The definition of insanity is to keep doing the same thing over and over again while expecting a different result. This speaks to the current relationship between many contract loggers and many of their customers, the major licensees in British Columbia. It is often anecdotally observed that licensees carry the hard line on contractor rates while at the same time ignoring the opportunities available to improve the success of their contractors.
Recently we met with a licensee who is concerned about the rising rates their contractors are requesting. They do not believe their contractors are operating efficiently and do not feel they should have to pay for contractor inefficiency. Fair comment and a serious concern. They want TimberTracks™, with our large independent productivity dataset, to prove the contractors are inefficient.
Much of the licensee’s harvesting data for the last few years is in TimberTracks™ thanks to their contractors being subscribers and providing us that data. It’s a simple query in TimberTracks™ to compare the productivity of the licensee’s contractors relative to the industry. In fact, we answered the question of their contractor productivity compared to other contractors in the industry in less than one minute. The result was they do have lower productivity but that’s not the answer. Simply saying their productivity was lower than average and they do not deserve higher rates would create useless confrontation.
It took some time analyzing the data to understand the “Why” the contractors appear less productive. What we found was three-fold:
- The licensee had planned poorer quality fibre blocks in recent years which was impacting the converted net delivered volume.
- There has been small or no pulp programs for their contractors in the last few years meaning contractors touch-to-delivered ratio was going up – touching same volume of wood but delivering less.
- Very little pre-development was being done.
The simple outcome could be that their contractors are poor producers and therefore need to fix their businesses before the licensee consider paying them more. This is the most common refrain we see in the industry. Contractors ask for more money, their licensees tell them they are inefficient. “Fix the inefficiency and then we’ll talk rates” is often heard.
Every business can use improvements but in this case, it turned out the low-hanging fruit was not poor contractor performance. The contractors were actually over performing relative to the operating circumstances they were given. The analysis indicated that the contractor performance could be improved by 21% simply by the licensee setting their contractors up for success. In this case, that’s over $5.00/m3 impact on the supply chain.
What does success mean? It means laying out blocks with reasonable fibre quality relative to the log specifications. If the quality is going to be poor, make sure there is a pulp or other by-product outlet otherwise the contractor is going to incur the cost of handling without any revenue from delivery.
It means proper investment in at least three seasons (summer, winter, summer or winter, summer, winter) of fully developed and permitted blocks. Weather and land based factors are uncontrollable by any parties. Just-in-time development and permitting has been shown to increase contractors costs and risks. A runway of work provides infinite flexibility to effectively manage risk.
Licensees who do not do everything they can to set their contractors up for success should expect to pay more to the contractor. Contractors are service providers. Expecting a contractor to perform efficiently at low risk margins when they are provided inefficient and high risk operating circumstances is the definition of insanity.
It is time for the industry to stop the insanity and realize that all participants in the supply chain have to work together for the common good. Not the short-term good for one or another participant. It’s time for mindsets to change.
Focus on specific problems that affect the total cost to the supply chain. Fix those problems or recognize them as a real cost. Whether it is a licensee or a contractor, blindly ignoring the problems, or worse, blaming your problems on someone else will lead to disaster.
Contractors are already starting to be in short supply and capital availability for contractors is becoming tighter. Knowledge is power and together the industry can use knowledge to become more efficient and more profitable. Sustainability for the industry is then assured.