Back in the day, when the lumber brokerage firm I worked for would not hesitate to take a 500 car position half a dozen times a year, I had this brilliant idea. I approached my four best customers, two wood preservers and two truss manufacturers, with a plan. Rather than profiting from my risk taking and market positioning, I would create a small buying co-op of sorts. I would purchase for each company under their corporate name, using their own credit line for a reasonable fee. The advantage for them would be lower lumber costs. The disadvantage I had not calculated.
Each of these four companies said the same thing: NO WAY. Lumber buying is the most fun thing about my job. If you take that way, I will hate my job. In fact, they all said that if I were to present the idea to the company owners, they would not buy from me anymore.
Ironically, all four companies were out business within the next ten years. And, I know for a fact, they all could have bought their lumber cheaper. Lumber buying was the fun part of their job. They each made the token attempts to counter offer and the brokers would give them a couple of bucks here and there, however, none of them were in sync with market direction and momentum. They bought when they needed or wanted to buy. They increased inventory once their order files began to increase rather than prior to it.
I don’t mean this in a disrespectful way, but they were easy to sell and easy to profit from.
The reason is, lumber buying for them was fun. They approached it as the fun part of their day and often found themselves in trouble.
I agree that lumber buying is fun. The interaction between buyer and seller is invigorating, however, it is no joke.
Not a Laughing Matter
A component plant’s lumber buyer is responsible for 50% of the cost of the product. That means the buyer is responsible for 50% of the profits generated by the company. Being competitively priced is absolutely imperative. Buying lumber for fun, to get your jollies, or hang out on the phone with your buddies for the afternoon can spell ruin for a company.
I’m not saying be a stick in the mud, or unpleasant to deal with. Quite the opposite. Suppliers will reward friends more so than strictly business associates regardless of how much lumber is bought.
Lumber buying is no joke. It is not party time. It is not time to chit-chat with your 20-year business buds. Every decision is critical. What you pay and when you pay it determines whether or not the sales team will get the order and whether or not the company will be profitable.
That is why knowing what the lumber market is doing, and having a reasonable expectation of what will likely happen next, is a huge part of the component plant lumber buyer’s job, especially when helping the sales team plan for delayed shipment jobs. How will you quote those three month and six month jobs?
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July 21: I just took a break to check email and, no joke, this was in the mix: “Matt, How would you bid a job for 90 days out. About $250k in lumber / OSB at today’s prices?”
My answer was, “I am writing a column for Component Advertiser and literally just asked that question. Assuming October delivery, I would bid it with a 5% adder to today’s prices, expecting flat through the end of July, down in August, up in September and up in October.”
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Looking Forward...ml
A veteran lumberman, Matt Layman publishes Layman's Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.org.