Economic Feasibility of a Solid Hardwood Panel Manufacturing Enterprise

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Title: Economic Feasibility of a Solid Hardwood Panel Manufacturing Enterprise
Author: Deaver, Maurice E.
Advisors: Dr. Urs Buehlmann, Committee Chair
Abstract: The United States forest products industry faces many challenges that threaten its competitiveness as it enters the 21st century such as opposing the emergence of Asian imports, increased demands for non-wood alternatives and environmental pressures and constraints. Such pressures clearly show the need for innovative products and processes that satisfy the needs of today's global market. A major concern, and potential opportunity, is the abundance of underutilized forest resources. This research defines underutilized resources as low-grade lumber, small-diameter roundwood and sawmill slabs. Current economic values of those resources do not encourage industry stakeholders to remove such material from the forests and process it. Creating value for this material through new products and processes has the potential to improve the profitability of local industry supply chains as well as the forest products industry as a whole. One potential value creating opportunity is to use such material in solid hardwood panels. The purpose of this study is to assess the commercial potential of solid hardwood panels manufactured from underutilized resources. The knowledge gained from a review of the pertinent literature in conjunction with a computer simulation is used to develop a business model to manufacture 3.5 million board feet of hardwood panels a year. This model is introduced through a business plan that presents target markets, an organizational structure, the necessary capital investments and the perceived financial benefits of operating such a facility. The proposed manufacturing model calls for a contractual agreement with area sawmills to provide low-grade lumber cut specifically from small-diameter trees and sawmill slabs. These resources would be processed in a rough mill similar to that of System 6, an earlier effort by the USDA Forest Service to promote the use of low-value timber. A computer simulation using ROMI 3, the USDA Forest Service's rough mill simulator package, is used to estimate the yields from such materials. The simulation resulted in a yield of 61.36 percent. Salvage parts were allowed and as a result increased the simulated yield. Building a greenfield manufacturing facility would cost an estimated $7.5 million dollars including land and site preparation ($0.65 million - NC Piedmont Region), infrastructure ($1.32 million), machine investments ($2.4 million) and working capital ($1 million) to purchase raw materials and cover other expenses. This proposed venture would generate revenue through the sale of solid, edge-glued, finger-jointed panels manufactured from underutilized red oak forest resources. All panels are the standard 4 feet wide by 8 feet long and 1 inch thick. Office furniture and solid wooden door manufacturing are the markets of interest because these markets have historically shown a willingness to purchase edge-glued panels. Manufacturing costs are extrapolated using available market research. The estimated average cost to produce 1 board foot (BF) of panel is $3.325. The breakdown of the estimated cost shows raw materials account for 23.16 percent, variable manufacturing overhead accounts for 53.08 percent, direct labor account for 4.81 percent, variable sales and administration account for 1.35 percent, fixed manufacturing overhead accounts for 12.48 percent and fixed sales and administration costs account for 5.11 percent. A gross margin of 20 percent for low end panels and 40 percent for high end panels is factored into the total price. This results in a price range of $3.990⁄BF for low end panels to $4.655⁄BF for high end panels. Unfortunately, under the assumptions presented in this research, the investment in a startup company producing solid hardwood panels does not seem economically feasible. Using conventional economic decision tools, this preliminary research shows the capital investment is too large when using the prices and output proposed. However, proposed business model assumes a 'most expensive case' scenario. The plan might be more feasible by leasing land, buildings and certain equipment or even evaluating the opportunity in a less expensive location.
Date: 2006-08-23
Degree: MS
Discipline: Wood and Paper Science

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