A Brief Analysis of the Hayward Lumber Company’s Environmental Strategy

8 August 2016

HLC initially looked into FSC-certified wood when custom home-builders began to generate a demand for the material. This consumer base is generally providing a service for luxury home buyers who tend to be less price-sensitive and willing to pay the higher rates in order to claim environmental friendliness. The other portion of their customer base, low-cost builders, did not show an interest in such expensive products despite the ecological appeal. In order to meet the demands of the luxury home buyers HLC dedicated a portion of their inventory holding to FSC-certified lumber, spending twenty-five percent more on the ‘green’ wood.

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This company was the only one in the region to take on this endeavor. The ability to provide the eco-labeled FSC wood to builders in the area allowed HLC to set themselves apart from the other suppliers in the area that had refused to lay out the capital for the eco-label. HLC was able to effectively separate themselves from the other suppliers by providing this new and unique service and the consumer base had no other options, ensuring sales. The initial direct investment for FSC-certified lumber was $500,000, giving the firm just over a million board feet.

However, as the firm would have stocked non-certified product instead, the extra cost to HLC was an estimated hundred thousand dollars. The firm was able to sell a large portion of the eco-labelled good at five percent mark up, selling the twenty percent excess at the price of regular lumber. Taking a small loss on the extra inventory affected profit less than allowing the product to spoil. Outside of the direct investment, there are other costs to consider.

Pursuing these green interests and infiltrating the company’s culture with “Hayward’s Green Manifesto” would take time and money, not to mention advertising expenses to inform and attract the eco-friendly consumer base. Full cost to the firm could be estimated to be around one million dollars, depending on sourcing expenses and the costs for pursuing the educational environmental strategy. However, only a portion of this would be viewed as additional cost over the costs of maintaining the previous product line solely.

Hayward had to plan this effort carefully, as FSC-certified product was different than the traditional product that the firm was used to turning over. Sourcing would have to be done carefully by making sure suppliers were adhering to the regulations for harvesting ‘green’ timber. Chain of custody certification costs would be reflected in the costs that Hayward would see in purchasing and selling FSC wood, while HLC dealt with learning and following FSC regulations for sustainable forestry. Due to the costs, this product was, understandably, difficult to source.

Very few areas of woodland worldwide attempted to obtain certification and promote sustainability. This is due in part to the costs of certification and part to the inefficiency costs from the chain of custody. Overall, the supply chain for FSC-certified wood required more controls to limit the losses normal to the production of regular lumber. Dedicated mills or FSC-certified milling time had to be set aside for perfecting the harvested timber and the expensive nature of the product increases the need to cut down on imperfections.

Regulations required the firm to shut down and completely clear premises of non-certified wood before they could begin to handle the premium product, reducing output by time waste. HLC faced holding costs, including the loss associated with selling off excess inventory, due to this as the firm only purchased a few times throughout the year – having to forecast and purchase the good in advance. Green builders most likely do not pose a threat to HLC’s new business. Due to the transport costs and certification costs associated with the product, it would be difficult for green builders to purchase frequently.

One builder may not be able to accurately predict demand for upcoming projects and efficiently purchase the required amount of wood. The article mentions that a lumberyard in the region would cost around $12 million, making it very expensive for a green builder to buy land to appropriately store excess product or safety stock. It would be time-consuming for the green builders, as well, because they may require specific requirements that HLC is used to accomodating. Taking on these extra tasks rather than sourcing from HLC would drastically reduce the time that could be spent on other projects.

HLC has a long-standing history with many subcontractors for providing quality and meeting custom demands and deadlines such as specific delievery instructions to prevent cluttering construction sites. Similarly, HLC is set up specifically to handle incoming wood and abiding by certification standards. Their relationships with sourcing partners also may enable them to acquire the limited eco-label more easily than a builder could. Their plan to become a “one-stop shop” for green building is a strong one.

It enables these builders to obtain the environmentally safe building materials all from one trustworthy supplier – at any time they wish due to the “just in time” approach of HLC. Easing the builder’s procurement process reduces costs further for the builders and promotes a good image of the lumber company. Educating the industry about eco-friendly building tools and materials helps to stimulate demand for the firm, drawing in like-minded consumers that would not hinder the environmental efforts of the company.

HLC could be more efficient at handling FSC-certified wood, however, and the truss plant is a good way to do this. Having these pre-made options for FSC-certified roof and floor trusses would cut down on the need to make the items customly for each builder. Similarly, this option is lower in cost than meeting individual requirements and could draw in the previously unwilling low-cost tract housing builders. The others projects could be sound investments, as well, involving expansion through acquisition and showcasing to attract new consumers and promote the idea of sustainability.

However, taking on all three could be too much for the firm. Hayward could experience many advantages of taking these routes. Not only would it increase the firms standing to the environmentally-conscious part of the world, expansion of the ‘green’ portfolio could help the firm to be one step ahead of this emerging trend – much like the arsenic-free wood decision enabled HLC to capitalize on a market idea before it became a mandate which may have resulted in high cost. Disadvantages could include losing out on the low-end market to which they previously held strong relations with.

This involves loss of supplier relations and consumers, as well. The efforts to transform the industry and incorporate it into Hayward’s ‘greener’ view could prevent this to some degree, especially the truss expansion option. It is a good way to prevent product loss due to exposure to the elements as well as expand on Hayward’s three-part manifesto idea of becoming a one-stop shop. This plan reduces error and imperfections in the products while decreasing time significantly, enabling the firm to hold true to the original model of quality and the Hayward’s family ideal of being “on time, as promised. ”

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