internet marketing in the forest products industry opportunities

Internet Marketing in the Forest Products IndustryOpportunities and Realities

Richard Vlosky Director & Professor

Louisiana Forest Products Development CenterSchool of Renewable Natural Resources

Louisiana State University Agricultural CenterBaton Rouge, Louisiana USA

Third Annual Regional Wood Products Marketing SeminarDecember 6, 2007

Sarajevo, Bosnia & Herzegovina

What am I Going to Talk About?

• Internet Structures

How Companies Can Get Involved•

Some Final Thoughts•

eBusiness in the Forest Sector•• eBusiness and eCommerce

Top 10 European Countries by % of European Users

Country

Population Internet Users, % Population % Users Usage Growth

( 2007 Est. ) Latest Data (Penetration) Europe (2000‐2007)

Germany 82,509,367 50,426,117 61% 15.7% 110%United Kingdom 60,363,602 37,600,000 62% 11.7% 144%

France 61,350,009 32,925,953 54% 10.2% 287%

Italy 59,546,696 31,481,928 53% 9.8% 139%

Russia 143,406,042 28,000,000 20% 8.7% 803%

Spain 45,003,663 19,765,033 44% 6.1% 267%

Turkey 75,863,600 16,000,000 21% 5.1% 700%

Netherlands 16,447,682 12,060,000 73% 3.7% 209%

Poland 38,109,499 11,400,000 30% 3.5% 307%

Portugal 10,539,564 7,782,760 74% 2.4% 211%

593,139,724 247,441,791 49% 76.9% 318%

(Total) (Total) (Average) (Total) (Average)

Internet Usage in Selected Eastern European Countries

Country

Population Internet Users, % Population % Users Usage Growth

( 2007 Est. ) Latest Data (Penetration) Europe (2000‐2007)

Slovenia 1,962,856 1,090,000 56% 0.3% 263%

Czech Republic 10,209,643 5,100,000 50% 1.5% 410%

Slovakia 5,379,455 2,500,000 47% 0.8% 285%

Croatia 4,468,760 1,576,400 35% 0.5% 688%

Hungary 10,037,768 3,050,000 30% 0.9% 327%

Bulgaria 7,673,215 2,200,000 29% 0.7% 412%

Romania 21,154,226 4,940,000 23% 1.5% 518%

Bosnia‐Herzegovina 4,672,165 950,000 20% 0.3% 13,471%

Macedonia 2,056,894 392,671 19% 0.1% 1,209%

Montenegro 665,734 117,000 18% 0.0% n/a

Serbia 10,087,181 1,400,000 14% 0.4% 250%

78,367,897 23,316,071 31% 7% 1,783%

(Total) (Total) (Average) (Total) (Average)

Broad Internet Applications

• eCommunications (inter/intra)

• Sales and purchases (eCommerce)

• eBusiness (operations)

• Information source

eBusiness & eCommerce

eBusiness is the application of Internet-based technologies for conducting business.

It includes eCommerce, the actual transaction activities as well as other business oriented applications such as logistics, order entry, information sharing and transmission of information between exchange partners.

What is eBusiness?

First and foremost about business, not technology.

Technology facilitates eBusiness.

Challenge is managing the changes in business strategies and internal corporate processes.

Can include intra-company networks (intranets) and Internet linkages with customers or suppliers (extranets).

What is eBusiness?

eBusiness Technologies/Applications

SupplierSupplierSupplier CustomerCustomerCustomer

IT S

ophi

stic

atio

n

Point-to-Point (EDI, XML)

Extranets

eIntermedaries

Corporate web-sites

e-Mail

Mail

Phone/fax

eBusiness Timeline

• Changed the way of doing business

• InnovativeBusiness Models

“Commercial-ization” ofthe Internet

~1990

3rd party eMarket-places

~1993

Dot.com boom &

IPOs

~1998

Brick & Mortar

Industry owned

~1999

Dot.com“CRASH”

~2000

eBusiness rebounds

~2003

(Kallioranta & Vlosky 2005)(Kallioranta & Vlosky 2005)

~2005

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

SlopeSlopeofof

EnlightenmentEnlightenment

PlateauPlateauofof

ProfitabilityProfitability

““ee--BusinessBusiness””endsends

The Life Cycle of eBusinessThe Life Cycle of eBusiness

TroughTroughofof

DisillusionmentDisillusionment

Peak ofPeak ofInflatedInflated

ExpectationsExpectations

TechnologyTechnologyTriggerTrigger

(Forrester Group)(Forrester Group)

eCommerce

Business to Business (B2B) accounts for over 90% of total

eCommerce in the U.S. or about $US 2.7 trillion in 2005

Important Market Forces Affecting Business

• Pressure to reduce overall supply chain costs

• Pressure to compress total time to market/ cycle time

• Pressure to collaborate more effectivelywith trading partners

• Unstable/unpredictable demand for products /services

• Movement toward a more global marketplace

eBus

ines

s C

an R

educ

e Th

ese

Pres

sure

s

eBusiness Can ImpactAll Company Functions

Market ResearchFinanceDistributionInformation Systems

Back OfficeHuman Resource ManagementTechnology DevelopmentProcurement

Pre-SaleActivities Operations Outbound

Logistics

Marketingand

Sales

Post-Sale Service

InboundMaterialsLogistics

Key eBusiness Benefits• Lower inventory levels• Reduced uncertainty• Enhanced response to customer demands• Shortened product-to-market cycles• Optimized use of materials and processes

Intranets:Internalizing The Internet

Sales

Procurement

Production

R&D

MaintenanceHuman Resources

An Intranet

Inventory

Intranet-Internet Connectivity

CorporateHeadquarters

Intranets can host...

• product price lists• product specifications• customer databases• inventory records• supplier databases

• employee databases• employee newsletters• performance records• maintenance records• marketing schedules

Intranets can facilitate...• production scheduling• sales coordination• project management• regulatory compliance• ISO 9000 qualification• employee training• management decision making

Extranets:Connecting Exchange Partners

An Extranet(letting partners in… selectively! )

Your Customer or SupplierYour Customer or Supplier

Your CompanyYour Company

Extranets facilitate...

• collaboration between companies• training and support• communication with suppliers & customers• data Interchange• production/purchasing coordination• sales and purchases

What is it?

Access

Users

Information

The InternetThe information superhighway.

Open

Public

General

IntranetsThe use of

Internet technology within

a company or organization.

Private

Organization members

Proprietary

ExtranetsA network that

uses the Internet to link company

Intranets in order to enhance business-to-

business relationships.

By agreement only

Business partners

Selective

eBusiness and Internet MarketingThe Forest Sector

As opposed to Business-to-Consumer (B2C)

Forest-Based Industriesare generally Business-to-Business

(B2B)

A Typical Forest Products Supply/Value Chain

Raw Materials-Timberland- Stumpage

Harvesting- Timbering- Transport- Loggingcontractor

Primary Processing- Pulpwood- Saw timber- Logs

Merchandising- Marketing- Sales

Secondary Processing- Remans- Treaters- Industrial- etc

SecondaryDistribution- Channels- Transport

Consumer-Builder-Remodeler-Retail

Merchandising- Marketing- Sales

Distribution- Channels- Transport

Information Interfaces

(Adapted from -TALPX 2000)

• Inventory management• Consistent supply• Search costs

Timber BuyerForester/Loggers

• Access to markets• Timberland management

Timber Owner

(Forest One 2000)

Even From the Forest to the Mill

Warehouse

Logistics

Possible eLinkages in the Supply Chain

Source(Buyer)

Deliver(Sales)

Planing

Drying

Sawing

Wood Supply SawmillCustomers

Orders + consumption

(VMI)

Consumption forecast




Orders

Order promises

Supply plan

Supply plan

Supply plan Supply plan

Supply plan

Jean-Marc Frayret, Ph.D.

Global Nature of the Industry

Factors Contributing to SuccessfulInternet Implementation in the Forest Products Industry

1) User involvement

2) Development of trust in using technology

3) Management support

4) User training

eBusiness Implementation/Success Matrix

- premature- inefficient- anxious- impulsive- inordinate costs- IS at risk- e-trust loss

- match between IS and strategic adoption

- optimal combination for success

- dinosaurs- traditionalists- survival at risk- resistant to change- denial - untapped resource

- high potential to lose corporate IS e-expertise

High

eAdoption(complexity

depth,strategic)

eKnowledge (depth, breadth)

HighLowLow

(Vlosky 2000)

Fit Market Environment

Fits OverallCo. Strategies Realistic

DistinctiveCompetencies Specific

Characteristicsof Good eBusiness

Strategies

MarketOriented

eBusiness Strategy Characteristics

Country Examples

U.S. Forest IndustryeBusiness & Internet Marketing

Time

Development Introduction Growth Maturity

Manufacturing Industries in General

Pulp & Paper

Solid Wood

Why?

• Reactive rather than proactive

• Not inclined to be lead adopter; generally, a wait -and -see posture

• Production-oriented culture

• Lower investment in IT research and development

• Not convinced eBusiness is relevant

• Lack of trained information technology staff

• Lack of application tools

Alien Concept

U.S. forest products eBusiness ApplicationsSomething for Everyone!

Relative Frequency

Customer Contacts

Marketing

Vendor Contacts

Product PromotionProduct/Price Inquiry

Email

Websites

Sales to CustomersPurchases from Suppliers

Internet EDIOrder Status

Shipping NoticesOrder Tracking

Inventory ManagementLogistics

Higher OrderApplications

#1 Concern about Using the Internetin the U.S. Wood Products Industry

20051995

Exchange partner relationships

will suffer

Security

Security

E-Business In A Low-Tech Sector: TheCase Of The South African Wooden

Furniture Value ChainSource: Moodley 2001

• Internet use in a developing country wood-based industry.

• Prospects and challenges of eBusiness for the low-tech, labor- and resource-intensive furniture industry characterized by long-established social networks.

• Employment and export growth prospects hinge increasingly on leveraging information technologies as a means of promoting industrial upgrading within global and local value chains.

• Local market is small, making it difficult to sustain economies of scale.

• Furniture manufacturers often produce small volumes of a small range of products.

• Re-organization of the wooden furniture industry into new global-scale value chain and production network configurations.

• Shifting the focus to export markets.

• Higher volumes and higher prices offered by the export market offer a superior growth trajectory for the wooden furniture industry.


Furniture Value Chain

• Furniture firms have not found wide operational need for the Internet in their operations.

• The main uses of the Internet : email applications (98%) and information searches (71%)

• Only 8% of firms use the Internet for online sales, and a mere 4% use the Internet for e-procurement.



• Less than half (44%) of respondents have a web page.

• Small manufacturers are the least likely to have a web site.

• All firms used their home pages merely to provide information on the company, its organization and its products.

• The web sites are little more than a contact page and an online “brochure”.



• Sector has little experience with electronic communication and information links between market actors.

• Potential of the Internet for real-time information links represents a quantum leap in collaboration with distributors, suppliers, business partners and customers.

• Obstacles to overcome:

• Focus on the reduction of labor and input costs as competitive advantage rather than pursuing a knowledge-intensive trajectory.

• Closed-minded management.

• Tradition.



• High level “business case” developed by EDC for the High-Impact ICT project

• Funded by the Norwegian Ministry of Foreign Affairs

• Goal: To determine whether there was sufficient evidence that a wood products industry eBusiness (e-BIZ) Enterprise would become profitable in Bosnia and Herzegovina, to justify developing a detailed business plan

A Business Case for Creating a Furniture Industry e-BIZ Enterprise

in Bosnia and HerzegovinaSource: Education Development Center, Inc., Newton, Massachusetts, USA

A Business Case for Creating a Wood Products e-BIZ Enterprise

in Bosnia and Herzegovina

What is the business problem?

The lack of competitiveness in manufacturing and exporting value-added wood products from Bosnia and Herzegovina (BiH). Raw lumber continues to dominate BiH exports.

What is the mission of the proposed e-BIZ Enterprise?

To use information and communication technologies (ICTs) to enhance the competitiveness of the BiH wood products industry.

What are the objectives of the proposed e-BIZ Enterprise?

1.Improve processing capabilities of the BiH wood products/furniture manufacturing sector.

2.Develop competitive advantage in penetrating and securing market position in target export markets.

3.Help improve profitability of the BiH wood products/furniture sector.

4.Streamline and shorten the supply chain by eliminating as many intermediate processing nodes as possible.

5.Enter new, higher value-added market niches which demand efficient supply chains.



e-BIZ Enterprise Structure-Merging Production & ICT

•The e-BIZ Enterprise would identify specialized niches in which BiH companies can be competitive, e.g., “rapid response” (short runs/fast turn-around), high-end precision products, tailored products.

•Using advanced technology, e.g., 3D modeling, the Center would provide fee-based services to BiH wood products manufacturers, delivering the precision manufactured components as part of the production process, enabling the manufacturer to compete in that high value-added niche

•The e-BIZ Enterprise would offer other value-added fee-based services, e.g., CAD/CAM/CNC training.




•The e-BIZ Enterprise would provide technology-facilitated Supply Chain Management, adding value to both the BiH SME customers and to international customer companies.

•Offerings related to Internet Marketing could provide further value to the target BiH SMEs by:

• Creating marketing opportunities, addressing market segmentation, promotion, distribution, pricing, information management, production efficiency, and customer satisfaction.




•The e-BIZ Enterprise could act as an intermediary to help bridge customer needs and wood products manufacturer processing capabilities.

•Using Internet-based technologies, customer orders for existing or new designs could be taken electronically by the e-BIZ Enterprise, which, in turn, would coordinate production among customer wood products companies.

•At the end of the process, the wood products manufacturer SME customers would make the final sale to customers, adding value to their operations.



What Does the Future Hold?

Companies that succeed will be ones that use the Internet as a complement to traditional ways of competing, not those that set their Internet initiatives apart from their established operations.

Porter 2006

[email protected]

internet marketing in the forest products industry opportunities

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