A problem, he says, is the current national forest management practices - they're based not on "good science" but on politics and emotions.

"With the national forests all but shut down to harvesting, private lands are our primary source of wood fiber," Rutan says. "We feel fortunate to own a private land base to count on for a portion of our needs."

Like most all companies inside and outside the industry, Timber Products is also dealing with a shortage of another raw material: labor. Oregon's unemployment rate hovers at all-time lows, and timber's feeling the pinch. "Attracting and retaining qualified employees at all levels is a huge challenge," says Rutan, noting that it takes more than 1,500 employees to run the company's nine manufacturing facilities, trucking business, timber lands and domestic and international sales effort.

"This industry doesn't have the appeal of the high-tech world," Rutan says. "Adding to the challenge, most wood-products firms have a huge group of employees that will retire in the next five to 10 years."

His company, Timber Products, is currently trying to recruit people to fill that pending void, Rutan says, offering salaries that often are higher than for comparable high-tech jobs.

Even so, many are opting for high tech -- a choice that could be as much about image as substance.

Though timber surely is not on the cutting edge of the new economy, companies are adapting to one degree or another. They've added sophisticated computer systems, management information systems and specialized equipment -- such as laser-guided centering devices that maximize useable wood from every log. Sheridan-based Taylor Lumber and Treating Inc., whose specialty power poles are made from a variety of woods treated with pentachorophenol (PCP) and creosote, is known for its advanced quality-control system. (PCP is a toxic pesticide preservative used for treating wood; Taylor is the No.8 disposer of PCP in the country.)

But the real issue for wood-products companies isn't one of technological applications. The question is more fundamental: To e-commerce or not to e-commerce?

Some companies, particularly the biggest players, are excited by the opportunity. Of the six wood-products firms in the top 12 private companies, four boast a technology or e-commerce executive. And while key personnel tend to be closemouthed about specifics, they're not shy about their interest in e-business.

"The Internet will soon be the preferred way to do transactions," predicts Rutan, who also expects Timber Products, the second-largest manufacturer of hardwood plywood in America, to augment its $500 million in sales (1999) with over-the-Net income. Computer support has already helped employees provide superior sales support. Customer Relationship Management (CRM) software allows Timber Products' outside salespeople to see a complete history of each customer -- everything from the last order to his or her birthday -- on the computer screen with real-time data.

Smaller private companies are getting into the e-commerce act as well. Taylor Lumber and Treating, the specialized power-pole manufacturing company founded in 1946, has had a website ( up and running for a little more than a year, an investment that president Bruce Summers considers a success.

"The 24-hour technology makes a lot of sense, given that our company sells over 20,000 poles a year to clients throughout the United States, South and Central America, the Middle East and Far East," says Summers, whose pole-treating plant also operates day and night. "Our online presence counts for a lot. We want our corporate information accessible to potential customers whenever they need it."

Customers will find subsites in both English and Spanish, including a corporate profile, "logistic services," technical expertise and online quotes. Still, Summers says, the strategy will take time to produce results. "Right now, e-commerce is a lot more hype than reality," he says. The company is still waiting for its first online quote request, according to Summers, though purchasing agents are increasingly using e-mail to mass mail requests for bids.

"E-commerce hasn't yet come into its own as a means of conducting business," Summers says. "But the key point is that even though we haven't done specific deals over the Net we have done specific deals because of the Net."

Not every wood-products powerhouse is convinced. Consider Freres Lumber.

Though nearly eight decades old, Freres didn't make a finished product until two years ago. Deciding to vertically integrate after buying and restoring a formerly bankrupt, dilapidated plywood mill, the company now operates a pair of veneer plants and drying facilities, a plywood mill, a small stud mill, and a trucking division that recently logged a record 29 million miles without a recordable accident.

"All businesspeople look for opportunities to increase their efficiency and effectiveness. We're no different," says Rob Freres. "It should go without saying that we are open to new-economy type technologies."

However, Freres says, e-commerce may be a stretch for his firm. "I've heard about what e-commerce can do for a business," he says. "But the real issue for us is: What can e-commerce do for our business? What's in it for Freres Lumber?"

Freres worries that putting too much emphasis on online sales would change the nature of the way the company does business.

"Pricing in our segment of the industry is an art: If I receive simultaneous calls for the same product, I know that demand is suddenly heating up and I can raise the price a few bucks," Freres says. "When calls go down, I can immediately reflect that change in my prices. We work at the speed of supply and demand."

That's part of the e-commerce problem, Freres says. "There's no way we could realistically update online prices on a minute-to-minute basis. We'd always be behind the eight ball, losing profits as our prices lagged the industry average and or losing sales when industry prices dropped unexpectedly. The website wouldn't be a good source of pricing or availability information, and that's the kind of information that most of our customers want."

Also, Freres can't help but question the value of some presumed e-commerce "advantages." Though online sales would open a new channel of distribution for the company's products, Freres currently runs only a week or two ahead of production and sells every board foot it can produce to just-in-time oriented purchasers.

"Why solicit sales that we can't fulfill?" asks Freres. "Why risk alienating our existing customers by selling to their customers?"

Which is what it comes down to for Freres and others: serving their customers in the manner to which they are accustomed.

"I need the one-on-one contact to maintain my feel for the market," says Freres. "This is a very interpersonal industry. A lot of your credibility and success comes from who you are, who you know and who you do business with."

It's a philosophy that probably hasn't changed much since pioneer mill-owners served their neighbors. Though the industry's evolved, consolidated and become increasingly sophisticated, personal service remains the byword, and the Web can seem an unwelcome intrusion.

"It has taken our company a long time to establish its list of wholesalers, distributors and product users," Freres says. "Anything that gets between me and my customers can compromise our success."
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Title Annotation:in Oregon
Publication:Oregon Business
Article Type:Industry Overview
Geographic Code:1USA
Date:Jul 1, 2000

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