Environmental Product Differentiation by the Hayward Lumber Company

Environmental Product Differentiation by the Hayward Lumber Company:

Discussion Questions

Your write-up (answers) should be concise and limited to three single-spaced pages (you may add additional appendix if required). Please hold your detailed answers/thoughts for participation/discussion session. Use the insights drawn from the readings, articles and class discussion in your analysis.

1. How does the supply chain for FSC lumber differ from the supply chain for noncertified lumber?

The supply chain for non-certified lumber is the traditional supply chain model.  This supply chain is well established and mature, from forest to final product. The logs are cut from commercial forests and shipped by trucks to nearby mills, where the logs are cut into various sizes.  Then the lumbers are shipped by rail from the mills to the lumberyards. The lumbers are stored in the lumberyards until they are sold and shipped to construction sites by trucks (p3). The supply chain for FSC certified lumber is different from the traditional supply chain; it’s monitored by certifying bodies. FSC also accredits certifying bodies to monitor the whole supply chain process, and provides “chain-of-custody certification” to authenticate the wood as it moves from forest to mills to manufacturers and to end customers (p5).  FSC certified woodlands were fragmented and dispersed, and only a small fraction of saw mills were FSC certified. These mills could not process both FSC and non-FSC certified wood the same time. Before processing FSC certified wood, the mill had to be shut down and cleaned up non-certified wood pieces in order to meet the FSC chain-of-custody requirements. A mill operator would only produce a batch of FSC certified wood three or four times a year. Therefore, retailers only had opportunities to order FSC certified products three or four times a year (p6). HLC understood the market demand, and stocked FSC certified lumber. Therefore, they could deliver to consumer in the shortest lead-time. In fact, after 2 months of stock FSC certified lumber, they sold 80% of them, and they sold the rest as regular lumber (p7).

1. Does the FSC eco-label competitively differentiate HLC in the builder supply market? Discuss why.

The FSC eco-label does differentiate HLC in the builder supply market. Chain of custody certification was inefficient. In the market, less than 10% of the FSC certified lumber reached consumers under FSC label (p5); all FSC certified lumber from HLC were clearly eco-labeled. This is a competitive advantage of HLC to differentiate itself in the marketplace. Most importantly, the demand for FSC certified lumber was very high, especially stimulated by LEED Green Building Rating System. HLC was the only company in the market to stock FSC certified lumber. Compare to the 3 month delivery time in the market, the high HLC inventory shorted the lead-time, and increase customer satisfaction. People were willing to pay $420 for FSC certified lumber rather than $335 for regular lumber, especially from well-established brand HLC (p6&7).  None of HLC’S competitors stocked FSC certified lumber or had any environmentally friendly image; this gave HLC another competitive advantage to differentiate itself in the builder supply market.