Smaller Industry Firms Continue to Face Challenges

The timber and forest products industry has many opportunities and threats on the horizon. While industry giants like Weyerhaeuser and West Fraser have vast resources to adapt and survive threats, smaller firms confront a more uncertain future. The owners and managers of these smaller enterprises can experience high levels of stress associated with increasing competitive pressures and fears of declining revenues and profits.

How bad can this stress and fear become? I long ago had an extended conversation with a friend and small business owner who claimed that he would do just about anything to keep his “baby” alive. He admitted that his despondency and desperation with his declining business had eventually led him to instances of tax evasion and customer fraud. We also read occasional accounts of business-related causes for individual mental health crises and suicides.    

There are certainly personal and family risks for those running a small business. Perhaps the most important resource for them is having a personal support system of a few family members, industry friends, or advisors with whom they can openly discuss, and possibly discharge, some of their frustrations. Among the possible reasons for their worries or concerns are the following threats that many smaller companies are currently encountering:

* Technology Adoption: Advanced technologies like precision forestry and remote sensing will continue to transform the industry. Many smaller companies can struggle to implement costly innovations and can risk decreased competitiveness.

* Sustainable Practices and Industry Regulations: Sustainable forestry management practices are becoming more the norm, and smaller firms can have limited resources and take more time to meet industry standards. Industry regulations, influenced more by inputs from larger companies, can be burdensome for smaller operations.

* Market Access and Supply Chains: Geographical market diversification can help companies buffer downturns in particular regional markets. Smaller enterprises often have difficulties expanding their market reach and developing robust supply chains.

* Workforce and Skills: The industry faces shortages of certain types of skilled labor. Smaller organizations can lack effective recruitment means, comprehensive training programs, and adequate career development opportunities. This can lead to lower productivity and higher turnover rates for more talented employees.

* Leadership Succession: Many smaller and family-run businesses have uncertainties or problems when experienced managers retire. Effective leadership transitions are needed for long-term success.

* Financial Constraints: Smaller firms often struggle to access tailored financing options. Financial institutions may view them as higher risks, leading to less credit availability and higher borrowing costs.

These and other threats confronting smaller production, supply, and services firms in the industry can seem intimidating or downright discouraging. So, how might smaller outfits strategically position themselves to try to navigate through many of these threats and find emerging opportunities? These basic approaches are often recommended.   

* Collaborate and Network: Consider partnering with other small firms within and beyond existing industry associations and sharing knowledge about changing market conditions and potential adaptation strategies. Try to work together to inform policymakers about the unique challenges of smaller operations.

* Expand Market Research: Look beyond local markets to identify global trends and opportunities. Utilize free or low-cost generative AI tools and other means to gather available industry information. Possibly hire part-time researchers, such as college students or retired professionals, to supplement in-house capabilities for research and AI assistance.

* Find Possibly Underserved Market Niches: Try to identify an alternative or additional niche where your firm might eventually be able to compete. Start by defining your existing and potentially unique capabilities, whether these are product quality, service advantages, or other attributes.

* Modernize Your Marketing and Customer Engagement: Develop a stronger brand identity. Enhance your online presence through a user-friendly website and social media. Explore possible e-commerce options to reach a broader audience. Use storytelling and compelling narratives to showcase your commitment to the environment and community.

* Improve Financial Management: Explore new funding sources, including government programs and alternative private financing. Try to benchmark your financial practices against top competitors. Focus on effective forecasting, budgeting, and cash flow analysis.

* Prioritize Risk Management: Develop better risk assessment and mitigation strategies. Remember that smaller firms often have less cushion to absorb unexpected setbacks.

I could certainly add to these possible initiatives. One consideration is updating quality controls related to your operations and services. Another is trying to improve your employee work culture.

Careful analysis of what seem to be your existing company weaknesses should help you identify one or a few higher-priority concerns upon which to focus for the near future. That concentrated approach is usually more practical than scatter shooting at all or many activities and spreading your limited resources too thin

After identifying one or several areas for strategic focus, next try to set clear and achievable objectives. These should be specific, measurable, and time-defined objectives. Don’t forget, also, to assign responsibilities to certain individuals or groups for each of these objectives.      

I would further suggest that small business owners think about refreshing their knowledge of strategic management. Simply requesting a sample profile of a strategic plan for a small firm in their niche of the industry from a free chatbot such as ChatGPT 4o or Perplexity might be helpful. A quick review of a recent book on strategic management for small businesses could spark a few ideas also about how to improve a firm’s chances of survival, even under possibly adverse industry conditions.

 Industrial Revolution 4 and the Forest Products Industry

There’s been an industrial revolution underway, but a lot of people aren’t aware of some of its emerging and powerful technologies. This revolution has already greatly impacted us, particularly in private sectors like healthcare, manufacturing, and agriculture.

Called the Fourth Industrial Revolution, Industry 4.0, or just IR4, many meetings and conferences have occurred worldwide to discuss IR4 advancements and applications. Academics, government officials, entrepreneurs, and top managers from many industries have been keenly involved.

Klaus Schwab, executive chairman of the World Economic Forum apparently introduced the phrase Fourth Industrial Revolution back in 2015, and it was the theme of 2016 World Economic Forum that year. The United Nations’ International Conference on Fourth Industrial Revolution Technologies for Sustainable Development was in November 2021.   

Many of us know about the First Industrial Revolution, starting in the late 1700s, that introduced basic  production methods such as steam and water power. The Second Industrial Revolution of the late 1800s and early 1900s saw the early development of our vast transportation, electrical, and communications networks. The Third Industrial Revolution included space exploration, many digital electronics developments, improved computing potentials, and the internet.

The high-profile IR4 technology has been artificial intelligence that I have described briefly in two previous PWJ articles. However, other IR4 innovations are becoming more common. Among these developments are the following:    

* The Internet of Things (IoT) describes networks of physical devices equipped with sensors, software, and connectivity. These “smart” linkages include personal devices and home appliances, but the acronym IoT usually changes to IIoT (Industrial Internet of Things) when referring to linkages of complex factory machinery or far-flung remote instruments. IIoT is often used in conjunction with Earth observation technologies such as satellites and sophisticated drones.  

* Digital Twinning is a process in which digital models are designed and constructed to provide a real-time representation of actual physical or biological objects. Digital twinning can also transform many business processes, including project engineering, construction planning, supply chain analysis, and facility operations and maintenance.

* Nanotechnology involves the material sciences and manipulation of matter at amazingly small scales of less than 100 nanometers (a nanometer is a billionth of a meter). Certain materials at these small sizes exhibit distinctive properties that are leading to discoveries and practical commercial and personal applications. Nanoparticles incorporated into existing materials can improve their strength, durability, conductivity, and other properties such as self-cleaning or self-healing.

 * Blockchains are commonly associated with cryptocurrencies, but essentially these are sophisticated digital ledgers for recording important information that can be accessed yet can be very resistant to outside manipulation or cheating the system.

* Three-dimensional (3D) printing or additive manufacturing is a process that creates a physical object from a digital design. The process works by putting down thin layers of material in liquid form or powdered plastic, metal, cement, etc. and then fusing the layers together.

* Advanced robotics now are capable of more and more activities – from performing complex surgical procedures to disaster response.

* Cloud computing is the delivery of computing services, such as servers, storage, databases, networking, software, analytics, and intelligence, over the internet or the “cloud.” This provides users with more innovations, flexibilities, backups, resources, and economies of scale than they might otherwise possess.

Although AI has been receiving the lion’s share of recent discussion concerning its potentials, several IR4 developments listed above should also be particularly impactful for the timber and forest products industry.     

Earth observation and IIoT networks with connected sensors can be deployed throughout forests to monitor environmental conditions, detect early signs of diseases or fires, and track the growth and health of trees in real-time. IIoT technology could also be integrated into logging equipment and mills to optimize operations and predictive maintenance.

Digital twinning technology can take data from Earth observation and sensory networks within forests to create detailed representations of these forests. This enables improved simulations of forest growth patterns for harvesting strategies that minimize waste and negative environmental impact.

Nanotechnology advances should enable new high-performance wood-based products with enhanced properties (strength, conductivity, etc.) and further expand potentially useful forest products.

Advances in blockchains and distributed ledger technology could increase transparency and traceability throughout the timber supply chain – from forest sources to end products. This should facilitate verification of sustainable sourcing practices and chain-of-custody certification.

There have been recent claims in books and articles concerning the emergence of a Fifth Industrial Revolution (IR5). IR5 supposedly will emphasize more human-centric and environmental values for already transformative technologies of IR4.

More ethical and sustainable goals for IR5 can seem utopian to some observers, though, given existing economic and political realities. Relatively short-term profit goals that often drive global corporations and the powerful influence of these corporations over political entities will be difficult to overcome. Ensuring that all stakeholders benefit from IR4 and IR5 technological advancements, especially marginalized ones such as poorer communities and the natural environment, will be a complex challenge. It will certainly require inspired leadership, substantial investment, and political will.

For more info, check books such as the one below:

 

                               Talking About Climate Change and Biodiversity Loss

Most of us know that climate change and biodiversity loss are serious threats. But what can we individually do as our fair share of responsibility to help minimize these projected consequences?    

Yes, we often have busy lives and varying priorities to juggle. Issues like crime, immigration, and the economy can grab headlines and sometimes alarm us as much or more than environmental concerns. Many people feel a sense of powerlessness, too, in being able to do much of anything about our climate future, or they can have an almost “doom and gloom” sense of paralysis. Some climate scientists with much more knowledge than the public have also been pessimistic that we and other nations are not responding quickly and effectively enough to avoid immense human suffering.

Climate data scientist, Hannah Ritchie, has own perspective though that she shares in her January 2024 book, Not the End of the World: How We Can Be the First Generation to Build a Sustainable Planet. She advocates an “urgent optimism.” Acknowledging that climate challenges are real and difficult, she also emphasizes that we've made some progress, and this can accelerate. Ritchie argues that certain environmentally damaging human activities are past, near, or at their peaks. The negative impacts from many of these long-term human activities will continue or grow, but at least some of these harmful behaviors have peaked or will peak soon.    

Much more progress on sustainability, according to Ritchie, depends on 1) continuing advances in clean energy technology, 2) more individuals showing commitment through their informed lifestyle and voting choices, and 3) institutional initiatives and investments to support necessary changes. Ritchie claims that we will not meet certain global and national climate response goals, but she thinks there are still opportunities for us to reach some realistic ones related to greenhouse gases and biodiversity protection. Her pragmatic guidance for those with at least a small level of environmental commitment makes the book a valuable and approachable book now. 

An example of the diverse types of institutional initiatives that Hannah Ritchie seems to view as important was recently announced in our own state. A University of Louisiana – Lafayette project funded by the USDA’s Rural Energy for America Program should help Louisiana's agricultural and rural businesses adopt more energy-saving practices and renewable energy sources. Technical assistance will be offered for their energy efficiency upgrades and renewable energy systems. This assistance will also guide these businesses through the application process for federal grants. The project will conduct on-site assessments, prioritize disadvantaged communities, and hold outreach events across the state. By assisting smaller businesses in moving toward sustainable energy, the program seeks to boost economic growth and environmental responsibility in rural Louisiana.

Programs such as this one at ULL make expertise available concerning continuing developments in renewable energy technologies and provide guidance for individuals and small businesses on how to make rewarding changes in their own operations. Expecting prompt and effective environmental responses from many people without significant support activities is likely unrealistic. Human nature often leads us to be cautious or resistant toward what others can claim are necessary changes. Increasing levels of distrust exist for almost all institutions regarding their intentions and/or methods. We can hardly expect most individuals to make climate-related behavioral changes, and sometimes initial personal sacrifices, without their better understanding the "why" and "how" for these changes.

Better communication about possible responses to climate change and biodiversity loss is desperately needed. One resource is the website “Talk Climate Change” that was developed by students from the Oxford University School of Geography and the Environment. That site asserts that “Climate change is one of the greatest challenges humanity has ever faced. Yet many people never talk about it, let alone have the opportunity to discuss how they feel and have their voices heard by others.” Conversations about environmental threats and responses can be awkward to initiate for many reasons, so Sueellen Campbell and others offer advice concerning “How to Speak with Your Family and Friends about Environmental Issues” on the Yale Climate Connections website.

Fears and emotions expressed by participants concerning gloomy climate scenarios will likely come in these conversations, but continuing discussion has potential also for more critical thinking and action-oriented perspectives to be raised. The key to these climate change and biodiversity dialogues seems to be providing those involved with enough information and tools so that they can make better decisions about their own activities that have environmental impacts. These practical and caring conversations about personal priorities seem vitally important for mental health in our era of significant political polarization, misinformation from many social media sources, and slanted communication from powerful vested interests. 

It might seem we can do little to respond individually to huge global environmental challenges, but almost all of us might start by trying to share our thoughts, fears and hopes with others near us.  

                                  Repair Vs. Replacement Thinking      

A large part of my adolescence was spent in the attic of my parents’ home. The privacy there was a welcome break from the noise and confusion often occurring below. The attic also was a treasure trove of interesting stuff that had been relegated to storage.

An Emerson rotary fan built back in the ‘30s helped lower the warmer temperatures in that attic. The old fan must have weighed about 30 pounds, but my father told me that it was well constructed and would likely outlive all of us.

Radios fascinated me as a kid. A RCA console “entertainment center” built in the ‘40s had been relocated to our attic after my parents purchased a fancier one in the early ‘60s. Both consoles had a record player as well as a radio with AM, FM, and shortwave bands. Some of the later consoles also included a TV.

My father would usually remove vacuum tubes and other components when our TVs or radios malfunctioned. He’d take apparently defective components to the residence of a friend of his who would test them and give Dad a price break on any needed replacements. Convenience and hardware stores back then often had an area with electronics testing equipment where customers could bring their TV and radio components for self-testing and possible replacement parts purchases. Over time, though, these electronics self-testing areas within these stores disappeared.

The invention of the transistor and the development of solid-state circuitry in the mid-century helped produce improved electronics performance. Quasar was established as a television brand in 1967 by Motorola. The design of their solid-state TVs featured a chassis designed such that many electronic components were contained within drawers that could easily be slid out by service technicians for replacement. I well remember Magnavox commercials then that heavily promoted this “works in a drawer” design. Other electronics manufacturers with different brand names and designs also contributed to these “compartmentalization” trends.

Integrated solid-state electronics obviously had positives, but there were a few negatives as well. Because the electronic components were integrated or closely welded in circuits, it was more difficult for “do it yourself,” repair-oriented consumers. No longer could you spot vacuum tubes that weren’t glowing and/or easily test possibly defective individual parts with a volt-ohm meter in order sometimes to make relatively inexpensive replacements. You often needed a repair technician to take a drawer full of circuitry and to spot problems, or often just replace the whole drawer at significant expense. Instead of repairs for what might have been one or a few minor electronic components, more consumers paid for whole module replacement or even new radios and TVs.

Our country shifted, slowly at first and then rapidly, toward a “disposable” mindset regarding product consumption. For many convenience or inexpensive items, such as Gillette or Bic razor blades, disposable alternatives made practical sense for many folks. For more expensive goods, such as TVs, this trend toward convenient disposal of many purchased items contributed to the increasing numbers and sizes of our dumps and landfills. Of course, the repair of manufactured products occurs to some extent, but disposal of manufactured goods was just so convenient for many leading busy middle-class working and family lives.

Corporations by the mid-century turned more to marketing campaigns to encourage consumers to upgrade to more expensive product models offering aesthetic changes and “new and improved” performance features. Advertising appeals certainly continued to fuel these consumption trends. The dominating social media in the past two decades has intensified public expectations for more immediate gratification of perceived needs.

There was more corporate importance placed over a half century ago on industrial engineers (“efficiency experts”) and cost controls. College professors teaching production/operations courses stressed that a dollar saved is worth more than a dollar received in sales revenue because the latter was subject to taxes. I worked as a product engineer for several years in the early ‘70s at Western Electric and could detect corporate-level priorities steadily shifting to marketing and finance and away from production and engineering activities.

The complexity of global climate change and environmental challenges today demands diverse technological, political, and cultural responses. I’m more optimistic about technological advances than I am for our fostering supportive political and cultural responses. There are a few signals though, usually more in Europe than in the USA, that shifts in thinking and policies are occuring. 

Recently EU negotiators provisionally agreed on a law aimed at reducing waste by making repairs for manufactured products more accessible and affordable. This stronger consumer “right to repair” imposes clear obligations on manufacturers to prolong product lifecycles by offering more repair options, even beyond the expiration of legal product guarantees.

The new rules cover a range of products, including washing machines, vacuum cleaners, and smartphones, with the potential for more items to be added over time. Consumer benefits from these rules include the option to borrow a device while their own is under repair, free and improved online access to repair pricing information, and a one-year extension of the legal guarantee period for repaired goods. These changes by the EU aim to breathe new life into their product repair markets and create additional job opportunities for repair technicians.

Despite some momentum for similar policies in the USA, the prospects soon for "right to repair" federal laws here seem less likely. US manufacturers have argued that these could compromise product safety and intellectual property rights. Since these manufacturers have strong lobbying influence in the US, this will probably hinder federal legislative progress. Still, state laws regarding “right to repair” have gone into effect on many manufactured items in New York, Minnesota, and California in the last year or so.    

 

     Generative AI for Small Businesses    

My father worked 40+ years in West Monroe as an electrician for the old Brown Paper Mill, which later became Olinkraft. I also worked briefly there as a plant engineer upon my graduation from Louisiana Tech. My involvement with the timber and forest products industry was very limited, though, during the decades that I taught university business management courses. I’ve spent a little time over the past two years studying the industry and the forces affecting it. Below are some of my basic impressions and one particular concern.

The major external forces affecting the overall industry now seem to be global competition, macroeconomic conditions, international trade policies including tariffs, supply chain considerations, the health of related industries such as construction, climate change and sustainability issues, and continuing technological advances. One significant internal industry trend has been increasing consolidation (or larger companies taking over or dominating smaller ones).

This consolidation seems most apparent in the pulp and paper manufacturing sector where larger companies have market power due to economies of scale and capital-intensive infrastructures. The lumber, plywood, and other solid wood products sector as well as the wood products distribution/retail sector have also experienced at least moderate levels of consolidation. The developing engineered wood products market has a more balanced mix of both established larger companies and new and smaller ones.

The Deep South region of Louisiana, east Texas, Arkansas, and Mississippi has many small, often family-run, businesses that play a vital role in supporting the health of the timber and forest products industry. Some of these smaller businesses have struggled to survive, though, for a variety of reasons. 

  

A company’s access to valuable strategic information resources can provide a huge competitive business advantage. Often small business managers associated with the timber and forest products industry don’t have nearly as much access to some forms of strategic information. These smaller business operators may well have key information advantages in their own specific markets, due to their personal knowledge and long experiences with their suppliers, customers, and communities. Where they can be disadvantaged is their relative ability to access, analyze, and respond adequately to 1) critical market-shaping technological, political, and economic information and 2) key competitive shifts in specific global and national markets impacting them.

Traditionally, small business managers have obtained potentially useful information from government reports and statistics and through involvement with industry/trade associations. This information value can pale by comparison, though, to the relevant information additionally obtained by many larger companies through their employment of specialized consultants and staff experts. 

A year ago in the PWJ, I described some of the reported benefits and risks of generative artificial intelligence (Gen AI). The early successes and promises of Gen AI have received enormous public attention in this past year. So have its failures, its possible consequences, and the heavy energy demands currently to maintain AI’s large language learning models.  

According to Rob Thomas, Senior VP of Software and Chief Commercial Officer for IBM, 2024 should be “the” year of AI adoption as many businesses move from their experimentation to their deployment phase. He claims in a recent Fortune magazine that “With the right vision and approach to responsible AI adoption, we will begin to see widespread economic benefits of this technology in the next three years, with many more years of sustained growth and prosperity to come.”

I believe that Gen AI has the potential to narrow the gap between large corporations and small businesses in accessing and using strategic and competitive information. Gen AI seems particularly useful for 1) market research (identifying emerging economic and industry trends, customer preferences, and competitor moves), 2) content creation (generating engaging product and services descriptions, including improvement of company website content), and 3) information analysis and planning (helping managers make better decisions about operations and marketing options).

Some small business managers are already learning and starting to use Gen AI. There are plenty of online sources offering free introductory training videos. A very basic one is an 18-minute video by Henrik Kniberg on YouTube. More depth and breadth of coverage for Gen AI business applications are free or inexpensively available on YouTube and elsewhere.

  

Responsibly investing in a specific Gen AI approach for a small business manager probably requires some limited technical expertise and assistance. This technical assistance should help a few others within the company, including the top manager, learn about AI options and for them to become an AI resource team.

Fortunately, more user-friendly AI interfaces are being introduced for the practical needs of small business managers. An internet search should help these managers identify companies offering possible AI services for small businesses. Enlighten, MeaningCloud, Crayon, Linkfluence, and IBM Watson Assistant are among these firms. There are differences between these and other AI tools in terms of their costs, focus, and breadth of services provided for small businesses.

No doubt, there will be many more books, articles and videos updating AI business advice, like Krista Neher’s recent Newsweek article “7 Keys to Getting Your Organization AI Ready.” These sources can be generally helpful, but very few will explicitly cover AI strategies for smaller, family-run, and industry-specific firms.

I’ll suggest a few basic recommendations for these small companies. You most likely won’t be an early and extensive AI adopter soon. Yet you should 1) have your eyes and ears on how AI is being applied elsewhere in your industry and among your competitors, 2) consider specific company tasks (for possible example, inventory control) where adopting AI tools initially might improve your effectiveness or efficiency, 3) determine which AI tools available then might be a better fit for your unique characteristics and priorities, and 4) look carefully at ROI (return on investment) afterwards on your initial AI choices to plot a more refined AI strategy.

For more info, check books like the one below: