THE PENNSYLVANIA STA'iK ENIVEESITY DOCUMENTS SEC'J A FOREST INDUSTRY G & MARKETING COMPLEX for Eastern Kentucky U.S. DEPARTMENT of COMMERCE Area Redevelopment Administration Digitized by the Internet Archive in 2012 with funding from LYRASIS Members and Sloan Foundation http://archive.org/details/forestindustryprOOmacd A FOREST INDUSTRY PROCESSING AND MARKETING COMPLEX FOR EASTERN KENTUCKY U.S. DEPARTMENT OF COMMERCE Area Redevelopment Administration Washington, D.C. 20230 April 1963 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C., 20402 - Price 75 cents FOREWORD Many areas designated eligible to participate in the Area Redevel- opment program are characterized by abundant forests. In most of these areas this great natural resource has not been exploited to the fullest economic potential because of a lack of modern facilities for processing and marketing. This report deals with this subject as it pertains to eastern Ken- tucky; however, it also contains a wealth of information and method- ology of value to any community which intends to explore the potentials of its own forest resources. This report was prepared for the Area Redevelopment Administra- tion under Contract No. Cc-5888 by Macdonald Associates, Inc., Wash- ington, D.C. The findings, conclusions and recommendations contained herein are those of Macdonald Associates, Inc. William L. Batt, Jr., Administrator Area Redevelopment Administration 111 INTRODUCTION This report presents the findings of exten- sive studies concerned with the function and design of a wood processing and marketing complex recommended for eastern Kentucky. Background investigations show a sub- stantial forest resource of usable wood species and companion assets of a satisfac- tory labor supply, an acceptable physical environment, and proximity to concentrated markets. A condition of restricted activity in the manufacture of wood products was evident throughout the region, confirming the observation that only minor advantage is being taken of existing opportunities to develop the region into a basic source of processed wood products. Despite the in- fluence of numerous restrictive conditions there is reason to believe that these can be adjusted, or adjusted to, so that their influ- ence will be minimized. The objectives of this study have been: (1) to design a business organization able to provide itself with necessary wood raw ma- terial and to process that material into finished products; (2) to determine products suited to the available wood resources; (3) to recommend economic means of product manufacture; and (4) to make a reliable pro- jection of the market opportunity available to each product. The fulfillment of these objectives has entailed considerable analysis of each facet of the proposed business ven- ture and has made desirable the recommen- dation of operating concepts that are not common to the hardwood processing industry. As a first consideration, the complex should function as an integrated operation com- mencing with the regional forest resources; therefore, it must be vitally concerned with forest land ownership and forest management programs. Second, the methods of logging and the transportation of logs from the forest to the place of processing must be made highly efficient. As an example, important cost benefits can be gained by transporting tree-length logs from the woods to the manufacturing location instead of following the customary practice of bucking logs to length at the place of felling. Third, although the conversion of logs into various products can follow conventional procedures, the use of mechanized and automated ma- chinery should be applied to the extent of achieving maximum economies of perform- ance. Finally, assuming the economic manufacture of a line of quality products, the corporate complex should be able to market such products through its own sales organization and do so with a degree of expertness that will assure a profitable growth enterprise. The operational goal of the complex will be to utilize within itself or through affiliated operations all material derived from sawmill conversion of logs. This means that while the complex will sell lumber internally, it will not ordinarily manufacture lumber for sale on the open market. Ideally, it will engage in purchasing lumber from local sawmills to augment its own capacity. Local purchasing for this purpose can be expected to strengthen community and business relationships and to result in tapping timber resources that might other- wise be unavailable. In addition to using lumber as a product base, a quantity of cord- wood will be consumed in the production of flakeboard and other fiber based products. The diversified manufacturing capability recommended in this report is based on an approach to wood products manufacture that requires efficient conversion of as much of each growing tree as is possible into sale- able products. The integrated operation proposed herein, beginning with manage- ment of the growing forest and extending through harvesting, processing and — ulti- mately— to marketing, represents a radical departure from the manner in which the wood industry has customarily operated in Kentucky and adjacent areas. Usually a wood products firm will not concern itself with more than one, or at the most two of these functions, and will confine its manu- facturing activity to a limited variety of products. The device of a wood processing complex is not new to the wood industry; there are several examples of corporations located in other parts of the country that have changed their operating approach to assume the characteristics of a processing complex as outlined by this report. In instances in which adequate management talent, plan- ning, and financing have been directed into such undertakings, the resulting business activity has been rewarding. An historical review shows that when failures have oc- curred, the cause is usually traceable to unimaginative consideration of one or more of these vital administrative functions. Therefore, efforts to organize a processing IV complex in eastern Kentucky must give careful consideration to these needs; and the scale of the enterprise must be large enough to make its activities effective throughout its natural market area. Markets and the market approach are the ultimate determinants of the practicability of a manufacturing enterprise. Literally thousands of products could be made from the wood resources that are available in eastern Kentucky; but, lacking buyers, there would be no purpose in making them on industrial scale. For this reason, the present market for wood products has been examined carefully. As a result, each prod- uct recommended in this report has been subjected to a rigorous evaluation that has served to verify its market acceptance and its ability to meet competitive sales criteria. It is intended that this report will serve as a guide to the preparation of a formal cor- porate prospectus. To this end, the content has been developed in a manner that will permit it to be used as a reference in sup- port of such a prospectus. Because of this, flow diagrams, cost estimates, and economic projections have been developed with accu- rate detail. Recommended equipment and projected costs are based on today's market and, in many instances, reflect quotations and recommendations prepared by various machinery manufacturers. CONTENTS Page FOREWORD ." iii INTRODUCTION iv SECTION I INDUSTRY ENVIRONMENT IN EASTERN KENTUCKY CHARACTERISTICS OF THE ECONOMY 1 LABOR AND MANAGEMENT 1 Labor Force 1 Wages and Working Conditions 4 Management Skills 6 TRANSPORTATION, COMMUNICATIONS, AND UTILITIES 9 Transportation 9 Communications 14 Utilities and Fuels 15 FOREST RESOURCES AND WOOD PRODUCTS INDUSTRY 19 Forest Land 19 Ownership Patterns 19 Land Values and Taxes 20 Regulation of Forest Lands 21 Trends 21 COMMERCIAL TIMBER 21 EASTERN KENTUCKY WOOD PRODUCTS INDUSTRY 21 SECTION II THE PRODUCTION COMPLEX OPERATIONAL CONCEPT 30 Operating Structure 31 FUNCTIONAL ACTIVITIES 33 Forest Land Ownership and Control 33 Log Collection Yard 33 Primary Product Manufacture 34 Cordwood Conversion 34 Remanuf acturing Facilities 34 Satellite Operations 35 Independent Operations 35 Marketing 36 RESUME OF PRODUCT RECOMMENDATIONS 36 Rough Products 37 Primary Products 38 Remanuf actured Products 39 Satellite Products 40 WOOD RAW MATERIAL REQUIREMENTS 42 WOOD RAW MATERIAL PROCUREMENT 45 Independent Suppliers of Sawlogs and Cordwood 45 Procurement of Rough Products from Company Forests 46 Procurement of Lumber 46 Procurement Area 47 Raw Material Transportation 47 RAW MATERIAL PREPARATION 49 PHYSICAL ARRANGEMENT OF THE COMPLEX 53 VI SECTION III PROCESSING FACILITIES Page MANUFACTURE OF GREEN LUMBER 54 Saw Logs 54 Proposed Sawmill 54 Manpower Requirements 58 Approximate Installed Cost of Sawmill 59 LUMBER DRYING 59 Routing of Dry Lumber 60 Manpower Requirements 60 Installed Cost of Air and Kiln Drying Facilities 61 REMANUFACTURED PRODUCTS 61 ROUGH PRODUCT MANUFACTURE 61 Manpower Requirements 62 Installed Cost of Rough Processing Line 62 CORE STOCK MANUFACTURE 62 Manpower Requirements 63 Installed Cost of Equipment 63 DIMENSION PRODUCTS 63 Manpower Requirements 66 Installed Cost of Equipment 66 SOLID WOOD PANELING (MILLED PRODUCTS PLANT) 66 Manpower Requirements 67 Installed Cost of Equipment 68 FLAKEBOARD 68 Product Definition and Construction 68 Description of Board Manufacture 68 Installed Cost of Flakeboard Manufacturing Plant 72 SATELLITE MANUFACTURING ACTIVITIES 72 PALLET MANUFACTURE 72 Manpower Requirements 74 Installed Cost of Pallet Plant 74 UNASSEMBLED FURNITURE 74 Equipment Requirements 75 Manpower Requirements 75 Installed Cost of Unassembled Furniture Manufacturing Plant... 75 UPHOLSTERED FURNITURE FRAMES 75 Equipment Requirements 76 Manpower Requirements 76 Installed Cost of Upholstered Furniture Frame Plant 76 BARK MULCH AND ANIMAL LITTER 76 Manpower Requirements 78 Installed Cost of Mulch- Animal Litter Plant 78 PRESERVATIVE TREATING PLANT 78 Equipment Requirements 79 Manpower Requirements 79 Installed Cost of Preservative Treating Plant 80 SECTION IV OPERATIONAL AND ECONOMIC PERFORMANCE SCALE OF ENTERPRISE 81 START-UP CONFIGURATION 81 THE LAND MANAGEMENT CORPORATION 84 Forest Land Ownership and Control 84 Procurement from Independent Suppliers 85 Forest Management Activities 85 Performance Requirements 86 vu Page THE PRINCIPAL CORPORATION 87 The General Manager 87 Production Management 87 The Production Manager 88 Physical Plant. 88 Economic Factors 88 SATELLITE PROCESSING UNITS 94 THE MARKETING CORPORATION 97 Organization and Activity 97 Pricing i 98 Promotional Activities 99 Incentive to Satellite Units 99 The Sales Manager 99 Economic Performance .*. 100 SECTION V SITE ANALYSES REQUIREMENTS OF THE COMPLEX 101 AREA #1-KENTUCKY RIVER VALLEY 101 Area Facilities 101 Available Sites 101 AREA #2-UPPER CUMBERLAND RIVER VALLEY 105 Area Facilities 105 Available Sites 105 AREA #3-BIG SANDY RIVER VALLEY 110 Area Facilities 110 Available Sites 110 SECTION VI THE CORPORATE ORGANIZATION OPERATING STRUCTURE Ill Principal and Subsidiary Corporation 112 Multiple Corporation Operation 112 Service Organizations 113 Satellite Operations 113 Investment by Independent Manufacturers 114 Personnel Incentives 114 Types of Securities 115 SECTION VII MEETING THE FINANCIAL REQUIREMENT OF THE COMPLEX FINANCING THE PRINCIPAL CORPORATION 117 Site Acquisition, Site Improvement, Buildings 117 Acquisition of Timberlands 118 Installed Machinery and Equipment 118 Working Capital 119 Summary of Financing for Principal Corporation 119 FINANCING SATELLITE OPERATIONS 119 SECTION VIII MARKETING POTENTIAL FOR SELECTED PRODUCTS DIMENSION AND LAMINATES 120 LAMINATED SOLID WOOD CORE STOCK 124 FLAKEBOARD 125 SOLID WOOD PANELING 128 via Page PALLETS 130 UNASSEMBLED FURNITURE AND CONSUMER KITS 130 FRAMES AND PARTS FOR UPHOLSTERED FURNITURE 131 ANIMAL LITTER 133 BARK MULCH 139 PRESERVATIVE TREATED POSTS, POLES, AND LUMBER 141 WOOD CHIPS 142 TABLES ILLUSTRATIONS I-I Unemployment and Median Income, 1960 1 I— II Selected Data for Eastern Kentucky Counties 1 I— III Average Straight-Time Hourly Earnings — Sawmills and Planing Mills, 1962 7 I-IV Average Production Wages in Selected Wood Household Fur- niture Manufacturing Areas, 1962 8 I-V Wages in Selected Occupations in Southern Wood Furniture Manufacturing Areas, 1962 8 I-VI Comparative Wages: Louisville and Southern States, 1962.... 9 I-VII Rail Freight Rates from Hazard, Kentucky, for Wood Prod- ucts 14 I-VIII Truck Freight Rates for Wood Products 15 I-IX Explanation of Highway Freight Classes — Lumber and Wood Products 15 I-X Approximate Freight Transit Times from Selected Locations in Eastern Kentucky 17 I-XI Estimated Hardwood Resources — Eastern Kentucky 23 I-XII Estimated Volume of Growing Stock on Commercial Forest Land in Eastern Kentucky 24 I-XIII Estimated Softwood Resources — Eastern Kentucky 25 I-XIV Comparative Data on Wood Products Industry in Kentucky and Eastern Kentucky, 1958 26 I-XV Distribution of Wood Products Industries in Eastern Ken- tucky Redevelopment Areas, 1958 29 I I-I Consumption of Hardwood Lumber, 1955-1960 31 II— II Estimated Annual Raw Material Requirements — by Species... 43 II— III Relationship of Sawtimber Consumption to Forest Compo- sition — Hardwood Species 45 II-IV Daily Deliveries of Raw Material to the Complex 49 III— I Production and Use of Residue Materials 60 IV-I Consolidated Performance Data 82 VI I-I Analysis of Financial Sources in Kentucky 116 VIII-I Shipments of Hardwood Dimension Stock and Laminates 124 VIII-II Particleboard Production, 1959-1962 127 VIII— III Shipments of Unassembled and Unpainted Furniture 131 VIII-IV Upholstered Furniture 133 VIII-V Principal Poultry Raising Centers in Kentucky Market Area... 134 VIII-VI Requirements for Poultry and Livestock Litter, 1962 136 VIII-VII Annual Litter Requirements, Eastern USA (Less New England) 138 VIII-VIII Prices for Treated Fence Posts, Kentucky, 1962 142 VIII-IX Materials Treated, by Item and Preservative, in the United States, 1957-61 143 DIAGRAMS I i Private Forest Land Ownership Pattern, Kentucky -1949 20 I— II Estimated Volume of Hardwood Sawtimber in Eastern Ken- tucky 22 IX Page II— I Hardwood Resources of Eastern Kentucky 31 II— II The Vertically Integrated Operating Structure 32 II— III Residue from Hardwood Saw Log Conversion 33 II-IV Species Composition of the Hardwood Sawtimber Inventory in Eastern Kentucky 37 II-V Planned Daily Processing Capacities 44 Flow Diagram — Debarking, Sizing, and Sorting 52 Preliminary Plan of Processing Facilities 50 III— I Lumber Yields from Average Saw Logs 55 Flow Diagram — Sawmill 56 Flow Diagram — Remanuf acturing Plant 64 Flow Diagram — Solid Wood Paneling Plant 67 Flow Diagram — 3-Layer Flakeboard Plant 70 Flow Diagram — Pallet Manufacturing Plant 73 Flow Diagram — Bark Mulch & Animal Litter 77 VI-I Multiple Corporation Organization Ill MAPS I-I Distribution of Work Force in Mining and Manufacturing, 1960 2 I— II Kentucky Transportation Map 10 I— III Interstate Highway System 12 I-IV Electric Power Distribution — Kentucky Power Co 16 I-V Electric Power Distribution — Kentucky Utilities Co 18 I-VI Employees in Forestry and Wood Products Industry — Eastern Kentucky, 1960 28 II— I A Typical 50-mile Procurement Radius 48 V-I Selected Area Locations for the Processing Complex 102 Irvine-Ravenna; Sites #1 and #2 103 Beattyville; Site #3 104 Williamsburg; Sites #4, #5, and #6 106 Barbourville; Sites #7 and #8 107 Paintsville; Site #9 108 Prestonburg; Site #10 109 Location of Dimension Mills 121 Location of Particle Board Plants 123 Location of Pallet Plants 126 Location of Wood Furniture Plants, 1958 129 Location of Upholstered Furniture Plants 132 Distribution of Chickens, Broilers, and Turkeys 135 Distribution of Cattle and Hogs 137 Location of Preservative Treating Plants 140 ECONOMIC PROJECTIONS Land Management Corporation 84 Principal Corporation 87 Corporate Processing Facilities 90 Satellite Processing Facilities 94 Marketing Corporation 97 Section I Industry Environment in Eastern Kentucky Characteristics of the Economy The economy of Kentucky is based on man- ufacturing, trade and agriculture which in 1960 engaged, respectively, 21.3 percent, 17.3 percent, and 14.2 percent of all employed persons. Setbacks and readjustments in the economy over the past few years caused un- employment in the State to reach 6 percent in 1960, with pockets of unemployment in some counties reaching to 20 percent or more of the work force. In 1961 unemployment insur- ance payments for the State amounted to $38,655,777, and other forms of public assist- ance reached the figure of $62,698,030. The median family income for Kentucky in 1960 was $4051, and 38 percent of all families had incomes of less than.$3000. While few counties of the State have been spared, the most acute situation with respect to unemployment is to be found in the Eastern Highlands, where rapid automation of mining operations has reduced the demand for labor and where farming, trade, and manufactur- ing are at a low level compared to the rest of the State. Table I-I, below, illustrates the comparison in unemployment and family in- comes for the 36 counties included in the eastern Kentucky redevelopment region. Although the internal composition of the economy in eastern Kentucky resembles that of the State as a whole, for many categories of industry significant differences are apparent. Mining accounts for only 4 percent of all employed persons in the State; in eastern TABLE I-I UNEMP LOYMENT AND MEDIAN INCOME, 1960 Entire Eastern County Range - State Kentucky Eastern Kentucky Unemployed (per cent) 6.0 9.6 3. 6-21. 3 Median family income (dollars) 4,051 2,263 1, 324-4, 393 Family incomes less than $3000 (per cent) 38.0 62.7 33. 2-80. 8 Family incomes more than $10,000 (per cent) 8. 3. 8 0. 7-5. 7 Source: U. S. Censu Kentucky, by contrast, it accounts for 16.5 percent of all employment. In 1960, approxi- mately 26,500 mining employees in this region represented 71 percent of all such employees in the State. Similarly, eastern Kentucky accounts for 48.8 percent of all persons in the State engaged in forestry and fishing. By contrast, only 9.4 percent of all employees in manufacturing industries in Kentucky are employed in eastern Kentucky. While 21.3 percent of all employees in Kentucky are engaged in manufacturing industries, only about 11.5 percent of the labor force in eastern Kentucky is so engaged. The proportion of persons engaged in professional services (medical services, social services, and educa- tion) is slightly higher in eastern Kentucky than in the rest of the State. The picture that emerges is one of an economy dominated by mining, trade, and agriculture but with some important manu- facturing activity. Business and personal services are at a slightly lower level than for the entire State, while the proportion of em- ployees in the fields of finance, insurance, and real estate is 60 percent lower. The last two factors tend to confirm the relatively elementary level of business activity observed in the course of extensive field investigations and, furthermore, suggest a rigidity in the economy which has retarded internal expan- sion and reorientation because of a lack of business skills. Table I— II summarizes the pertinent data for the 36 eastern Kentucky counties and provides comparative data for the State as a whole. The relationship between mining and man- ufacturing in eastern Kentucky as of 1960 by reference to the work force engaged in these two industries is shown on Map I-I. The map presents a county by county analysis of the region which indicates that the manufactur- ing work force is concentrated along the western edge of the region. With some major exceptions, manufacturing in these counties consists of processing agricultural commodities: lumber and wood products, food processing, and textiles and related indus- tries. Primary metal production and chemi- cals are important in Greenup County, in the northeast, while some machinery industries are located in the triangle formed by Madison, Estill, and Powell counties. The south- eastern sector of the region is dominated by a coal mining economy. Manufacturing indus- try in this area retains the same pattern suggested above: lumbering and wood prod- ucts, food processing, and some textiles and clothing. The relative importance of lumber, furni- ture, and other wood products among the manufacturing industries is confirmed by the fact that this phase of industry employed 5421 workers in 1960 and represented^ per- cent of all manufacturing activity in eastern Kentucky. More significantly, the employees in these eastern Kentucky industries repre- sented about one-third of all such employees in the State. A more detailed discussion of the lumber and wood products industry is presented at the end of this section. In general terms, the level of indigenous business activity in the region of eastern Kentucky is below that of the rest of the State and inadequate to support large scale indus- try. Business enterprises are typically sole proprietorships or closed corporations, and credit is tightly controlled by conservative banking policies. Even where a bank adopts a liberal policy to encourage new business activity, the financial resources of the region are limited. Total bank deposits, including SECTION I governmental deposits, in the region were about $2.1 billion in 1960, or about 12 percent of the total bank deposits in the State... The population of the region, on the other hand, is about 22 percent of the State. Any large scale development of the region, therefore, must rely on the introduction of outside capital, preferably on long-term loan. Be- cause of the difficult situation in other parts of the State and the competition for limited capital resources, however, most of this capi- tal must come from such sources as the Area Redevelopment Administration, the Small Business Administration, and State indus- trial development funds. Labor and Management Labor Force Eastern Kentucky is a labor surplus area, a fact attributed in part to the recent auto- mation of coal mines in the area and in part to a relatively high birth rate. In 1961, the Kentucky Department of Economic Develop- ment estimated that about 36,000 men and 44,000 women were available for employment in the region. The majority of these unem- ployed workers, however, are unskilled and MAP I-I DISTRIBUTION OF WORK FORCE IN MINING AND MANUFACTURING 1 960 KEY Agriculture 10-15% in manufacturing; mining negligible. 15% or more in manufact- //X uring; mining negligible. 10-15% in manufacturing; less than 10% in mining. 10-15% in manufacturing; 10-20% in mining. 10-20% in mining; less than 10% in manufacturing. 20% in mining; less than 10% in manufacturing. INDUSTRY ENVIRONMENT 2 TABLE I-II SELECTED DATA FOR EASTERN KENTUCKY COUNTIES Land Area Average Total County Population 1960 in Square Miles Personal Income 1957 Monthly Employment* Payrolls* 1960 Total Per Total Urban Rural 1960 (000) Capita I960 (000) Bell 35, 336 15, 788 19, 548 370 $ 32,217 $ 903 3, 625 $ 12, 165 Breathitt 15, 490 15, 490 497 11, 236 626 5 46 2, 458 Carter 20, 817 20, 817 402 17, 493 888 1, 923 6, 688 Clark 21, 075 10, 187 10, 888 259 29, 337 1, 384 3, 524 13, 126 Clay 20, 748 20, 748 47 4 12, 801 528 1,699 4, 004 Clinton 8, 886 8, 886 191 5, 977 645 528 1, 043 Ellicott 6, 330 6, 330 240 3, 525 581 85 230 Estill 12, 466 2, 955 9, 511 260 9, 249 691 566 1, 557 Floyd 41, 642 3, 133 38, 509 401 41. 973 961 5, 142 20, 809 Greenup 29, 238 8, 257 20, 981 350 16, 260 536 739 3, 101 Harlan 51, 107 12, 258 38, 849 469 84, 137 1, 599 6, 769 29, 304 Jackson 10, 677 10, 677 337 6, 230 497 284 757 Johnson 19, 748 4, 025 15, 723 264 17, 268 767 1, 499 4, 088 Knott 17, 362 17, 362 356 6, 928 364 458 1, 363 Knox 25, 258 4, 587 20, 671 373 12, 677 441 856 2, 246 Lau r e 1 24, 901 4, 035 20 : 866 443 13, 150 497 1, 734 5, 347 Lawrence 12, 134 12, 134 425 12, 332 915 552 1, 492 Lee 7, 420 7, 420 210 6, 436 852 552 1, 682 Leslie 10, 941 10, 941 412 9, 864 529 1, 712 4, 079 Letcher 30, 102 3, 202 26, 900 339 30, 662 1, 054 1, 210 13, 871 Lewis 13, 115 13, 115 484 8. 309 657 585 1, 648 McCreary 12, 463 12, 463 408 7, 317 570 543 1. 61 1 Madison 33, 482 16, 470 17, 012 446 39. 148 1, 138 3, 403 10, 454 Magoffin 11, 165 11, 156 303 6, 403 621 354 1, 062 in the higher ages, 40 to 60. Large numbers of younger men and women, in the 18-39 year age groups, many of them with skills acquired by means of attendance at the excellent voca- tional schools in the area, have left eastern Kentucky to find work in industrial centers in Kentucky and nearby states. The following table suggests the impact of out-migration on the population of the 30- county area of eastern Kentucky for which comparative data were available: Period Population at Beginning of Period Population at End of Period Net Change % Change 1940-1950 1950-1960 768,486 740,269 740,269 610,133 28,217 130,236 -3.7 -17.6 A study by the Kentucky Department of Economic Development estimated that 101,148 males and 97,848 females in eastern Kentucky would reach the age of 18 during the period 1958-1968, providing that their families did not migrate from the region. Many of these young men and women are receiving excellent training atlthe secondary school level and in the several technical and vocational schools in the area. Despite the low family income level in the area, a number of them will attend colleges and universities, either in eastern Kentucky (e.g.,, the Cumber- land branch of the University of Kentucky) or in nearby states. Lacking job prospects, a substantial number of these young people will migrate to areas where their talents and skills can be utilized. The result, of course, is a net loss to the trained labor pool. Far more significant, however, is the cumulative loss in terms of the area's human resources and community leadership. Nevertheless, responsible community leaders feel that many of the displaced workers and young people would return to eastern Kentucky if job prospects improved. The relatively low level of technical skills among the unemployed labor pool in the region has been considered a deterrent to industrial expansion. However, the con- sistent demand for the graduates of the Mayo State Vocational Training School at Paints- ville by industrial employers in the surround- ing states suggest that the Kentucky worker SECTION I SE LECTE D DATA FOR EASTERN KENTUCKY COUNTIES CONT ' D) Population I960 Land Area in Square Miles Personal Income 1957 Average Monthly Employment* Total Payrolls* I960 County Total Per Total Urban Rural 1960 (000) Capita I960 (000) Martin 10, 201 10, 201 231 $ 3, 863 $ 314 278 $ 688 Morgan 11, 056 11, 056 369 9, 846 1,071 634 1, 816 Owsley 5, 369 5, 369 197 2, 930 457 17 38 Perry 34, 961 5, 958 29, 003 343 40, 677 1, 110 4, 414 17, 370 Pike 68, 264 4, 95 8 63, 510 786 68, 464 962 6, 264 24, 156 Powell 6, 674 6, 674 173 3, 783 534 347 924 Pulaski 34, 403 10, 757 23,646 630 27, 881 783 3, 141 8, 994 Rockcastle 12, 334 12, 334 311 7,234 546 190 446 Rowan 12, 808 4, 170 8,638 2 90 10, 636 1, 121 1, 340 3, 757 Wayne 14, 700 2, 940 11, 760 440 10, 212 634 1, 079 2, 749 Whitley 25, 815 9, 221 16, 594 458 21,003 729 2, 019 5, 820 Wolfe 6, 534 6, 534 227 3, 339 454 69 128 EASTERN KENTUCKY 735, 013 122, 697 612, 316 13, 166 $ 650,797 $ 749 60, 650 $ 211,071 % of State 24. 2 9.0 36.3 33.0 15. 59 54. 5 13. 5 11. 1 KENTUCKY 3,039, 156 1, 353, 215 1, 684, 941 39, 863 $4, 172, 000 $1, 372 447, 284 $1, 885, 319 * Data for industries covered by the Kentucky Unemployment Insurance Law Source: Deskbook of Kentucky Economic Statistics , 1961, Frankfort, Ky. : Department of Economic Development, 1962 possesses both aptitude to learn skilled trades and a favorable attitude toward work itself. Obviously, a certain amount of retraining will be required for the many unemployed miners of the region before they can con- tribute effectively to any industrial program. In addition to the Mayo School at Paints- ville, the region has three Area Vocational Schools (at Harlan, Hazard, and Somerset) and access to another at Ashland, just out- side the region. Each of these schools pro- vides secondary level and adult extension programs in the fields of carpentry and cabinet making, drafting, machine shop, sheet metal work, welding, and industrial electricity. The area school at Hazard con- ducts a course in heavy equipment operations and maintenance for adults, while the Mayo school conducts a course in diesel mechanics. Courses in business and commerce are also available within the region. Wages and Working Conditions Wages and salaries in eastern Kentucky are generally at the bare minimum except in the unionized coal mines. Wage rates for common labor employed by industries en- gaged in interstate commerce tend to hover at the minimum of $1.15 per hour, while even highly skilled workers usually draw less than $2.00 per hour. Supervisory and managerial personnel similarly are paid less than the average for U.S. industry as a whole; a typical figure cited for a plant manager is between $7000 and $8000. This situation is primarily indicative of the lower living standards prevailing in the region. While summary wage data are not avail- able for sawmills and planing mills in eastern Kentucky, it is instructive to examine the average hourly wages in comparable manu- facturing activities in 132 plants located in nearby states, shown by Table I— III. The average for all production workers in these plants in June 1962 was about $1.27 per hour (straight time); maximum wages of $3.30 per hour were paid to band mill headsaw opera- tors in one state. The highest wages, in most instances, were paid in Tennessee, while Virginia's wage spread is relatively narrow. Table I— III shows only straight hourly wages and not work conditions. By far the largest number of workers (82-95%) in the plants surveyed worked 40-hour weeks. Where second or third shifts were worked, shift differential pay was seldom paid. Paid holidays were reported for about 38 percent of all workers in Tennessee, but about 87 percent of workers in Virginia and North INDUSTRY ENVIRONMENT SELECTED DATA FOR EASTERN KENTUCKY COUNTIES (CONT D) Retail Sales" Value of Mineral Total Bank Deposits * Manu facturing, 1958 Value Added County 1958 Production June 15, 1960 No. of Payroll by Manufacture (000) (1959) (000) Estab. Number (000) (000) Bell $ 25, 129 $ 4,371,487 $ 13, 103 33 650 $ 2,206 $ 4,599 Breathitt 5, 420 4, 963, 817 3, 110 9 41 85 134 Carter 11, 600 1, 457, 377 9, 948 18 748 2, 851 5, 302 Clark 21,640 #* 22, 094 18 1, 115 3, 491 7, 947 Clay 7, 605 4, 219, 978 4, 701 20 173 295 586 Clinton 4, 773 ** 2, 990 10 194 395 518 Elliott 1, 551 375, 338 1, 075 2 #* ** -!=# Estill 5,785 412,286 4, 143 18 316 80 9 1, 094 Floyd 19, 926 #* 17, 452 16 81 315 311 Greenup 10, 722 *# 6, 993 15 251 1, 134 2, 314 Harlan 34, 014 *# 16, 204 24 445 1, 439 2, 436 Jackson 3, 232 ## 3, 431 8 32 41 65 Johnson 12, 844 1, 455, 817 8, 987 12 104 160 267 Knott 3, 594 3, 496, 111 2, 363 6 17 15 32 Knox 9, 189 353, 512 4, 684 21 320 698 1, 555 Laurel 16, 352 1, 364, 529 11, 630 27 408 1, 264 2, 766 Lawrence 5, 384 1, 001, 792 3, 866 10 43 97 219 Lee 3, 209 ** 2, 902 5 24 ** ** Leslie 4, 442 12, 051, 780 1, 688 17 206 439 828 Letcher 14, 779 ## 8, 608 13 129 399 841 Lewis 5, 245 3, 716 16 342 sjesjs ** McCreary 5, 303 2, 129, 026 2, 298 14 59 97 120 Madison 29, 111 *# 20, 020 22 853 3,021 8, 178 Magoffin 3,021 4, 468, 218 2, 184 3 12 >','* ♦ * Carolina received no holiday pay. In Ten- nessee, about 44 percent of the employees surveyed were provided paid vacations (usually one week after one year of service and two weeks after five years of service). Only about 20 percent of the employees in Virginia and North Carolina were provided paid vacations, seldom exceeding one week regardless of length of service. Group health and accident insurance plans were provided only 19 percent of surveyed produc- tion employees in Virginia. In North Caro- lina and Tennessee, however, more than 40 percent of the production employees were provided some form of health and accident insurance. None of the 132 plants surveyed had any form of retirement plan for its employees. Detailed wage data for other wood prod- ucts industries are not available for eastern Kentucky, but comparable data from several nearby furniture manufacturing areas are illustrative, insofar as the occupations are the same as many of those contemplated for the wood products complex and its satellite operations discussed in this report. The detailed data are shown by Table I-V for plants employing 20 or more in the Winston Salem-High Point and Hickory-Statesville areas of North Carolina, Indiana, and Mar- tinsville, Virginia. It is worth noting aver- age hourly wages for the southern furniture areas compared to those prevailing at Grand Rapids, Michigan, Indiana, and Jamestown, New York: The significantly higher costs paid in the furniture industries of Indiana, Michigan, and New York suggest a favorable market for such items as dimension stock and furniture frames produced in areas where costs are relatively low, despite shipping charges incurred. Fringe benefits in the wood furniture in- dustry are somewhat more attractive than those in logging and sawmilling. While addi- tional wages are seldom paid for second and third shifts, all workers surveyed in Martins- ville, Virginia, and most workers in the North Carolina areas are covered by life insurance and some form of health and accident in- SECTION I SELECTED DATA FOR EASTERN KENTUCKY COUNTIES (CONT'D) County Retail Sales 1958 (000) Value of Mineral Production 1959 Total Bank Deposits* June 15, 1960 (000) Manufacturing, 1958 No. of Estab. Number Payroll (000) Value Added by Manufacture (000) Martin Morgan Owsley Perry Pike Powell Pulaski Rockcastle Rowan Wayne Whitley Wolfe $ 2,578 5, 513 1, 330 23, 772 32, 339 1, 883 22, 353 5,239 8, 581 6, 817 18, 997 1, 367 $ 251,642 156, 079 18, 858, 574 350,701 ## 205, 980 $ 1, 886 4, 384 1,064 9,036 29,289 2,206 19, 176 2, 858 7, 332 5, 133 16,074 1, 202 2 5 4 10 37 8 49 5 24 19 29 4 72 13 132 350 62 1, 134 24 559 486 377 27 $ ** 152 15 357 1,018 118 2, 982 26 1,549 1,045 999 30 $ #* 17 7 544 1,244 206 6,076 35 2, 820 1,635 1, 372 32 EASTERN KENTUCKY % of State Kentucky $ 394,639 15>2 $ 2,580,517 $ 61,944,044 14. 8 $ 416, 391,000 $ 277,830 13. 1 $ 2, 115,512 553 19, 3 2, 851 9,799 6.2 157, 754 $ 27,542 3. 9 $ 693, 174 $ 54, 110 3.0 $ 1, 781, 969 * Includes interbank and government deposits. ** Withheld to avoid disclosing data for individual companies. Source: Deskbook of Kentucky Economic Statistics, 1961, Frankfort, Ky. : Department of Economic Development, 1962. surance. Most workers received some paid holidays and a week's vacation with pay after one year of service. Although it can be assumed that, as a general rule, hourly wages in eastern Ken- tucky wood products industries will approxi- mate those in nearby southern states, it should be noted that manufacturing wages in Louisville, where a number of wood product plants are located, are significantly higher. A 1962 wage survey in this area showed that some of the same occupational groups re- quired for the wood processing complex re- ceive up to 120 percent more in hourly wages. Some of these data for Louisville are shown by Table I-VI, compared to prevailing rates already tabulated. The table does not permit a comparison of wage rates for sawyers, planing mill operators, or other specially trained personnel; but, judging from the available data, wages for these occupa- tions should now be significantly higher in Louisville than in eastern Kentucky. While one of the conclusions of this study is that sufficient numbers of workers can be recruited to support the industrial program proposed by this report, it seems apparent that internal and external pressures will tend to force the prevailing industrial wage toward national averages. The need to deter the flight of skilled labor, and the necessity to provide real wages to unskilled laborers sufficient to enable them to improve their own standard of living will contribute to in- creased wage rates in the future. Management Skills A more serious problem is the lack of technological and management skills re- quired for sophisticated industrial operations, particularly for entrance into the field of wood products. In most cases, technological know-how must be sought outside the state within the existing wood products industry, at least for the immediate future. At a later date, special educational programs could be instituted at such centers as More- head State College (Morehead), the Univer- sity of Kentucky branch at Cumberland, or any of the numerous private junior colleges and colleges in the area that are now train- ing east Kentucky youths for employment outside the State. The emphasis intended is not on forestry — plans for a forestry school are well-advanced — but on business management, industrial engineering, corpo- INDUSTRY ENVIRONMENT TABLE I -III j AVERAGE STRAIGHT -TIME HOURLY EARNINGS SAWMILLS ANP PLANING MILLS, 1962 OCCUPATION Va. Tenn. N. Car. Area Max. All Production Workers $1. 26 $1. 29 $1. 26 $2. 60+ Sawmill and Planer Operations Block Setters $1.29 $1. 20 $1. 25 $1. 70 Cut-off Saw Operators 1. 19 1. 21 1. 16 1. 80 Edgermen 1. 25 1. 22 1. 18 2. 00 Firemen, stationary boiler 1. 16 1. 23 1. 14 1. 60 Graders, lumber (green chain) 1. 30 1. 87 1. 31 2. 60 Graders, planed lumber 1. 36 1. 57 1. 35 2. 70 Headsaw Operators (bandsaw) _„ 2. 14 2. 17 2. 30 Headsaw Operators (circular saw) 1. 86 1. 56 1. 70 2. 60 Janitors, porters and cleaners 1. 16 1. 19 1. 14 1. 45 Loaders, car and truck 1. 16 1. 18 1. 16 1. 45 Log Deckmen 1. 17 1. 16 1. 18 1. 60 Lumber Stackers 1. 16 1. 22 1. 20 2. 10 Off-Bearers, machine 1. 16 1. 17 1. 16 1. 60 Planer Operators (feed only) 1. 17 1. 25 1. 22 1. 80 Planer Operators (setup and operate) 1. 36 1. 40 1. 62 2. 70 Sorters, green chain 1. 16 1. 25 1. 14 1. 60 Trimmermen 1. 19 1. 20 1, 18 1. 55 Truck Drivers 1. 22 1. 25 1. 19 1. 90 Truckers, power (fork lift) 1. 24 1. 29 1. 22 1. 85 Watchmen 1. 16 1. 20 1. 13 1. 45 Logging Operations Cat Drivers, skidding $1. 26 $1. 22 $1. 31 $1. 80 Chokermen 1. 25 __ 1. 16 1. 45 Fallers and Buckers, power 1. 24 1. 23 1. 22 1. 70 Ground Loaders 1. 16 __ 1. 17 1. 35 Teamsters, logging 1. 19 1. 18 1. 18 1. 60 Truck Drivers, logging 1.26 1. 20 i 1. 15 1. 55 1 SOURCE: Bureau of Labor Statistics, U.S. Department of Labor, based on the June 1962 payroll period. 722-307 0-64-2 8 SECTION I rate finance, and marketing. For the im- mediate future, however, on-the-job training and such extension programs as can be presented by the Quick Sand facility of the University of Kentucky must be relied upon to develop the next lower levels of supervisors and prepare them for future responsibilities. In this connection the planned Wood Use Demonstration Center at Quick Sand is de- signed to play a major role in the rapid development of technological skills in the forest product industry. The recruitment and training of upper- level supervisory personnel will be a major problem for any new large scale industry established in eastern Kentucky. The cur- rent level of business management experi- ence is relatively low, largely because of the rather elementary level of business activity in the area. Although plant managers can probably be recruited outside the State, a desirable training device would be to assign a resident trainee as an assistant to each such manager. These assistants should probably have a general mechanical or in- dustrial engineering background; the com- plex could profitably adopt a policy to pay TABLE I -IV AVERAGE PRODUCTION WAGES IN SELECTED WOOD HOUSEHOLD FURNITURE MANUFACTURING AREAS, 1962 MANUFACTURING AREA Workers Surveyed Average Straight-Time Wages per Hour Maximum (Men) Men Women Winston Salem-High Point, N.C. 88% $1. 38 $1. 24 $2. 50 Hickory-Statesville, N. C. 68 1. 39 1. 23 2. 30 Martinsville, Va. 70 1. 36 1. 17 2. 30 Indiana 73 1. 71 1. 46 3. 70 Grand Rapids, Michigan 85 1. 90 1. 57 2. 90 Jamestown, N. Y. 74 1. 94 1. 62 3.00+ for attendance of these trainees at special management courses in local educational institutions and at industry seminars, trade association conventions, and technical soci- ety meetings. These trainees will be pre- pared to move up the scale in managerial responsibility after a period of three to five years to relieve "imported" managers (who will probably move on) or to set up new or enlarged processing operations. The overall management of the corporation outlined in this report will also require the relatively scarce skills of corporation finance experts, corporation lawyers, sales managers, TABLE I-V WAGES IN SELECTED OCCUPATIONS IN SOUTHERN WOOD FURNITURE MANUFACTURING AREAS, 1962 OCCUPATIONAL GROUP MANUFACTURING AREA AND STRAIGHT -TIME HOURLY WAGES Winston Salem-High Point Hickory-Statesville Martinsville Avg/hr Max/hr Avg/hr Max/hr Avg/hr Max/hr Production Workers (Male Only) Cut-off saw operators $1. 45 $1. 80 $1. 51 $2. 10 $1. 50 $1. 70 Gluers, rough stock 1. 31 1. 75 1. 37 1. 80 1. 30 1. 75 Maintenance man, general utility 1. 74 2. 30 1. 53 2. 40 1. 68 2. 20 Off-bearers, machine 1. 23 1. 55 1. 22 1. 65 1. 21 1. 50 Packers 1. 32 1. 65 1. 28 1. 65 1. 23 1.65 Planer operators (setup & operate) 1. 44 1. 70 1. 47 2. 00 1. 58 1. 70 Planer operators (feed only) 1. 24 1. 50 1. 27 1. 50 1. 37 1. 60 Rip-saw operators 1. 43 1. 75 1. 44 1. 80 1. 49 1. 70 Sanders, machine, belt 1. 45 1. 80 1. 50 2. 10 1. 47 1. 75 Shaper operators, automatic 1. 52 1. 75 1. 68 2. 00 1. 69 1. 90 (setup & operate) Office Occupations (Females Only) Clerks, payroll $1. 56 $1. 90 $1. 78 $2. 20 $1.66 $2. 20 Stenographers, general 1. 41 2. 30 1. 51 1. 75 1. 53 1. 90 Stenographers, senior -- -- 2. 19 2. 40 1. 85 2. 30 Source: Bureau of Labor Statistics, U.S. Department of Labor, based on July 1962 payroll period. INDUSTRY ENVIRONMENT 9 management consultants, and others not readily available in eastern Kentucky. Some of these can be recruited for specific executive positions — with appropriate pro- visions for training replacements from among resident Eastern Kentuckians; others can be retained on a consulting basis while full- time personnel are trained to fill corporate vacancies. In the long-run, the recruitment and train- ing measures used will determine the success of the enterprise. The private investors ex- pected to take seats on the board of directors TABLE I-VI COMPARATIVE WAGES LOUISVILLE AND SOUTHERN STATES, 1962 OCCUPATIONAL GROUP AVERAGE HOURLY WAGES, 1962 Manufacturing Wood Products Louisville Southern States Firemen, stationary boiler $2.59 $1. 18 Janitors and porters 2. 09 1. 16 Loaders, car and truck 2. 20 1. 17 Truckdrivers 2.56 1. 22 Watchmen 1. 76 1. 16 Maintenance men 2. 99-3. 18 1. 65 Packers 2. 24 1. 28 Clerks, payroll (female) 1. 94 1.67 Stenographers, general {female) 1. 75 1. 45 Stenographers, senior (female) 2. 11 2. 02 will not necessarily be able to provide the requisite skills required to oversee the opera- tions of the corporation as recommended. It is imperative, therefore, that special atten- tion be paid to early recruitment and training of qualified management personnel in order to satisfy the requirements of institutional investors and such Government agencies as the Small Business Administration and comparable State agencies in Kentucky. Transportation, Communi- cations, and Utilities The rugged terrain of eastern Kentucky has discriminated against the development of the expensive modern transportation, communications, and utilities networks re- quired for industrialization on any appreci- able scale. Existing facilities tend to be concentrated along the borders of the region or in particular locations — i.e., the coal fields in the southeastern sector. Transportation Eastern Kentucky is served by three rail- roads (Chesapeake and Ohio, Louisville and Nashville, and Southern). Four north-south Federal highways (U.S. Routes 23, 25, 27, and 119) and two Federal east-west highways (U.S. Routes 60 and 460) in the region are connected with a reasonably adequate network of State highways and county secondary roads, as shown by Map I— II. Waterways are only marginally significant in a commercial sense in the interior; but the Big Sandy River on the east is navigable as far as Louisa, the Ken- tucky River on the west is navigable as far as Beattyville by means of a six-foot barge channel, and the Ohio River forms the north- ern boundary of the region. Commercial air service is also limited to the fringes of the area. The nearest commercial airfields in Kentucky are located at Lexington and London-Corbin; in the east and southeast, airfields at Bristol, Tennessee, and Hunting- ton, West Virginia, service the area. Small airstrips for private and charter planes are available at Harlan, Middlesboro, Pikeville, and Morehead; these strips are frequently inaccessible because of adverse weather conditions. The existing transportation network per- mits only limited through rail and highway traffic, a situation dictated by the fact that roads and railroads follow winding river and creek beds in the interior. In 1958, eastern Kentucky had only about 18 percent of the State's surfaced roads and about half of the State's non-surfaced roads; about 80 percent of the 18,000 miles of roads in the area were unsurfaced or gravel-surfaced. While some improvement has been registered since that time, under the State program of assistance to county highway departments, the road network in the region is still severely limited from the standpoint of industri- alization. And, although the State High- way Department will cooperate with county officials in the construction of access roads to serve local industry, the effect of the pro- gram is limited by the limited availability of construction funds and a policy of not enter- ing into such a program until the location of new industry is assured. As might be expected, the heaviest con- centration of railroad trackage is in the coal fields in the southeastern sector of the region. As shown by Map I— II, service to the interior counties is relatively limited. Through shipments by rail are generally difficult from interior counties, though it is possible to combine rail shipments with short- TRANSPORTATION MAP MAP l-II OPERATING RAILROADS BAO Bajumwe 4 Ohio <*() Cb«M« , , -' ^£j To Clinch ftlvtr jj">f '• s °""'" ?'■ -•• pignl LINES OF APPALACHIAN POWER COMPANY n n a i m n a ■MAP COURTESY OF KENTUCKY POWER CO. INDUSTRY ENVIRONMENT 17 TABLE I-X: APPROXIMATE FREIGHT TRANSIT TIMES FROM SELECTED LOCATIONS IN EASTERN KENTUCKY DESTINATIONS ORIGIN POINTS HAZARD IRVINE-RAVENNA PRESTONSBURG WILLIAMSBURG Rail* Truck** Rail* Truck** Rail* Truck** Rail* Truck** TL LTL TL LTL TL LTL TL LTL Atlanta, Ga. 38.5 1 3 35. 2 3 48. 2 3 50.0 2 3 Birmingham, Ala. 68.0 2 5 25.0 2 3 72. 3 4 48.0 2 3 Chicago, 111. 41.0 2 44. 3 24.0 2 2 44.0 2 3 Cincinnati, O. 16.0 2 20. 1 24.0 1 2 21. 5 1 2 Cleveland, O. 43. 5 2 58.0 2 48. 2 2 47. 2 3 Detroit, Mich. 45.0 3 62. 5 3 48. 2 2 43. 5 2 3 Knoxville, Tenn. 30.0 2 26. 5 2 48. 2 3 27. 5 1 3 Louisville, Ky. 33.0 2 6.5 1 24. 1 2 21. 5 1 1 Nashville, Tenn. 45. 5 2 18. 2 24. 2 2 41. 5 2 2 New York, N. Y. 88. 5 2 4 73. 3 4 72. 3 4 72. 5 3 4 Pittsburgh, Pa. 51.5 NA NA 60.0 2 3 24. 2 3 48. 5 2.5 3 St. Louis, Mo. 55.5 2 4 29.5 1 2 72. 2 3 38.5 2 3 *hours **days connected within the region and with electric power transmission grids in adjacent states. Within eastern Kentucky, the counties in the coal mining areas to the south and south- east are more adequately supplied with power than those in the central area and the Big Sandy Valley. Typical electric service provided by the Kentucky Utilities Company is 60 cycle, alter- nating current with nominal delivered secondary voltages and phases as follows: 120 volts, single phase, two-wire 120/240 volts, single phase, three-wire 240, 480, or 208Y volts, three phase. Nominal primary voltages, where available, are 2400, 4160Y, 7200, 8320Y, and 12, 470Y. Transmission line service is available at voltages of 34,500 and 69,000. Nominal rates (subject to change under local conditions) comprise maximum load charges and energy charges as follows: 1. Secondary service: $1.50 per kilowatt of the maxi- mum load in each month, not less than $180 per year, maximum load charge, plus energy charge below: 2. Primary service: $1.35 per kilowatt of maximum load per month, but not less than $405 per year, max- imum load charge, plus energy charge below; 3. Transmission line service: $1.25 per kilowatt of maximum load per month, minimum according to facilities required, plus energy charge below. The standard energy charge, applying to all types of service described above, is as follows: 2.54/kwh for the first 2,000 kwh/month 1.7 ! ^S»%W_^C ^^'^^ — .-/7 . \\ ■ * I I /r...«t.. I .c%o|t. j^MleraburjjRjrT^X / *^f 'X. \ -^ I— • ^2: f " an1,o! A\ iick >^^^^->^S^*v> ) «* ^&- plantuII^/ 1 ' ,r JlgvJ c../. \>^mt. STtRLiNc. r^ n.-r \ __ / v.lle#b '__. H J^H'^ji^^/ftTj,.*!! ..^_L- " , ' ■ N/" "7"V" r- ^^^F^ A-°°°^^(Bar st -WA/~'/WiNCHtjTtx /< .^-.,, I \/# RirHunun \ \ / • U X \ / Jlavenn»N> — .. JJVINE/' V\ W, VA. /• ^'Bloomfield '°" / \ E.W Brown Iji 2lfi" n .A— c,o. Plant n^| Vif~~" — ». HARRODSBU»iSSP&? iven 1 ~— .1 ^^^ g bix Dam ^\//Ri CH y Ma \ , ""N / }R«venn»N> — — ■"■ JjviNE/ V\ .- — ^-- l \ ' ) ...T,- Mi. ^- k««^rj. jH'" r^-, ^ ""' /' _ -^*""^"^" ^^ / ere... #* ; v s7' ..... /^^--L / H '" |1 •' sLondon'W -- ( y ' \ Science, _ 4./ H "' ' I r J n " 1 ' " "i I '' ,0 «7T«%i J \ \ t,,L " "\ -U. />i ^ X T ^--«, > _ ...... i A f rimvii.1 / 1/ T«. *T~"^ .— f- '^ Xf \PlaM ^/.^^ Si ■ c ' 'r WILLIAMSBURG U. n T / \ .' Pine Kno?b \ •»""■«' ^^^ap, 1 .L _^. &* \ r * , , ^501 — A.K.P.Go. ^ApptUehia _!. S t.p«ul W>6io Stonc ir; Gap \ 1 _^-#- ^~* i»- it.Ch.rle>/ ^R COMPANY J^>'^__^^ OLD 0°. MX \ va' » Curnb t U 3T*zeaell •MAP COURTESY OF KENTUCKY UTILITIES CO. INDUSTRY ENVIRONMENT about $2.25 per thousand gallons and drop off rapidly with increased use to about $.35-. 50 per thousand gallons for industrial users. An industrial plant using 100,000 gallons per month would be charged as follows: Monthly Charge Rate per for 1000 Gallons 100,000 in Excess Location Gallons of 100,000 Hazard $62.70 $.45 Irvine-Ravenna 110.05 .30 Prestonsburg 76.85 .50 Williamsburg 45.50 .35 Fuels are plentiful in Kentucky because of its own resources of coal, natural gas, and petroleum. High grade bituminous coal is readily available in almost any part of eastern Kentucky at prices estimated to be $4.00 a ton, delivered to an industrial installa- tion in significant quantities. Oil is refined at Somerset, in the western part of the region, arid at Ashland, in the northeastern sector. Prices of fuel oil vary widely, however, according to grade and delivery point. For planning purposes, prices at 7.5 cents per gal- lon for bunker "C," 9.5 cents per gallon for industrial grade, and 16.0 cents per gallon for burner oil have been used in this report. A major natural gas field is located in the Big Sandy Valley, covering an area within a 20-mile radius of Boldman (about 5 miles NW. of Pikeville). Minor fields are located near Pineville (Bell County), Barbourville (Knox County), Williamsburg (Whitley County), Oneida (Clay County), Jackson (Breathitt County), Boonesville (Owsley County), and Salyersville (Magoffin County). Important gas transmission lines run generally north- east from Tennessee, crossing eastern Ken- tucky from a point near Richmond (Madison County) to Ashland, on the Ohio River. Another major line runs east and west across the central portion of the region from Paints- ville to Lexington. Natural gas for industrial use is available in many eastern Kentucky counties. Some typical rates for selected locations are listed below, assuming minimum industrial use of 100,000 cu. ft. or more per month to operate a steam boiler associated with a lumber dry kiln. Rate per Monthly 1000 cu. ft. Charge for in Excess Location 100,000 cu. ft. of 100,000 Hazard $64.30 $.55 per M c.f. Irvine-Ravenna 82.75 .765 per M c.f. to 300,000; .735 per M c.f. over 300,000. Prestonburg 57.80 .50 per M c.f. Williamsburg 55.55 .50 per M c.f. 19 Forest Resources and Wood Products Industry Forest Land With about 11.5 million acres of forest land — 45 percent of the land area of the State — Kentucky is one of the most heavily forested states in the eastern United States. Except for about 51,000 acres, representing protected woodlands in the Mammoth Cave parklands, Kentucky's woodlands are classed as commercial forests. About 49 percent of the forest land is located in the eastern High- land region of the State, about 40 percent in the Western Plateau region, and the re- mainder in the Bluegrass region. Although large-scale commercial lumbering operations virtually removed Kentucky's virgin forest cover in the half-century before 1930, the State's commercial sawtimber inventory in 1962 is estimated to be in excess of 25 billion board feet, mostly in hardwoods. An aggres- sive State fire-prevention system, improved methods of timber harvesting, and an in- creasingly effective program of small forest management have contributed to improved timber stands over the past 30 years. The rugged Eastern Highlands region, one of the Nation's great coal-producing regions, has nearly half the forest land in Kentucky. Forest cover for the average county in this region is about 76 percent, with no county less than 64 percent forested and one — McCreary County — with 95 percent of its land in woodlands. In the Eastern Highlands, forests are rapidly reclaiming much of the land once farmed; here also are located the Cumberland National Forest, the Kentucky Ridge State Forest, and numerous State parks and recreation areas. Ownership Patterns According to the 1949 U.S. Forest Service inventory, about 94 percent of the commer- cial forest land in Kentucky was privately owned by 243,486 persons. The remainder comprised the 672,000 acres of the Cumber- land National Forest and about 53,000 acres of State forest. Acreage of forest land held by county and municipal authorities was negligible. While the Forest Service inven- tory now in progress will provide more precise data on ownership in Kentucky, no significant changes in ownership patterns are expected except for acreages devoted to State parks. 20 About 46 percent of the privately owned woodland in Kentucky is in farm woodlands, averaging 30 acres in size. The balance of the total in private ownership is held for various commercial purposes, including log- ging operations, mining and recreation. Almost 80 percent of the total forest area in the State is in holdings of less than 500 acres. DIAGRAM I-I PRIVATE FOREST LAND OWNERSHIP PATTERN Kentucky -1949 per cent of total acreage holdings of less than 100 acres holdings of 100-500 acr holdings of 500-5000 Ownership patterns in the Eastern High- lands region show considerable variation from the State averages. More than a mil- lion acres of forest land in this region are owned by a few coal companies, so-called "land companies," and logging operators. In addition, the land companies and coal companies reportedly hold mineral rights to another million acres of privately owned land in the Eastern Highlands, a fact which permits them to exercise effective control over large acreages of commercial timber. One such company thus reported controls over 200,000 acres (total land area), including 70,000 acres held in fee simple. Moreover, there are about 725,000 acres of State and Federal forest lands in the region. In the aggregate about 49 percent of the ^forest lands in the region may be held (or controlled) by a very small number of corporations and government agencies. Several of the larger corporations employ foresters and derive significant income from the sale of stumpage to logging operators. In contrast to the extremely large owner- ships of forest lands by a few corporate own- ers, a large number of small woodlot owners control about half the woodland acreage in the Eastern Highlands region, with holdings generally less than 500 acres. In 1958 a random sample of 110 small woodland own- ers in two eastern Kentucky counties showed that two-thirds of the properties were less than 100 acres in size. About half the owners SECTION I interviewed at that time had held their property less than 15 years; few of them had made any attempt to manage their woodlots in an effort to realize a supplemental income from timber sales. Land Values and Taxes No generally applicable figure can be ap- plied to the per acre value of forest lands in the Eastern Highlands, though a number of experienced individuals cited $20 to $30 per acre as a common range in price. In general terms, the value of woodlands seems to have remained depressed because of the low aver- age income of the Eastern Highlands and the lack of a commercial outlet for the timber from scattered small holdings. Timberland by itself is less important in much of the region than mineral rights, which can be purchased independently. One study indicates that the right of access and free use of small timber exercised by holders of mineral rights tends to discourage owners of timberland from upgrading their surface holdings by good forest manage- ment (thus increasing the value of the land). Moreover, the increased practice of strip- mining means that the forest cover is often sacrificed in favor of the sub-surface coal deposits before it can be harvested economically. A further factor acting to depress the value of timberland is the uniform State land tax. In 1962, the authorized tax base was $2.05 per $100 assessed valuation, with assessed valuation at a range of 28 percent to 29 per- cent. With no certain commercial outlet for about half of the harvestable timber in the region, the application of a uniform tax rate to "non-productive" forest land appears to be having an adverse effect on land values and tends to restrict the application of the State's forest management programs. The 1962 General Assembly has directed a study of the feasibility of a "severance tax" (yield tax) as a means of inducing small woodlot owners to apply better management practices. The results of this study are not expected to be available until the 1963 General Assembly session. A State "fire tax," amounting to $.02 per acre for forest lands, is administered by the State Division of Forestry. Until recently this tax has been administered only with difficulty. Each county is assessed a lump sum, based on the most recent forest census; the fire tax is collected by county officials and paid into State accounts. The law permits the county to pay the tax from general rev- INDUSTRY ENVIRONMENT enues if it wishes, and no central records are kept of woodland ownership. Recently im- proved fire protection has demonstrated to owners of timber the benefits of the program and has spurred greater cooperation at the local level. Regulation of Forest Lands Aside from the "fire tax" and a statutory requirement that strip-mine operations be planted to trees or grass, the State relies on non-coercive regulation of its privately owned forest lands. This is accomplished by voluntary participation of woodlands' owners in the State's forest management program and by promotion of tree planting under the Agricultural Conservation Program. The State's cooperative forest management pro- gram is, however, limited to owners of 500 acres or less and thus has little immediate effect on the large-scale holdings located in the Eastern Highlands region. Trends Long term emphasis on improved forest management practices on privately owned woodlands is beginning to have some con- crete results; but the major incentive for the owner of timberland must be the knowl- edge that a market exists for his forest harvest. In recent years, a few large land- owning corporations in eastern Kentucky have employed full-time foresters to super- vise their extensive forests. Normally these companies do not harvest the timber on their lands, preferring to sell stumpage to contrac- tors. The significant factor is that these companies are realizing important supple- mentary incomes from the sale of timber harvested from their lands, whereas many coal companies continue to disregard the above-ground resources in their emphasis on the underlying coal or use prime timber for marginal purposes (mine timber, rough lumber for temporary buildings, etc.). Closely linked with the necessity for an economic outlet for standing timber is the current effort to revise the tax basis to per- mit the woodland owner to pay taxes on the value of the harvest, when harvested. Some forest economists consider this method of taxation to be a major incentive to improved management practices and, ultimately, to the improvement of woodlands on a larger scale than has been possible until now. It seems then, that a satisfactory market must be developed in order that the incidental bene- fits of this tax system may be realized. 21 Commercial Timber The most reliable data applying to the for- ests of Kentucky derive from the results of a comprehensive survey begun in May 1948 and completed in June 1951. This survey, conducted by the U.S. Department of Agri- culture, under authorization of the McSweeney McNary Act of 1928, provided among other things an inventory of com- mercial sawtimber in the State as of Janu- ary 1, 1949. The status of this resource today, thirteen years later, is to some extent a matter of conjecture. The current U.S. Forest Service inventory in Kentucky will establish precise data, but this information will not be available for another year. Rea- sonably valid estimates of the timber re- sources in eastern Kentucky, based on the 1949 survey, are shown by Tables I-XI, XII, and XIII on pages 23, 24, 25. The tables show detailed breakdown of the timber re- sources summarized below: Availability to New Total Industry Volume Each Year Soft hardwood sawtimber (M b.f.) 3,040,000 53,000 Dense hardwood sawtimber (Mb.f.) 11,860,000 201,000 Hardwood poletimber (cords) 4,100,000 92,000 Softwood sawtimber (M b.f.) 1,674,000 46,000 Softwood poletimber (cords) 446,900 13,000 Eastern Kentucky Wood Products Industry The 36 counties included in the eastern Kentucky region contain about 50 percent of the State's commercial forest land and account for about one-third of the total State workforce in the fields of forestry and the manufacture of lumber, furniture, and other wood products. While on casual ob- servation it might appear that the area is broadly engaged in nearly all aspects of the wood products industry, closer evaluation reveals that the industry in eastern Ken- tucky is almost entirely oriented toward primary processing (logging and sawmilling) of the region's forest resources. In 1958, about 81 percent of the work- force in the forest-based industries in east- ern Kentucky were engaged in primary processing (logging and sawmilling); only about 15 percent were engaged in secondary processing, and four percent were engaged in the production of furniture. With regard to the situation in the State as a whole, the 22 SECTION I DIAGRAM I -II ESTIMATED VOLUME OF HARDWOOD SAWTIMBER IN EASTERN KENTUCKY showing ratio of grade 1, 2 & 3 logs million board feet - log measure . ■ 3,987 3,733 grade 1 logs grade 2 logs grade 3 logs red oak white oak 1,883 = ! ^lyteiv: — — hickory beech 307 161 146 hard maple ash walnut DENSE HARDWOODS 300- 'OTHER" HARDWOODS IMS — yellow poplar 673 54Q: 292 basswood/ magnolia gum soft maple SOFT HARDWOODS TOTAL VOLUME- 14, 900, 000, 000 bf volume figures adjusted to January 1, 1962 from U. S. Forest Service data applying to forest stands as existed on January 1, 1949 INDUSTRY ENVIRONMENT 23 TABLE I-XI: ESTIMATED HARDWOOD RESOURCES - EASTERN KENTUCKY (data projected to January 1, 1962 base) A- SOFT HARDWOOD SAW TIMBER (thousand board feet) TOTAL VOLUME IN AREA 3, 040, 000 Annual growth 178,000 Allowable annual cut* 142, 000 Annual drain 89, 000 VOLUME AVAILABLE FOR USE BY NEW INDUSTRY -------- 53, 000 Availability By Species Yellow poplar Bass wood /magnolia Soft maple Other soft hardwoods #1 LOGS #2 LOGS #3 LOGS TOTAL 1,954 855 689 372 2, 864 1, 253 1, 009 544 21, 947 9, 605 7, 736 4, 172 26, 765 11, 713 9, 434 5,088 B- DENSE & "OTHER" HARDWOOD SAWTIMBER (thousand board feet) TOTAL VOLUME IN AREA Annual growth Allowable annual cut* Annual drain 11, 860, 000 668, 000 535, 000 334, 000 VOLUME AVAILABLE FOR USE BY NEW INDUSTRY -------- 201, 000 Availability By Specie,s Red oaks White oaks Hickory Beech Hard maple Ash Walnut Other hardwoods #1 LOGS #2 LOGS #3 LOGS TOTAL 4,930 7, 226 55, 380 67, 536 4, 622 6, 745 51, 918 63, 315 2, 333 3 S 420 26, 206 31, 959 1, 658 2, 430 18, 625 22, 713 382 559 4, 285 5, 226 205 301 2, 308 2, 814 176 257 1, 979 2, 412 367 538 4, 120 5, 025 * suggested limit 80% of growth 722-307 0-64-3 24 SECTION I ESTIMATED HARDWOOD RESOURCES (cont'd) C- HARDWOOD POLETIMBER (cords) TOTAL VOLUME IN AREA 4, 100, 000 Annual growth Allowable annual cut* Annual drain 232, 000 140, 000 48, 000 VOLUME AVAILABLE FOR USE BY NEW INDUSTRY 92, 000 Availability By Species Red oak White oak Yellow poplar Bass wood /magnolia Soft maple Other hardwoods 26, 100 21, 100 7, 400 2, 100 1, 300 34, 000 * suggested limit 60% of growth TABLE I-XH: ESTIMATED VOLUME OF GROWING STOCK ON COMMERCIAL FOREST LAND IN EASTERN KENTUCKY data projected to January 1, 1962 base Exclusive of sawtimber, cull trees, upper stems and limbs TOTAL GROWING STOCK (cords) TOTAL VOLUME 25, 135, 000 Annual growth Hardwood species Softwood species 1,471, 600 1, 311, 200 160, 400 INDUSTRY ENVIRONMENT 25 TABLE I -XIII: ESTIMATED SOFTWOOD RESOURCES - EASTERN KENTUCKY data projected to January 1, 1962 base A- SOFTWOOD SAWTIMBER .[thousand board feet) TOTAL VOLUME IN AREA 1,624,000 Annual growth 92, 000 Allowable annual cut* 92, 000 Annual dram 46, 000 VOLUME AVAILABLE FOR USE BY NEW INDUSTRY ---------------- 46, 000 Availability By Species Southern yellow pines 35, 420 Hemlock 6, 900 White pine 1, 380 Red cedar 1, 380 Cypress 920 B- SOFTWOOD POLETIMBER /cords) TOTAL VOLUME IN AREA 466, 900 Annual growth 26, 000 Allowable annual cut* 26, 000 Annual drain 13, 000 VOLUME AVAILABLE FOR USE BY NEW INDUSTRY ---------------- 13, 000 Availability By Species Southern yellow pines 10, 000 Hemlock 1, 950 White pine 400 Red cedar 390 Cypress 260 * suggested limit equal to growth 26 following relationships prevailed in eastern Kentucky in 1958: Percent of Percent of State State Plants Workforce Primary Processing , 50.0 50.4 Secondary Processing 23.5 14.6 Furniture and Fixtures 8.6 3.1 Detailed comparative data for Kentucky and eastern Kentucky are contained in Table I-XIV. While there have been some changes since 1958 in the numbers of plants and the size of the workforce in forest-based industries, the relationships are reasonably valid for 1962. Despite the relatively high proportion of the logs, lumber, and planing mill products produced in eastern Kentucky, the existing wage rates, skill levels, and techniques of harvesting the forest resources tend to en- courage inefficient production and result in low returns for time and money expended. SECTION I An evaluation of 1958 lumber production in Kentucky shows that the State rates near the bottom in terms of production efficiency, compared to neighboring states: Annual Annual Production Production Per Em- Per Acre ployee— of Corn- Logging mercial and Saw- Forest milling— Land (thousand (board feet) State board feet) Missouri 160 20.9 Ohio 102 37.3 Illinois 96 34.0 Indiana 89 38.4 Tennessee 84 50.0 Virginia 79 70.4 KENTUCKY 74 28.4 West Virginia 63 35.1 The factor of production per acre, shown above, may not indicate inefficient, high cost production. It does, however, indicate a TABLE I-XIV: COMPARATIVE DATA ON WOOD PRODUCTS INDUSTRY IN KENTUCKY AND EASTERN KENTUCKY, 1958 MANUFACTURING CATEGORY State of Kentucky, 195 8 Eastern Kentucky, 1958 No. Plants Workforce No. Plants % Total Plants Estimated Workforce % Total Workforce Primary Processing Logging Camps & Contractors Sawmills k Planing Mills Special Product Sawmills, nee Wood Preserving Plants TOTALS 102 495 14 7 374 4, 034 194* 208* 55 246 3 4 53. 9 49. 7 21. 4 51. 1 226 2,094 44 59 60.4 51. 9 22. 7 28. 3 618 4, 810 30 8 50. 2, 423 50. 4 Secondary Processing Millwork Plants Hardwood Dimension fk Flooring Veneer and Plywood Plants Cooperage Prefabricated Wood Products Nailed Wood Boxes and Shook Veneer and Plywood Containers Wood Products, nee TOTALS 21 20 6 12 2 7 2 34 807* 1, 670* 419* 842* 43* 237* 43* 498* 1 5 1 1 8 4. 8 25. 16. 7 8. 3 23. 5 6 329 37 7 73 0. 7 19. 7 8. 8 0. 8 14. 6 104 4, 559 16 15. 4 452 9. 9 Furniture and Fixtures Wood Furniture, not Upholsterec Wood Furniture, Upholstered Household Furniture, nee Public Building Furniture Partitions and Fixtures Furniture and Fixtures, nee TOTALS 1 42 19 1 5 13 1 2, 686 948 7 9* 89* 1 8 1 * 9* 3 3 1 7. 1 15. 8 20. 52 45 25 1.9 4. 7 28.0 81 3, 992 7 8.6 122 3. 1 Source: 1958 Census of Manufacturing, U. S. Dept. of Commerce. INDUSTRY ENVIRONMENT relatively low level of harvesting of Ken- tucky's forest resources. In 1958, for exam- ple, Kentucky produced only about 10 percent of the lumber manufactured in the seven surrounding states from about 15 percent of the total acreage of commercial forests in the seven-state region. By contrast, Ten- nessee produced almost 20 percent of the total lumber manufactured in the region from about the same acreage as Kentucky. There were 128 logging camps in Tennessee in 1958, compared to 102 in Kentucky; and these logging camps employed only 475 men, compared to 374 loggers in Kentucky. One explanation for this difference in productive capacity may lie in the fact that many Kentucky lumbermen are oriented toward the manufacture of high quality lumber, and loggers are handicapped by the relative inaccessibility of remaining stands of prime timber. Many eastern Kentucky lumbermen, furthermore, are limited by the fact that the markets for their products are located outside the producing area — and often outside the State. This factor imposes three handicaps: (1) variations in demand are seldom predictable, (2) grades and species are always limited, and (3) shipping charges reduce the competitive capacity of the primary producer. A survey of the type and quantity of lum- ber and wood products shipped ou^-of-state from eastern Kentucky in 1961 was con- ducted recently by the Kentucky Division of Forestry. This survey and other infor- mation indicates that about 120 million board feet of logs and lumber were exported from eastern Kentucky during the year, or about one-third of the State's total produc- tion. The composition of known shipments was as follows: Percent of Total Board Feet Products Reported Logs, veneer 0.5 Lumber, rough 81.0 Lumber, surfaced 7.4 Lumber, manufactured ' 8.6 Other 2.5 Principal species represented in these ship- ments were as follows: oaks (red and white), 50.5 percent; poplar, 27.5 percent; and maples, 10.0 percent. About 93 percent of the lum- ber shipped was air dried only; about four percent was shipped green, and only about three percent was kiln dried. Out-of-state shipments were principally by truck (83.5 1 Included are oak flooring, ties, dimension, and a small amount of glued stock. 27 percent); virtually all truck deliveries were within a radius of 200 miles, to customers in surrounding and nearby states. Rail ship- ment (16.5 percent) considerably extended the market radius. Destinations of rail shipments reported included Baltimore, Chicago, Detroit, Minneapolis, Rochester (N.Y.), New England, and Canada, in addition to nearby markets. The data in this section specify the condi- tion of the lumber and wood products industry in eastern Kentucky: low-level exploitation of prime species, inefficient production — lead- ing to high-cost production, little or no remanufacturing, and volume export of primary products. If efficient use is to be made of eastern Kentucky's forest resources, it is essential that the situation be turned around to permit greater utilization of lower- value species, more efficient production, and greatly increased remanufacturing — thus developing a larger market within the region for the primary forest products and permit- ting sales of a large volume of high-value secondary products to markets outside the region. The application of these principles to one or more of the seven redevelopment areas designated in eastern Kentucky is the object of this report. Finally, therefore, it is ap- propriate to take a closer look at the existing situation in each of these areas, delineated by Map I-VI. Two development areas in the western belt of manufacturing counties, the Northeast Kentucky Development Area and the East Lake Cumberland Development Area, have relatively large proportions of their work- forces engaged in forest-based industry. These two areas now contain the bulk of the secondary wood processing industries of the entire region, clustered around Morehead, in the north (Rowan County), and Monticello (Wayne County) and Somerset (Pulaski County), in the south: planing mills, pallet plants, flooring mills, furniture dimension mills, charcoal retorts, etc. The third group of manufacturing counties, comprising the Kentucky River Foothills Development Area, has the smallest workforce of all in the forest- based industries, despite the fact that it lies astride the Cumberland National Forest. In these three areas, industrial diversifica- tion is more apparent than in the remaining areas, a fact only suggested here by the rel- atively low proportion of the manufacturing workforce in the wood products industries. The other four development areas, in which coal dominates economic life, have relatively large pi'oportions of their total manufac- 28 SECTION I turing workforces engaged in forest-based industry. With a few significant exceptions, "manufacturing" in these areas consists essentially of the production of primary products: saw and veneer logs, pulpwood, mine timbers, bolts, and rough lumber. In these four regions unemployment is rela- tively the highest, largely as a result of the displacement of labor from the coal mining industry. The basis for these conditions in the wood products industry of the region is readily apparent from Table I -XV on page 29, de- picting the number of installations by type in various processing fields located in each development area as of 1958. While there have been some changes since 1958, the emphasis on logging and sawmilling still prevails in all these development areas. The secondary processing facilities and furniture plants located in these development areas remain, with few exceptions, relatively small and inefficient. On the other hand, the comparatively large scale development of logging and sawmilling in these areas could provide the basis for a greatly expanded wood products industry, particularly in the production of products which require the conversion of primary raw materials (saw- logs, cordwood, and rough lumber) to mar- ketable end items and to which value is added by the expenditure of labor. Several possible products and related market poten- tials are discussed in detail in other sections of this report. This brief analysis suggests that, while the entire region is well suited to forest-based industry, the greatest potential for rapid expansion of such industry lies in the follow- ing development areas: Cumberland Valley, Big Sandy Valley, Middle Kentucky River, and Upper Kentucky River. Extensive com- mercial forest cover, the existence of primary production (logging and lumbering), the available labor surplus, available labor skills, reasonably adequate transportation facilities, abundant power, and cheap fuel all contribute to this potential. In the immediate future, MAP I-VI EMPLOYEES IN FORESTRY AND WOOD PRODUCTS INDUSTRY E. KY 1960 KEY TO AREAS 1- NORTHEAST KENTUCKY 2- KENTUCKY RIVER FOOTHILLS 3- MIDDLE KENTUCKY RIVER 4- BIG SANDY VALLEY 5- EAST LAKE CUMBERLAND 6- CUMBERLAND VALLEY 7- UPPER KENTUCKY RIVER AREA % AREA WORKFORCE UNEMPLOYED 1960 AREA WORKFORCE ENGAGED IN FORESTRY & WOOD PRODUCTS INDUSTRY 1960 % MANUFACTURING WORKFORCE IN WOOD PRODUCTS (1960) % AREA FORESTED No. Empl. Per cent 1 2 3 4 5 6 7 8.6 8.2 6.6 13.2 7. 2 9.6 10. 3 997 399 432 847 1, 122 1, 718 879 4.2 1.6 5.0 2.7 6.0 3.9 2. 7 16.2 19.6 71. 1 43.6 35.6 38.2 52.2 71 45 75 75.5 65 71 84 INDUSTRY ENVIRONMENT the Cumberland Valley area, which has the largest number of employees in forest-based industry, and the Upper Kentucky River Valley Area, well situated to supply the 29 furniture industry in North Carolina, Vir- ginia, and Tennessee, seem to be particularly attractive for the development of secondary processing industry. TABLE I-XV: DISTRIBUTION OF WOOD PRODUCTS INDUSTRIES IN EASTERN KENTUCKY REDEVELOPMENT AREAS, 1958 MANUFACTURING CATEGORY REDEVELOPMENT AREAS (1) (2) (3) (4) (5) (6) (7) TOTAL Primary Processing Logging Camps &; Contractors Sawmills & Planing Mills Special Product Sawmills, nee Wood Preserving Plants INSTALLATIONS 6 36 1 2 18 1 1 16 7 39 5 36 3 1 17 76 1 17 25 55 246 3 4 42 21 17 46 45 94 42 308 Secondary Processing Millwork Plants Hardwood Dimension & Flooring Veneer and Plywood Plants Cooperage Wood Products, nee INSTALLATIONS 1 2 1 1 1 1 4 2 1 2 -- 1 5 1 1 8 3 2 2 6 3 16 Furniture and Fixtures Wood Furniture, not Upholstered Wood Furniture, Upholstered Public Building Furniture INSTALLATIONS 1 1 -- -- 1 3 1 -- 3 3 1 1 1 4 1 7 Source: 1958 Census of Manufacturing, U. S. Dept. of Commerce Section II The Production Concept Operational Concept The environment that confronts forest based industry in eastern Kentucky must be understood and adjusted to in making plans to expand the scale of wood products manu- facturing in the region. The most influen- tial characteristics which are common to the region and which have served to shape the recommendations made in this report are: 1. It appears that the forest resources of the region have been "high-graded" (i.e., selective removal of the most valuable trees) and as a result there is a prepon- derance of middle to lower quality stock. 2. The region has not had the experience of supporting a durable or expanding wood products industry. 3. The pulp and paper industry, the fur- niture industry, and other processive industries have largely by-passed the region, and they now surround it with firmly entrenched competitive activity. 4. Certain sociological and economic char- acteristics of the region as reviewed in Section I have been — and in some in- stances still are — unfavorable toward industry. Although limitations to vigorous business growth are implicit in the above, proper structuring and operational planning of a processing complex will have a salutary effect. The fact that resources have been high-graded can be countered by manufac- turing a product line that does not depend upon the availability of the very best wood raw material. The lack of business and management acumen in the area with respect to wood products manufacture, a result of unusually restricted activity in the industry, can be overcome by the application of training programs and initial reliance upon outside management and supervisory talent. The competitive challenge posed by surrounding industry can be met squarely by a capable marketing organization supported by quality products that can be sold at acceptable prices. Fair business policies, a willingness to work with the local population, and a cooperative attitude in dealings with independent busi- nesses will do much to bring about favorable modification of sociological and economic traits identified with the region. Several trends and conditions now common in the region will assist organized efforts to adapt to the environment. Among them, those considered particularly influential in assuring the success and durability of any scheme of forest based industrial activity are the following: 1. Organized labor in the region is gaining maturity and is heedful of enlightened practices and policies. 2. The region has large tracts of forest land ideally suited to the growth of valuable hardwood trees, and, given the application of forest management pro- grams, the forest cover can be rapidly improved in quality and value. 3. Sufficient sawtimber and cordwood are available at competitive prices to sustain a sizeable processing complex for an indefinite period of time. 4. Local communities and the State gov- ernment are anxious to support the development of an expanded forest products industry in the region. 5. Communications networks and the high- way system throughout the region have been much improved in recent years and will be dramatically improved by about 1970. 6. Adequate markets for processed wood products, while largely outside of Ken- tucky, are located within a reasonable distance. To develop an operating structure pat- terned to the unique requirements that will be confronted in eastern Kentucky is only part of the job. Trends and experiences as they apply to the manufacture and market- ing of wood products in other parts of the Nation will also affect the conduct of business in Kentucky. Today's high speed media for transportation and communication have served to compress the Nation's industrial activities into compact business communi- ties, and it is unlikely that satisfactory busi- ness growth can be achieved if thinking is THE PRODUCTION CONCEPT 31 confined to the local scene. As a matter of fact, market research performed during this study has served to underscore the fact that local markets will not support consumption of the range and volume of wood products that must be manufactured in order to estab- lish an industry that will add measurably to the economy of the region. The need for consideration of nationwide industry trends, in this instance the hard- wood industry, is emphasized by statistics applying to the use of hardwoods in the United States. During the period from 1955 through 1960 the annual consumption of hardwoods for all purposes dropped 26 percent; consumption of Appalachian hard- woods—Kentucky being classed as an Appa- lachian hardwood producer — has dropped 28 percent; and per capita consumption of hard- woods has dropped 32 percent. While data are not available for 1961 and 1962, the trend continues downward. These figures must be related to plans for expanding Kentucky's share of a broadly contracting market, and they are prima facie evidence that the meth- ods and objectives of product manufacture must be patterned to market requirements. DIAGRAM II - 1 HARDWOOD RESOURCES OF EASTERN KENTUCKY TABLE II-I CONSUMPTION OF HARDWOOD LUMBER 1955-1960 Consumption of Total Per Capita Year Appalachian Hardwoods U. S. Consumption Consumption (million board feet) (million board feet) (board feet) 1955 3,582 8, 481 50 1956 3, 137 7, 882 46 1957 2, 943 6, 115 35 1958 2,667 6. 311 35 1959 2, 610 6, 402 35 1960 2, 591 6, 311 34 Operating Structure The operating structure developed to satisfy requirements of the wood processing complex proposed in this report is shown by Diagram II— II on page 32. Investigation performed during Phase I and Phase II of this project resulted in the recommendation that a vertically integrated organization would best serve to bring about an expanded wood products industry. Subsequent studies have served to confirm this recommendation on the basis that within the confines of the problem both economic and marketing re- quirements can be best controlled by a cen- tral administrative authority. Also, an understanding of the raw material supply * 2 LOGS -10 7% #\ LOGS- 7 3% SAWTIMBER 14, 900, 000 mbf CORDWOOD 22, 370, 150 cords TOTAL SUPPLY = 52, 170, 150 cords situation strongly supports the recommenda- tion of a vertical organization, starting with the ownership and management of forest land. The commercial forest resources in east- ern Kentucky include a total growing stock of 52.2 million cords of hardwoods; 29.8 mil- lion cords of the total (14.9 billion board feet) are in the form of hardwood sawtimber. This is a vast amount of material which on cursory appraisal appears more than ample as a source of supply for any wood using pro-, gram. The first impression is deceptive; the fact is that because of a wide array of species, a predominance of low quality stock, and a pattern of widely dispersed ownership of forest land, much of this material is not avail- able within the limits of economic operation. Even the better quality material that is available does not automatically qualify as an economic resource. These circumstances impose a requirement for a systematic approach to the procurement of raw material that will satisfy the exact needs of the complex. Open market purchase of saw logs and cord- wood from private land owners and estab- lished commercial sources will not always be practicable in eastern Kentucky. This is due mainly to the lack of a soundly estab- lished market for logs within the State and the fact that the individuals owning timber- land are reluctant to be subservient to the wills and needs of a wood industry in need of the raw material they might supply. While independence is a virtue, when applied under these circumstances it imposes a handicap on legitimate volume users of sawtimber and requires some form of hedge against unwar- ranted failure of presumably secure sources of supply. The brief reference to difficul- ties that could be encountered in procurement 32 of raw material is intended to indicate the depth of vertical integration that should be considered. The harvesting of raw material and its transport from forest to mill preparatory to processing into manufactured products can be carried out in a number of ways. These include total reliance upon independent logging operators, exclusive internal handling, or contractual agreement based on the serv- ices of independent operators. The last rela- tionship will provide the greatest advantage to the complex so long as positive control is maintained over delivery schedules and economy of operation. Actually, this vital link between the processing activities of the complex and the raw material resource must be subject to full administrative direction by the same management that is responsible for the manufacture and sale of products. The diverse operations involved in convert- ing saw logs and cordwood into finished products can be performed to best advantage by a single organization equipped with proc- SECTION II essing facilities that will enable manufacture of a broad product mix obtained from all grades and by-product forms of the original raw material. The complex will be required to use as much of its total raw material as technical knowl- edge will permit. Each thousand board feet of lumber that is manufactured from average Appalachian hardwood logs — 14" d.i.b. at the small end -will weigh 3300 pounds and will be attended by the production of approxi- mately 3320 pounds of bark, sawdust, and solid wood residue. 1 The typical "pecker- wood" sawmill operation will usually dispose of everything except lumber as waste without receiving appreciable revenue in return, even for the sale of solid material as firewood. As a matter of fact, many of the larger saw- mill operations burn or otherwise discard all of their residue material. In previous times, it was the usual practice ' Values are dry weight yields per 1000 board feet of average Appalachian hardwood lumber. DIAGRAM 11-11 THE VERTICALLY INTEGRATED OPERATING STRUCTURE Land Management Corporation CORDWOOD & SAWTIMBER PROCUREMENT FROM CORPORATE OWNED. CORPORATE CONTROLLED 4 PRIVATE FOREST LAND (Culling & HouNng by Conlrotl Logger!) ♦ SATELLITE MANUFACTURERS (Fiber Products & Treating) TREATED POSTS S POLES ANIMAL LITTER COLLECTION YARD DEBARKING, GRADING. SORTING & STORAGE RESIDUE 7,370 TONS OF BABF/ CORDWOOD 31.800 COBDS/YEAP. SAW LOGS LUMBER PROCUREMENT UP TO 8.750.000 BF/YEA FROM INDEPENDENT SAWMI CORPORATE OWNED PROCESSING UNITS REMANUFACTURING CORPORATE OWNED SAWMILL AIR & KILN DRYING SPECIES DISTRIBUTION 44% OAF 17% POPLAR 11% HlCFOBY 10% BEECH 18% ASH. BASSWOOD GUM & MAPIE SATELLITE MANUFACTURERS (Solid Wood Products) FURNITURE FRAMES PALLETS UNASSEMBLED FURNITURE Marketing Corporation (INDUSTRIAL SALES. CONSUMER SALES. PRODUCT DEVELOPMENT. ADVERTISING AND PUBLIC RELATIONS) J* MARKETS THE PRODUCTION CONCEPT DIAGRAM II -III RESIDUE FROM HARDWOOD SAW LOG CONVERSION dry weight yields per 1000 board feet of lumber manufactured EDGINGS END TRIM SLAB TOTAL RESIDUE = 3, 320 pounds to discard residues generated during the manufacture of lumber. Today this is changing, largely because the competition continually learns new ways and means to convert more and more residued material into salable products. To sell residue in the form of products, at a profit, permits the pay- ment of higher stumpage prices and results in the ability to sell lumber and products derived from lumber at lower prices. Not long ago the above concept was theory. Today that theory is practice, and the opera- tion that fails to do at least as well as its most enlightened competitor will suffer a permanent competitive disadvantage. The most efficient means of accomplishing the conversion of low quality and residual materials into marketable products is to locate facilities for further conversion in the immediate proximity to the sawmill. The same principle applies to other uses of resi- dues, such as for boiler fuel. Intermediate storage and transportation of residues to other locations preparatory to their conver- sion into products involves unnecessary ex- pense and duplication of effort. Insofar as expenses for inventory, rehandling, and transportation can be minimized, the overall operation will benefit economically. This is a strong argument in favor of concentrating diverse processing facilities at one location. While the procurement techniques and the economic utilization of residues are import- ant, the determining factor in favor of a vertically integrated processing complex is the need to manufacture a product mix able to find ready market acceptance. The acqui- sition and satisfaction of markets is most effectively assured by integrating into the complex a sales organization eminently knowledgeable concerning market require- ments. If product design and manufacture 33 are not made responsive to market require- ments or trends, the processing complex will not be able to realize its maximum economic potential. The combined effect of all the above factors establishes the need for extending the activi- ties of the complex through the entire gamut of vertical integration, extending from the ownership of forest land to market servicing. Functional Activities Forest Land Ownership and Control The complex should both own and control forest land. This requirement is premised on the private forest land ownership pattern in eastern Kentucky and the need for guar- anteeing the complex a long range supply of quality sawtimber. While it is conceivable that actual ownership of land by the complex might be avoided, this is unlikely for it would entail widespread application of the alterna- tive device of acquiring positive control over suitable forest acreage. Over the long term, the most likely situation will be a combina- tion of land ownership and land control. The organization should be staffed with professional foresters able to assume re- sponsibility for securing suitable forest land and able to apply and administer both short and long range forest management programs to the land. This requirement can be met organizationally by establishing a subsidiary corporation that will devote its talents and energies to the growth and procurement of the basic wood resources required by the processing organization of the complex. Since the discharge of its responsibilities would place the subsidiary in close contact with the public, it should, therefore, be given responsibility for establishing and main- taining good public relations. In addition, it would assist independent loggers who will be depended upon to augment deliveries of saw logs and cordwood to the complex. Log Collection Yard Assuming an assured supply of suitable raw material from land owned and/or con- trolled by the processing complex, the first step to effective control of processing opera- tions will be through the device of a log col- lection yard. The collection yard will serve as an inventory depot receiving saw logs and cordwood harvested from corporate owned or controlled lands and/or purchased from independent suppliers. While the lack of a 34 market for saw logs has been presented as one reason for extending vertical integration to land ownership, the possibility of develop- ing a firm market in the future should not be overlooked. The complex might set this as an objective which it could accomplish by establishing itself as a responsible purchaser, worthy of the trust of the individual seller of logs. To encourage this development will serve to limit need for the complex to own forest acreage, and will also relieve it of a por- tion of the administrative and overhead costs that would be related to land ownership. The log collection yard, in addition to serv- ing as a raw material warehouse for the processing units, will have several other functions. Irrespective of source, saw logs, up to tree-length (36 feet long), will be de- barked on delivery or soon thereafter. Re- moval of bark at this time will permit the fairest possible determination of the quality of each saw log and facilitate the subsequent bucking of tree-length material into lengths best suited jto the product objectives of the complex. A single tree-length log might yield a veneer bolt, a high quality saw log, and a low quality saw log; the balance may best be suited for conversion into pulp chips. In this case, the value of the entire log would be determined by the sum of the relative values of its yield in rough products. By means of such handling it will be possible to bring about an improvement in quality ex- ceeding log grades that an identical log would yield if bucked to length in the woods. Fol- lowing bucking into length, and product and grade classification, the saw logs will be stored for subsequent processing, veneer bolts will be accumulated for sale to veneer manufacturers, and chippable material will be processed immediately into chips. Primary Product Manufacture Disregarding for the time being the fact that pulp chips will be manufactured by the log collection yard, the initial processing step for saw logs will be sawmill conversion into lumber. Since the lumber to be manufac- tured will be further processed by other units of the complex, it will be subject to produc- tion criteria not normally applied by a non- integrated sawmill. Certainly, efforts will be directed toward producing the best grade- yield from each log; but since the sawyer has in mind specific end product applications for each species and quality, he will be allowed a wider latitude of operation. Production effi- ciencies and saved time could well exceed SECTION II those permitted by the best run single- purpose sawmill. The availability of a sizeable inventory of logs sorted by quality and species, as provided by the log collection yard, will serve to im- prove the efficiency of the sawmill and will make possible extended runs of a single spe- cies, or similar species. If species are sorted to grade, the mix of material flowing through the sawmill will be cut to a minimum, with the result that a greater amount of material can be processed easily without special equipment and with only a normal comple- ment of workmen. For purpose of developing the theme of operation of the processing complex, it is con- sidered sufficient merely to mention at this point that sorting, grading, air drying, and kiln drying will follow as sequential steps after sawmilling. Grading to determine the most appropriate use for each piece of lum- ber will establish its end product destiny and related routing through subsequent process- ing steps. Following drying, it will be re- manufactured into products by the principal organization, or it can be sold either as lum- ber or in semi-processed form to satellite operations or, under long term contract, to independent operations related to the complex. Cordwood Conversion Considerable amounts of cordwood will be available from independent sources and as thinnings from managed forest lands. Cer- tain of this material, in particular the low density hardwoods, can be profitably con- verted into marketable products. As in the case of sawtimber, cordwood will be delivered to the collection yard, where it will be de- barked and routed to its most appropriate means of conversion. The most important use for it is the proposed manufacture of flakeboard — using yellow poplar. Other products to which it is well suited are treated fence posts, chips, and animal litter. In cer- tain instances, the most economic conversion of cordwood might be to saw it into lumber, as a step in the manufacture of solid wood core stock. Remanufacturing Facilities The term "remanufacturing" facilities is arbitrarily applied in this instance to em- brace certain processing operations that will be owned by the principal organization. These operations will, perhaps, be the most automatic and efficient within the entire complex and will represent an aggregate in- THE PRODUCTION CONCEPT vestment out of reach of the satellites. The justification for this investment will be that the organization can manufacture a product line from rough lumber that will find a dur- able market and that will permit the maxi- mum margin between selling price and manufacturing cost. In exchange for these advantages it will be necessary to maintain the tightest possible administrative control over production costs throughout each operation. These facilities represent the key differ- ence between the operation of an efficient sawmill and the broader scope of activity of a complex. They permit relating procurement of wood raw material to the most advanta- geous product mix. The various products resulting from these activities will be divided approximately equally between dimension materials to be processed further by satellite operations and products intended for open market sale. They will include planing mill products, core stock, laminates, solid wood paneling, and dimension. Satellite Operations The ability of the processing complex to achieve maximum utilization of all of its raw material in the most economic manner will depend upon a variety of small manufac- turing units to augment the capacities of the principal organization. These units have been designated as satellite opera- tions. In essence, they offer the opportunity for close administration of specialized prod- uct lines that are bothersome and result in inefficiencies in a larger organization. Nev- ertheless, these lines have good profit poten- tials, and they add to the ability of the complex to perform at maximum efficiency. In effect, the satellite operations are indis- pensable to the satisfactory performance of the overall complex. Briefly explained at this point, the satel- lites will be individually under contract with the principal organization for both supply of their raw material and for sale of their finished products. This relationship will offer them advantages that if not available would preclude their existence. Through this arrangement, the satellites will be able to obtain raw material at a cost below pre- vailing market and certainly much below costs involved if they were to undertake primary conversion of saw logs on their own behalf. The sales tie would offer them the services of a professional marketing orga- nization that they could not otherwise pos- sibly afford. Lastly, as associates of a sort 35 of the complex they would be regarded with favor as loan risks by financing organiza- tions and would thus qualify for financial assistance to an extent not otherwise pos- sible. The relationship as conceived is purely symbiotic and has the added potential of serving the objective of accelerating the spread of business activity within the east- ern Kentucky region. The satellites will ordinarily manufacture a single product or, at most, will by neces- sity limit themselves to a restricted line of products. They will, however, remain quite responsive to market trends and be prepared to alter products whenever deemed advisable. Typical of single product manufacture would be pallets, unassembled furniture, and frames for upholstered furniture. Multi- product activities would be typified by a preservative treating plant and an opera- tion making bark mulch and animal litter of different types. Independent Operations It has been evidenced that there is interest on the part of established manufacturers of wood products in evaluating the feasibility of locating new manufacturing facilities in reasonable proximity to the processing com- plex. This interest is premised on the as- sumption that the complex can serve as a dependable source of the raw materials re- quired in the manufacture of their existing products. In no instance has there been an indication of willingness to effect a sales agreement with the complex. The encouragement of independent opera- tions premised on the use of processed raw materials supplied by the complex can be advantageous to the complex. Of course, each proposal should be examined to deter- mine the advantages that would accrue to the complex. In instances where advan- tages are apparent, complete cooperation should be extended. If the product of an interested independent is identical to or similar to products recom- mended for satellite manufacture, the rela- tive merits of one arrangement as opposed to the other should be resolved to the best interest of the complex. In those instances where the raw material needs of the inde- pendent might modify the operational plan or primary conversion program of the com- plex, the situation should always be resolved in terms of the best long term advantage to the complex. Close cooperation with such established manufacturers who wish to premise their 36 plans for expansion on advantages they will derive from the complex can materially assist rapid and wholesome growth of a wood proc- essing industry throughout the State. This is particularly true because of the marketing and processing know-how that they could infuse into the situation. Marketing The key to a feasible procurement and processing complex such as outlined above, is in the ability to market products. From a business management standpoint it would be unsound to premise a venture of the scale being recommended on the exclusive services of an unaffiliated sales organization. To do so would inevitably result in control by the sales organization, to the complete jeopardy of the production organization. The planned scale of manufacturing ac- tivity is not small enough to permit an informal approach to marketing. As an example, looking back momentarily into the wood products industry in eastern Kentucky, it can be see that the inability of budding manufacturing efforts to compete at the market level has limited development. Frequently the owner and operator of a small manufacturing plant found himself totally preoccupied with the demands of production and unable to devote time to the task of selling the products that he was striving to produce. Ultimate failure is the penalty for lack of attention and response to market requirements. The satellite operations included as part of the integrated processing complex will face many of the problems confronted by their predecessors who were unable to sur- vive competitive forces. Having the profes- sional marketing organization of the complex available to serve their needs will free the operators to devote their talents to the demands of production, thus permitting them to attain a level of operating efficiency that could not be reached under circumstances of divided attention between production and marketing. The same conditions that favor the move- ment of satellite products through a mar- keting organization apply equally well to the requirements of the production activities carried on by the principal organization. The services of the subsidiary sales group will greatly enhance the ability to move a line of products that correlates market requirements with the objective of achieving maximum utilization of available wood ma- terial. The production division can be free to devote its talents to the demands involved SECTION II in accomplishing efficient production of qual- ity products. The marketing activities of the complex will be conducted by a subsidiary corporation that in addition to selling products will be responsible for advertising, customer rela- tions, and liaison between the processing complex and the markets it intends to serve. Proper discharge of these responsibilities will require the application of professional marketing techniques, and the quality of results will determine the success or failure of the entire venture. The importance of an effective approach to the sale of products that the complex will manufacture cannot be overstated. While the recommendations made in this report are concerned with analysis of raw material resources and the determination of efficient means of manufacturing products, they are fundamentally premised upon market re- quirements and projected market trends. Resume of Product Recommendations The identification of products that should be manufactured by the processing complex is a prerequisite to a determination of the raw material requirements of the complex. Since technical product specifications will be established in Section III, the ensuing discussion is limited to brief explanation of the character and derivation of each product. The products treated below have been evalu- ated for marketability and conformity with the objectives and requirements of the com- plex; they are qualified and are recommended for manufacture. The distribution, quality, and species of trees that typify the forest cover in eastern Kentucky have been major determinants in the selection of processing activities. The composition of the hardwood sawtimber inventory, shown by Diagram II-IV, provides a clear picture of the manner in which the tree species have influenced product selection. A requirement to use logs in proportion to their quality and species distribution in the forest would result in a disturbing situation. Fortunately, a requirement of this nature will not be necessary because the quantity of raw material needed by the complex will aggregate only a fraction of the available sawtimber growing within the region. There will be no escape, however, from the fact that the average quality of material that the com- plex will have to work with will be poorer THE PRODUCTION CONCEPT 37 than considered desirable by most sawmill operators. Processing activities, unfortunately, are subject to the influence of two unrelated factors: market acceptance of products and the ability of the forest resource to provide the ideal raw material for their manufacture. Since it will not be possible to entirely match product needs with the resource, which would be the ideal situation, it will be up to the processing organization to adjust the differ- ences between the two forces. Trees being what they are, and technical ability to convert wood into products being what it is, the processing unit will be faced with a considerable inventory of low grade solid wood and processing residues. The economic conversion of as much as possible of this material into acceptable products is mandatory. Rough Products Rough products include the various forest grown materials developed as a direct result of logging operations. This group includes saw logs, cordwood, and poles; as a rule these products will not be sold by the complex. The complex will sell veneer bolts (described below) and perhaps limited quantities of high quality logs. It is expected that these prod- ucts will be obtained during cutting opera- tions on forest land owned or controlled by the complex. Veneer Bolts Description — Veneer bolts are short logs of the very finest quality that, because of the nature of the forest resource, are available in limited quantity. They usually occur as D IAGRAM II-IV SPECIES COMPOSITION OF THE HARDWOOD SAWTIMBER INVENTORY IN EASTERN KENTUCKY r "other" 1. 5% (-"other" 0. 5% r walnut 1. 2% CS i <% t/» < o < O £ £* Q 2 ec z < § lliiminmiiiiiim soft maple 5% r ash 1.3% ,- hard maple 2. 5% GUM 19% .basswood v !& magnolia'- :•»»!•; 2 4% YELLOW : POPLAR H BEECH 10% HICKORY 16% WHITE OAK GROUP 32% chestnut oak 67% • white & other 33% O Hi 1 £ Q $ o : o s Q 2 < g X i Ul 5 z 38 the butt logs of larger trees; the method of bucking, grading, and debarking of tree- length logs applied by the complex will per- mit recovery of bolts to best advantage. A steady high-price market exists for this product which, of course, is a basic source of various types of veneer. The sale of veneer bolts will make available to the complex a higher return for this por- tion of the log than could be obtained through other conversion of the same material. . Principal Species Used — Ash, hard maple, red oaks, walnut, white oaks. Primary Products Primary products are those products ob- tained directly from the conversion of saw logs and cordwood. Lumber Description — Lumber will be manufac- tured by the complex only as a means of providing a basic raw material for the proc- essed products that will be fabricated in subsequent operations. The products of the sawmill will be judged differently than would be the case if the lumber was being manufactured for open market sale. Although grade inspection may be in accord with standard grade rules, there will be a tendency to sort for use rather than to grade individual boards as practiced by conventional sawmills. Nearly all lumber will be kiln dried; delivery to subsequent processing will follow — without further sorting. Species to be converted into lumber will be determined by the aggregate require- ments of the various processing units com- prising the complex. These requirements will be balanced against the ability of the forest resource to provide the ideal species mix. An exception to internal use of all lumber would be lumber which may be custom manufactured to satisfy some particular advantage the complex might offer to a customer. Advantage of this nature could derive from the ability to acquire superior sawtimber or the ability to manufacture better lumber. Principal Species Used — Most commercial hardwood species common to the region. Flakeboard Description — Flakeboard is variously de- scribed, but it is essentially a reconstituted SECTION II wood product in panel form that is made by bonding together flakes from solid wood that has been reduced by mechanical means. Usage of the product is growing more rapidly at the present than that of any other wood product. The largest application is as a core in the manufacture of veneer-overlaid furniture panels. Other applications are store fixtures manufacture, cabinet work, interior construction, and structural paneling. The manufacture of flakeboard requires considerable investment in plant and invokes a need for volume production in order to maintain a competitive position. A recommendation to manufacture flake- board must be related to some special advan- tage when the place of manufacture is somewhat removed from volume markets. Eastern Kentucky forests offer a significant advantage in their ability to provide ade- quate quantities of yellow poplar. This species has outstanding qualifications as a raw material for the manufacture of flake- board and thus strongly supports the estab- lishment of a production unit in the region. The raw material for flake manufacture can be solid green residue derived from conver- sion of saw logs, or it can be in the form of cordwood. Volume requirements are such that a combination of these two sources will best serve the total need. Principal Species Used — Yellow poplar, with controlled percentages of magnolia and basswood acceptable. Pulp Chips Description — Chips from hardwood species are finding an increasingly important ap- plication in the manufacture of pulp. Recent processing developments permit the use of mixed species, the dense hardwoods being as usable as the soft hardwoods. The present ability to use chips without regard to species segregation is particularly ad- vantageous and, if so desired, will permit the complex to convert all green solid wood residue into this product. Chips must be manufactured in conformity to specifications that determine optimum size of chip and establish limits to acceptance of defective material — such as char and decay. Their proper manufacture is con- tingent upon the availability of bark free material. Processing is a relatively simple operation that can be performed with equip- ment involving only moderate investment. The yield of pulp chips normally obtained from conversion of saw logs into lumber ranges between 1.25 and 1.50 tons of green chips per 1000 board feet of production. THE PRODUCTION CONCEPT Under certain circumstances, in support of forest management objectives, it would be practicable for the complex to convert cord-wood directly into chips. Principal Species Used- All hardwoods, particularly the dense species. Remanufactured Products Remanufactured products, within the con- text of this report, comprise a group of prod- ucts obtained by processing lumber in a manner consistent with the overall objective of realizing the greatest upgrading of each board manufactured during primary con- version. For this reason, the group must include products capable of using available species in a ratio as close as possible to their occurrence in the forest. In most instances these products will be intermediate between lumber and a final commodity, such as furniture. Solid Wood Paneling Description — Solid wood paneling used as interior finishing for residential, commercial and office structures is an excellent product that is experiencing good market demand. Plywood paneling offers strong competition, but the demand for solid material should continue good because of its unique applica- tion to certain decorative treatments. Successful and profitable marketing of paneling will require product upgrading by means of prefinishing and packaging. The sale of "panel stock" that has not been subject to refined manufacture will result in a very narrow profit margin. Lumber best suited for manufacture into paneling should be specially selected at the lumber grading point. In some in- stances, premium logs of choice species can be converted into lumber as a special run intended only for the development of paneling. Principal Species Used — Ash, hard maple, soft maple, red oaks, white oaks, yellow poplar, and walnut. Core Stock Description — Core stock is a basic com- modity of the furniture industry and is used in the manufacture of veneer-overlaid panels. Markets for the product in terms of gross quantities are diminishing as a result of infiltration of its normal market by flake- board and particle board. It is expected that the use of solid wood core stock will 39 eventually diminish to a rather negligible point. The present market is sufficiently active to provide opportunities for sales of large quantities of core stock, specifically that made of yellow poplar. Enough furniture manufacturers are unwilling to use com- position board products as core stock to assure continued demand for solid poplar core stock for a good number of years. While on first judgement it may seem in- congruous to recommend both the manu- facture of flakeboard and solid wood core, actually there is only limited contest between the two products. Reduced to simple ex- planation, the use of flakeboard serves the needs of the middle-line furniture manu- facturer, and solid wood cere stock serves the needs of the quality line furniture manufacturer. Both classes of furniture manufacture provide opportunities for high volume sales. While the major market for core stock lies with the furniture industry, some core ma- terial will find an outlet as core for slab doors and for load-bearing interior wall partitions. These markets are limited, but profitable. Principal Species Used — Soft maple, and yellow poplar (with magnolia accepted as an equal species). Basswood is highly prized by some manufacturers for certain applications. Furniture Dimension Descript ion — Furniture dimension includes a number of variously described component products that in essence are semi-fabricated parts used as raw material by furniture manufacturers, and others. The simplest product form is that which comprises pieces of solid wood of selected species manufac- tured according to length, width, and thick- ness specifications. A variant form is stock made to a specified size by gluing together smaller pieces. Still more refined types of products are those subject to machining operations such as shaping, routing, and drilling. Dimension products permit the furniture manufacturer to avoid handling rough lum- ber and maintaining substantial equipment and factory space for such activities. The manufacture of dimension by the complex will provide an opportunity to upgrade lum- ber derived from saw log conversion. It also will permit the conversion of much ma- terial in poorer lumber grades into products that will sell at high margin. The required species and specifications ap- 722-307 0-64-4 40 plied to dimension tend to vary seasonally and from year to year, as determined by the furniture market. Since these variations are somewhat unpredictable, it will be neces- sary for the complex to remain flexible in its ability to respond to demand. The arrange- ment of processing machinery required for its manufacture must be flexible so that pro- duction can be responsive to such changing requirements. Principal Species Used — Ash, beech, gum, hard maple, soft maple, yellow poplar, red oak, white oak. Laminated Products Description — Laminated products manu- factured by assembling and gluing together pieces of wood include end use products as well as products that are intermediate to other product objectives. End products are typified by laminated shelving, stair treads, etc., applied in the form in which manufac- tured. Products of the type that will be subject to further manufacture are typified by edge banding of flakeboard panels with solid wood and laminating of large furniture components to give qualities of strength and appearance not attainable by using solid wood. Laminating in the sense used here is not to be confused with laminated structural beams and arches as used by the construction in- dustry. While certain structural require- ments exist for the use of hardwoods, most applications rely exclusively on the use of commercial softwoods. There is an overlap between laminated products and dimension products as described above. This overlap carries through to the machinery used in the fabrication of the two types of products. Much of the machinery is interchangeable, thus permitting consider- able flexibility in the layout and cost of pro- duction facilities to make both types. Principal Species Used — Ash, beech, gum, hard maple, soft maple, yellow poplar, red oak, white oak. Satellite Products Satellite products as a descriptive category includes products best suited to satisfying the manufacturing and business objectives of the several satellite operations that will be established as part of the overall processing complex. In most instances, the manu- facture of these products will involve mini- mum investment in plant and machinery. The products described below take advantage SECTION II of the expected species mix of the forest and provide an outlet for products developed during primary conversion activities, in accordance with the basic principle that every usable scrap of raw material should be utilized. Pallets Description— Pallets are a product that has experienced recent development to the extent of becoming a basic need for the nation's industrial activity. Companion to automa- tion of industry, there has been an increased application of palletized handling during pro- duction, palletized shipping, and palletized distribution of manufactured products. It is expected that this upward trend will continue for the foreseeable future. The design and construction of pallets is becoming more sophisticated and their pro- duction is becoming more competitive. These factors impose a need for mechanization of pallet manufacture. Competitive conditions forbid installation of expensive automatic equipment, and product characteristics limit the effectiveness of certain machine opera- tions—such as automatic nailing. Mechani- zation that is accomplished must meet the limitations of this situation. A satellite pallet manufacturing operation will be able to use quantities of oak and low grade lumber that would otherwise involve a disposal problem for the complex. Of par- ticular advantage is the fact that sound knots and appearance defects are completely acceptable in most pallets. Principal Species Used — Ash, beech, hick- ory, red oaks, white oaks. Upholstered Furniture Frames Description— Upholstered furniture frames are a specialized product manufactured in compliance with customer specifications and sold to manufacturers of upholstered furni- ture. Their manufacture requires close liaison with the purchaser, but has the ad- vantage of not requiring the highly skilled production personnel normally associated with the furniture industry. Frames are usually shipped to the point of use in knocked-down form and assembled after delivery by means of dowel and glue fastening. The product is competitive, and cannot stand shipment over large distances. There are, however, adequate marketing opportunities within a reasonable shipping radius of eastern Kentucky. Facilities required to manufacture frames THE PRODUCTION CONCEPT involve the use of conventional wood ma- chining equipment, with a minimum capital investment being required for a practical set-up. As with the manufacture of pallets, it is possible to use wood that is structurally sound, but subject to appearance defect that would normally reduce grade to an un- economic point for the lumber manufacturer. Principal Species Used — Ash, beech, gum, hard maple, soft maple, red oaks, white oaks. Unassembled Furniture Description — Unassembled furniture is growing in popularity and sale, particularly that made from hardwood species. For many years there has been a steady market for this type of furniture made from softwood species. The market developed by those products has expanded, and now includes patio, occasional, and utility furniture. Companion to the production of furniture, there is opportunity to manufacture unas- sembled kits of other wood products — such as boats or cabinets. The same production machinery, personnel, and management en- gaged in the manufacture of furniture could be applied to the production of a broad product line. Principal Species Used — Ash, beech, hickory, hard maple, soft maple, red oak, white oak. Preservative Treated Products Description — Preservative treated prod- ucts can be manufactured to meet a number of use requirements presently satisfied by other materials. Factors within the region support the practicability of installing treating facilities as part of the processing ability of the complex, despite the knowledge that existing markets are exceedingly com- petitive and limited in size. Normally the nature of the existing market for treated products would preclude their further con- sideration. In this case, however, the market potential available is unusually good; and it is felt that a manufacturing start based on a limited product line offers an opportunity to expand a dormant market into significant proportions. The present market provides opportunities for sales of fence posts and a more limited potential for sign posts and highway guard rail posts. Needs developed by fencing Blue- grass horse farms indicate a sales potential for factory painted posts and rails. The 41 treating process, to be compatible with product needs, should use water-borne preservatives applied under pressure. Wood for treatment can be obtained as cordwood from poletimber stands, or it can be in the form of core squares manufactured by the sawmill. Principal Species Used — Ash, beech, hick- ory, soft maple, hard maple, chestnut oak. Bark Mulch Description — Bark mulch is manufactured from bark residue resulting from the de- barking of saw logs. Processing bark into mulch requires little equipment and limited investment and involves the simple steps of separation of wood fiber from the bark and milling to particle size. Moisture con- tent of the refined bark is not controlled, re- sulting in sale of the product by volume measure. Commercial markets are supplied by bulk deliveries, and product intended for consumer sales is packaged in large mois- ture resistant bags — about 4.25 cubic feet per bag. The principal competitive product is peat moss, which is regarded by the nursery in- dustry as being the standard for mulching materials. Bark mulch enjoys a comparative use advantage by having greater lasting ability than peat moss. Principal Species Used — Ash, basswood, beech, elm, gum, hard maple, soft maple, magnolia, and yellow poplar. Animal Litter Description — Animal litter is a product grouping that includes several individual products and product applications premised on the use of shavings and wood particles. Shavings are commonly used as chicken litter, and recently they have experienced increased use as hog and cattle litter. The applications call for dried and baled shavings, at best a crude product. They are a by- product of wood machining operations, or they can be manufactured from soft hardwood cordwood by conversion of whole logs in suit- ably designed machines. Processing is ordinarily confined to drying, the principal objective being to reduce shipping weight to a minimum. Particles are finding increased use by the more sophisticated animal breeding industry that produces animals for laboratory and other experimental purposes. Specifications applying to particle products are somewhat 42 strict, indicating need for accurate drying, sterilization, and packaging in moisture proof containers. They are manufactured by milling shavings or chips. Only the light colored, odorless species of soft hardwoods are acceptable. Drying, which will follow milling, has a product function in that it brings the material to its maximum absorb- ency — a feature required in small animal breeding. Principal Species Used — Basswood, soft maple, magnolia, and yellow poplar for particle type litter; all soft hardwood species for shavings. Wood Raw Material Requirements A determination of the quantity and species of wood raw material that will be required in the form of saw logs and cordwood is fundamental to the design and location of the physical plant and the planning of the business conduct of the processing complex. The production capacity of the sawmill, the starting point in the manufacturing cycle, has been established as 35,000 board feet of rough green lumber per eight hour operating shift. Industry experience has confirmed that this level of production is about the opti- mum for efficient conversion of hardwood species into lumber. The total quantity of lumber produced by the sawmill will be the total available for all subsequent operations, unless it is augmented by procurement of lumber from sources outside the complex. A requirement to procure lumber in excess of the production of the sawmill becomes obvious when the aggregate needs of all processing units are totaled. The necessary input of each unit is enough raw material to support production at an economic level of operating performance. If 40,000 board feet is established as the total daily consumption of rough lumber by remanufacturing opera- tions of the principal organization, a net deficit of 5000 board feet per day in excess of sawmill production results. An additional consumption of 20,000 board feet of lumber per day to sustain efficient operation of a satellite pallet manufacturing plant, 5000 board feet of core squares and lumber per day for a satellite treating plant; and the con- version of 5000 board feet per day of select quality lumber into solid paneling means that another 30,000 board feet must be procured from supplemental sources. From the above, the total daily lumber SECTION II needs are 70,000 board feet, of which 35,000 board feet are to be obtained from the saw- mill operation and 35,000 board feet must be purchased from outside sources. The pro- curement and internal application of this material is shown by Diagram II-V. The quantities of material shown by the di- agram represent fully developed activity by all units of the complex; it is not im- plied that the complex must commence or sustain business at this level of performance. The dependence placed upon a secure source of lumber supply from outside sources will serve to stimulate other regional forest industry activity by providing a market for the output of small local sawmills. If cor- rectly handled, this arrangement should have a considerable economic impact within the region about the operation at the same time that it represents a favorable arrangement for the complex. The conversion of saw logs into lumber is normally accompanied by the development of a quantity of lumber in excess of the measured footage of saw logs used in its manufacture. This is due to the relationship between log scale and lumber measurement as used by the lumber industry. The excess of lumber that is developed is called "overrun"; and, in the conversion of Appalachian hardwoods, it can average as much as fifteen percent in excess of the footage determined by log scale. To allow for an anticipated heavy usage of low grade saw logs, the amount of overrun expected by the complex has been set at the arbitrarily low value often percent. On this basis, a sawmill cut of 35,000 board feet of lumber will consume slightly less than 31,500 board feet (log scale) of saw logs. This is the amount of saw log material that must be obtained to run the sawmill at the rate of one operating shift per eight hour day. The manufacture of flakeboard will impose a requirement for 93 cords of yellow poplar per day. 1 This quantity of cordwood will only partly satisfy needs and will be supplemented with 6.1 tons per day of green solid wood 2 gen- erated as residue during the sawmill conver- sion of yellow poplar saw logs. Magnolia and basswood can be included with the yellow poplar without jeopardizing the quality of the end product. Total raw material require- ment is premised upon a flakeboard produc- tion unit operating at a capacity of 100 tons of finished product per 24 hour operating day, for 300 days per year. 1 One cord (128 cubic feet) of cordwood will yield 1 ton of dry wood material. - One ton of green solid wood (at 80 percent MC value) will yield 0.56 tons of dry flakes. THE PRODUCTION CONCEPT 43 The preservative treating plant will use cordwood, core squares, and lumber from sawmill operations. The unit has been sized to treat 10,000 board feet of raw material per eight hour operating day. One half of its capacity will be applied to treating round posts, requiring the procurement of five cords per day in the form of poles and cordwood. The remaining capacity will be used to treat up to 5000 board feet of lumber per day; the end products will be posts and rails for rail fences, sign posts, poles, and possibly highway guard rail posts. It will be a simple matter to adjust these product ratios to markets as a result of sales experience. By carefully balancing the species require- ment of each product against the availability of species within the region it has been possible to arrive at a usable estimate of the species/quantity relationship that will serve the needs of the complex. This esti- mate based on the total demand for wood raw material that could ultimately develop through activity of the complex, is provided by Table II— II. An important consideration evidenced by the table is the projected heavy requirement for yellow poplar (50.4 percent of the total); of the total require- ment of 16,538 thousand board feet per year, only 15.7 percent is required in the form of saw logs and 84.3 percent as cordwood. Much of the poplar would be acceptable as green solid-wood residue, and it is anticipated that small sawmills will serve as a source of residue and thus reduce the requirement for procurement in cordwood form. Also, uppers and large limbs could be used to meet requirements. The percentage relationship between species to be used in the form of saw logs and lumber, exclusive of cordwood needs, is not included in Table II— II. The separate calculation of the needs of the complex for saw logs and lumber that follows shows a close correspondence to the average composi- tion of hardwood sawtimber stands in eastern Kentucky. TABLE II-II ESTIMATED ANNUAL RAW MATERIAL REQUIREMENTS - BY SPECIES X 10 < Q O O < PQ X O W W H a O pti O o X H a, < Q < X W Oh < H O < O o < a to < o a u 3 W | <£ m o JS w ° n < J (X O (X ■5 O 15 j w < CO < H O H < H O H h O 1/ SAW LOGS - (mbf log scale) 421 113 815 310 872 282 169 54 2,075 I, 383 1, 294 84 7, 875 24. LUMBER -' (mbf lumber scale) 468 125 906 344 969 312 188 63 2, 306 1, 537 1, 438 93 8, 750 24. CORDWOOD (cords) 2, 500 1,000 1, 500 1, 250 27, 900 34, 150 52. -TOTALS -mbf log scale 842 1, 476 1,630 620 1, 744 564 838 864 4, 775 2, 766 16, 538 168 32, 825 % OF TOTAL 2. 57 4. 50 4. 97 1. 89 5. 31 1. 72 2. 55 2. 63 14. 55 8. 43 50. 38 0. 51 100. 100. 1/ raw material for sawmill operation - assuming 10% overrun in conversion into lumber 2/ purchased from independent sawmills 3/ 2 cords = 1,000 board feet/log scale 44 SECTION II DIAGRAM ll-V PLANNED DAILY PROCESSING CAPACITIES COLLECTION YARD 31.500 bf SAW LOGS ROUGH GREEN LUMBER 35,000 bl Sow Log Rojoct Solid R.ildvo CHIPPING o UNITS FROM YARD 10UNITS FROM SAWMILL Poiti I Polo* lark A Cordwood SAWMILL 35,000 bf LUMBER t! _L l 1 I I Ml Tin I IIT IMS 390.000 bf iNVENIOiV 70.000 bf DRV lUMttt Avvrog* Grade Lumbar REMANUFACTURING 40,000bt d Rough Dim«n»i MULCH 1 UTTER 4 UNITS OF (ARK 12 TONSOF SHAVINGS 20 CORDS OF WOOD i t> TREATED POSTS ft rulESH 5 CORDS OF ROUNDWOOD 5,000 bl OF lUMBER ■0 FLAKEIOARD OR FIIERIOARD (3 Shift Oporarionl 93 CORDS OF ROUNDWOOD 8 6 TONS OF RESIDUE o PAuns 20.000 bf t> MILLED PRODUCTS 5.000 bf o CORESTOCK ft DIMENSION 30,000 bf II Rough Dimemion THE PRODUCTION CONCEPT TABLE II-III RELATIONSHIP OF S A W T I M B E R CONSUMPTION TO FOREST COMPOSITION Hardwood Species SPECIES FOREST COMPOSITION CONSUMPTION (% of total) (% of total) Ash 1 5. 4 Basswood 4 1. 4 Beech 8 10. 4 Gum 4 3. 9 Hickory 13 11. 1 Hard Maple 2 3.6 Soft Maple 1 2. 1 Magnolia 1 0. 7 Red Oaks 29 26. 3 White Oaks 25 17. 6 Yellow Poplar 10 16. 4 Walnut 1 1. 1 "Other" Hardwoods 2 TOTAL 100% 100% Wood Raw Material Procurement The magnitude of the task encountered in procuring wood raw material to supply the manufacturing activities of the com- plex will at any one time be related di- rectly to the total activity of its several processing units. The most extreme condi- tion would be that imposed by placing the complex into initial operation with all units functioning at their optimum capacities. In this instance, there would be superimposed upon the existing forestry industry in east- ern Kentucky an additional daily demand for 126,600 board feet of wood in the forms of saw logs, cordwood, and rough green lumber. It is unlikely that any amount of planning or foresight by the management of the com- plex would result in the immediate satis- faction of this requirement. The point of greatest difficulty probably would be in filling the need for 35,000 board feet of rough green lumber to supplement the capacity of the corporation sawmill. The tremendous difficulties inherent in accomplishing start-up of all processing units within a short span of time precludes planning for immediate attainment of the optimum operating level of the complex. The logical alternative will be to initiate a reasonable start-up demand upon the raw material resource, to be expanded in volume as operating techniques, business capacities and availability of the resource improve. With the preceding in mind, it becomes clear that the selection of the start-up configura- tion of the complex is a decision that must 45 be withheld until the area of operation and details of organization have been decided. This report is necessarily limited to con- veying adequate information to allow it to serve as a useful tool in resolving these important elements of establishing the manufacturing activity. The treatment of the subject of raw ma- terial procurement and preparation pre- sented below is premised on requirements that will be imposed when the complex is operating at optimum processing capacity. The annual demand for wood raw material, as shown by Table II— II, will be 7875 thousand board feet of saw logs, 8750 thousand board feet of rough green lumber from area saw- mills, and 34,150 cords of round wood. The complex will necessarily procure saw logs by two methods: (1) purchase of logs from independent suppliers, and (2) cutting- operations conducted on forest land owned or controlled by the complex. A 1:1 ratio in quantity of material obtained from these sources will meet the needs of the complex and, at the same time, should stimulate the establishment of a stable market for saw logs. There is considerable evidence to sup- port the conclusion that too heavy a depend- ence upon open market purchase would result in a failure to obtain sufficient saw logs. Conversely, ownership and control of enough forest land to meet total annual require- ments for saw logs would tieup too much capital and impose burdensome commit- ments upon the complex. Irrespective of the location of the operating site, it is doubt- ful that enough land could be purchased and/or be brought under control to meet the total requirement for saw logs. Independent Suppliers of Saw Logs and Cordwood The encouragement of independent sources of saw logs and cordwood will be very advan- tageous to the complex. The development of an atmosphere of mutual business respect between log suppliers and the management of the complex will make it possible for the complex to optimize forest ownership, man- agement, and land control. It is probable that saw logs derived from otherwise un- available stands of merchantable timber could be obtained through the activities of independent loggers. Also, the establish- ment of a firm saw log market will probably result in numerous farmers and small land owners delivering many valuable individual trees that otherwise would not be cut. This probability is premised upon the resource- 46 fulness of the native Eastern Kentuckian, manifesting itself in willingness to convert a growing crop into ready cash — provided he arrives at the point of recognizing trees as a crop and feels an assurance of a fair deal at known values. Whenever possible logs should be delivered to the collection yard in tree lengths. In essence, the reason for this is that bucking to so-called "standard lengths" at point of felling is seldom accomplished to the best advantage of a sawmill. The woodsman who cuts the tree and does the bucking is in the majority of cases absolutely unqualified to determine the length of logs that should be bucked from each tree. He will ordinarily cut individual logs to a convenient length for handling, ignoring the objective of de- veloping maximum log grades. Logs delivered to the collection yard will be handled individually — each being regarded as valuable raw material. The first step in the continuous preparation operation will be to remove the bark, thereby giving best exposure to any defects that might exist. Next, a skilled log grader will evaluate the product potential of the whole log and have it bucked into lengths most likely to result in extracting the best quality from the log and to assist the subsequent production program of the complex. The log supplier will then be credited and paid for what each log actually yields in rough products. If desired, the supplier could readily follow his logs individually through the barking, grading, and bucking operations. The policies and procedures advocated above will require an advance educational ef- fort by the complex to enable the log sup- pliers to recognize the attendant advantages that will be received. While these advan- tages will accrue in the form of a greater average return from the sale of logs, there may be instances wherein individual logs will bring less return than anticipated by the seller on the basis of his past experiences. A related need will be to establish stand- ardized methods of grade determination that are readily understandable. All cordwood should be delivered to the complex in standard 100 inch lengths. Pay- ment for material that is delivered will be made in accord with quantity (measured by volume) and species. Procurement of Rough Products from Company Forests Contract loggers should be used to harvest trees on company owned or controlled forest SECTION II land. This employment would completely exclude the conduct of logging by the complex. Preparatory to logging, responsible staff forestry personnel should mark trees to be cut, and the general regulations that will be included within the terms of logging contracts should be determined. In fairness to the contractor, consideration should be given to the character of terrain, stand density, and other variable factors affecting the cost and efficiency of the logging operation, and the terms of contract should be drawn to allow fully for each. The management of the complex should plan to advise logging contractors concerning methods of logging compatible with the application of forest management principles. It also should be prepared to assist them in financing purchases (or lease) of equipment, including power saws, road building equip- ment, tractors, power loaders, and log trucks. Although very little specialized logging equipment is used in eastern Kentucky, the economic advantages to be gained by its use make it almost mandatory that the complex insist upon its application, as well as insist- ing upon the application of work techniques that save manpower and reduce costs. Procurement of Lumber The need to purchase 35,000 board feet of lumber from independent sawmills when the optimum level of operation has been reached will result in a challenging procurement task. Because of the relative inefficiency of sawmills operated by independents, the com- plex can expect to manufacture lumber for several dollars less per thousand board feet than independents. As a consequence, when purchasing lumber from independents it will be difficult to offer them more than an abso- lute minimum margin of profit between their production costs and selling price. This would be a prohibitive situation for any inde- pendent faced with a need to purchase saw logs at the same price the complex will be required to pay for its logs. It is probable, however, that much of the lumber that will be manufactured by independent sawmills will derive from saw logs cut from forest land that is owned or otherwise available at an advan- tage to the sawmill operator. In such instances there will be limited regard for the true value of the log?, and the operator will actually sell his labor in the form of lumber. While he may be temporarily satisfied by such an arrangement, the lack of economic sound- ness of the situation will eventually manifest itself in the failure of the source of supply. THE PRODUCTION CONCEPT 47 Buying lumber under these circumstances will place the complex in the compromising position of having exploited the sawmill operator. The direct effect of this will be to maintain a suppressed value for lumber, resulting in little more than a continuation of the situation prevailing throughout the re- gion. Since one purpose of this study pro- gram is to recommend industrial activity that will improve the economy of the region, this situation must be avoided. If the complex confines its external pur- chases of lumber to well manufactured better grades of selected species, it should be able to pay a premium above the going price. The rationalization in this instance is that, although the average price of the lumber processed by the complex will thus be in- creased, the ability to correlate raw material supplies more closely with product needs will result in a greater overall efficiency of utilization. A gradual build up of the production activ- ity of the complex will, of course, permit a cautious approach to the problems of outside lumber purchases. Operating experience will develop information as to where, how, and what to purchase to fulfill lumber needs, and how to relate this information to an orderly and profitable procurement program. It is also certain that the complex will be confronted with the task of assisting would- be suppliers of lumber to manufacture the best possible product. The missionary activ- ities thus required, if handled properly by the management of the complex and if accom- panied by rational buying practices, can result in establishing permanent sources that will fulfill all requirements of outside lumber procurement. Procurement Area The site to be selected for location of the processing complex will exert a strong in- fluence on the details of raw material pro- curement. While sites will be treated separately in Section V, it is pertinent at this point to establish a relationship between raw material needs and the ability of the forest resource to satisfy those needs. The procurement of saw logs and cordwood can logically be confined to an area within a radius of about 50-miles around the complex. This radius of operation has been determined largely by reasonable limits of economic performance; under average circumstances in the region, it will permit deliveries of raw material without excessive transportation costs and it will permit easy administrative cognizance over the operation. The total amount of forest land within a 50-mile radius of operation, assuming 71 percent of the land to be forested, will be 3,569,858 acres; this amounts to 59.4 percent of the total forest land within eastern Kentucky. There will be 8.8 billion board feet of sawtimber within a 50-mile radius; 150 million board feet of this total will be available annually above the present annual drain of 247 million board feet. The annual saw log requirements of the complex will amount to 5.27 percent of the available annual supply. It is to be expected that certain raw mate- rial requirements will result in limited pro- curement activity beyond the 50-mile radius. In all probability, a portion of the require- ment for rough green lumber will be met in this manner. Also, the demand for select logs purchased specifically for manufacture into specialty products, such as solid wood paneling, can be expected to result in procure- ment over a larger radius. Raw Material Transportation The hauling of tree-length logs, as has been advocated, undoubtedly will meet at first with considerable opposition. It is not a customary means of log transportation in eastern Kentucky, and there are few trucks in the region capable of carrying such a load in a routine manner. Trucks will have to be purchased to do the job, and the complex will have to assist contractors to understand and meet this requirement. Existing State highway regulations do not bar the use of the special truck and trailer rigs required to transport tree-length logs. Length, width, and weight maximums for trucking are established within limits that can be satisfied without special precautions. Maximum overall length is 50 feet, and the gross weight is 73,280 pounds for vehicle and load. In the event that these limits are likely to be exceeded, the complex will find the Division of Motor Transportation, Ken- tucky Highway Department, ready to co- operate in providing special permits. Opportunities will arise for independent operators, confining their activities ex- clusively to log hauling, to service the re- quirements for log transportation. The volume of material needed by the complex will be large enough and demand will be steady enough to make a small scale trucking operation an attractive business opportunity. The management of the complex should co- operate in establishing one or more such operations, since the arrangement will be oo Q_ < o o 2o 55 < Q to ac Z u. 5 UJ O 3 u. I/I J/5 ^ «0 **j ^ y Q THE PRODUCTION CONCEPT 49 superior to the alternative of the complex itself owning and operating trucking equip- ment. It is estimated that not more than 50 per- cent of the saw logs required by the complex will be available in tree lengths. The balance will be in shorter length logs that have been bucked in the woods as a result of the need to accommodate the character of individual trees. Some hardwoods, for example, have growth patterns that frequently will make it impossible to yield a tree-length log. This will make it necessary to have available two types of trucking equipment: one for short logs and one for long logs. The relative re- quirement for each type of equipment is difficult to predict and should be worked out in accord with experience during the initial build-up in activity of the complex. The transportation of saw logs accounts for only 29 percent of the tonnage of wood raw material movement into the complex. De- liveries of rough green lumber from in- dependent sawmills will account for another 13 percent. It is expected that the lumber will be trucked by the various sawmills with- out generating transportation problems for the complex. The remaining 58 percent of the i'l-oming tonnage will be in the form of cordwood; part of this will derive from logging operations directed by the complex and part will be in the form of deliveries by independent operators. The overall size of the trucking job involved in supplying the complex its daily raw material requirements is suggested by Table II-IV. TABLE II-IV DAILY DELIVERIES OF RAW MATERIAL TO THE COMPLEX (at optimum operating capa^.i'y) RAW MATERIAL QUANTITY UNIT WEIGHT (green) _/ PPROXIMATE riAILY WEIGHT Saw Logs Cordwood Lumber 31, 500 bf 127 cords 35, 000 bf 10, 800#/Mb£ 5, 390#/cord 4, 400#/Mbf 180 tons 342 tons 77 tons 1/ based on average Appalachian hardwood species; logs @ 80% moisture content value and lumber @ 65% moisture content value. Raw Material Preparation As previously explained, saw logs will be debarked soon after delivery to the collection yard and will then be bucked to length and sorted into end-use and species groups. Following these operations, their routing will depend upon a variety of factors includ- ing the time of year, processing needs, log grade, and species. However, any portion of a log that does not qualify for sawmill breakdown will proceed by conveyor directly from the bucking station to a whole-log chipper. Chips produced by this operation will be carried by a high pressure pneumatic transfer system to a chip-car loading station. Since different species of trees are best logged at varying times of the year, it will be necessary to maintain reasonable inventories of saw logs as a means of distributing the species over an extended operating period. In general, fall, winter, and early spring are the best times of the year for logging; these will be the times for inventory building. Optimum inventory cannot be predicted ac- curately but must be based on experience and related to the market for finished prod- ucts. The total yard inventory of saw logs may logically be in the neighborhood of 1.5 to 2.0 million feet, equivalent to a 45 to 60 day supply of the sawmill at full operating capacity. Too large an inventory will result in deterioration of logs, while too small an inventory will invoke operational handicaps. In order to limit the drying out of logs dur- ing storage — a particular cause of splits and checks in debarked logs — water can be sprayed over storage piles during periods of dry weather. Saw logs should be sorted by species and grade to facilitate the efficient operation of the sawmill. This will be accomplished by fork carrier transfer of debarked logs from the sorting decks to storage areas in the collection yard. Each storage area should be managed on a first-in-first-out basis so as to minimize chances for deterioration. A limited quantity of the bark removed from logs will be processed into mulch. Because of the large quantities of bark that will be recovered — 10.8 dry tons per day from saw logs and 19.7 dry tons per day from cordwood — it will undoubtedly be necessary to dispose of a considerable quantity by burning. Cordwood for direct conversion into flake- board, plus a limited quantity to be treated with preservatives and sold as fence posts, will be debarked on delivery in a manner identical to the handling of saw logs. Follow- ing debarking, the cordwood will be stored; a 45 day supply (5700 cords) is considered an ample reserve. The collection and storage yard will be operated by five men plus a supervisor- maintenance man. They will include a barker operator; a grader, who will operate a log bucking saw; a sorter, who will direct logs to their proper destination within the PRELIMINARY PLAN OF RAW MATERIAL DELIVERY / i/ii/iiiiTTT T, W, 7.200 sq.ft. W - I E J L B =F=H CORDWOOD POSTS' SAW LOGS LOG COLLECTION AND SORTING YARD SAW LOG INVENTORY 1.5 to 2.0 MILLION BOARD FEET CORDWOOD INVENTORY 5,700 CORDS IS ACRES ►RESSUgj PNEUMAIIC CHIP T rri i a i i i K T II u LN 1 1 I ACC T II ii II 1 1 MILA iTj i TIC ! 1 DC N 11 1 I 1 8 ACRES AIR DRY INVENTORY - 1 MILLION BOARD FEET BURNER L71 I \ \ \ 1 1 uu u D D r L j u L D D r [ ; i L 1 u u J [ ; j i i i i i i i i i i i i u u u u i U DO DRY KILNS MILLED ROCESSING FACILITIES TO SCALE - TOTAL AREA = 54 ACRES ® •4 % 25 r r r MS O o i a ■ IU < o £ o ac o i o < 1— o X o> u O u z Q ad UJ = OS "" < to O CD s O < j 2 6 S 2 s ac < pa < z o M ID ik o a O < 1 i B < & < o I— to o O O Q o u o o < THE PRODUCTION CONCEPT yard; and two fork carrier drivers, who will transfer material within the yard and be- tween the yard and processing units. Physical Arrangement of the Complex The plan of processing facilities, on page 50, shows a tentative physical arrange- ment of principal and satellite manufacturing units of the complex. The arrangement is laid out on a 54-acre tract and is presented as a plan that will satisfy the operational requirements of the complex. The plan serves as a visible guide to the approximate building and ground space required for each production activity recommended in the pre- ceding discussions, and it should prove help- ful in understanding the physical relationship that will exist between the processing units described in the next section. The overall complex must be laid out in a manner that will facilitate the achievement of maximum efficiency of operation. The "community" character of the complex pres- ents an ideal opportunity to attain high efficiency. For example, opportunities for dual usage of many pieces of service equip- ment will arise. A refuse burner serving one processing unit can serve additional units with equal facility; one yard fork lift truck can transfer materials between several different processing units; and a single rail 53 spur can serve multiple users. An addi- tional benefit to be expected is a reduction of overhead costs because of the application of group fire insurance rates, the use of a single transformer step-down station serving multiple customers with electric energy, and the proration of costs for access roads and water service. The proximity of processing units within the complex will certainly lead to a conservation of effort, compared to the situation that would exist if processing units were at widely scattered locations through- out the facility. Although certain advantages have already been identified as inherent in the conduct of business in a concentrated industrial com- munity, imaginative thinking will be required to establish the physical arrangement that will best develop these advantages. The more important guide lines to effective planning, which have been applied to the model layout, are: (1) the collection yard should be easily accessible to all units draw- ing upon the yard for their raw material supplies; (2) each unit within the complex should be provided adequate ground space and building space to permit reasonable growth — this is equally applicable to the total space requirements for the overall complex; (3) each unit should be conveniently acces- sible to rail and truck service; (4) inter- related operations should be located close to each other to facilitate efficient transfer of materials; and (5) each unit should be de- signed to maximize both its own operating efficiency and that of the overall complex. Section III Processing Facilities Manufacture of Green Lumber The lumber manufactured by sawmill con- version of logs is the basic product required for nearly all subsequent processing activi- ties of the complex. Of necessity, the func- tion of sawmilling must be performed in a highly efficient manner; and, more impor- tantly, it must be an economic operation. The mechanics of converting saw logs into lumber are relatively simple, but it is difficult to accomplish conversion with a finesse that will result in maximum economic advantage. As part of an integrated complex, the saw- mill will gain a dual advantage. Because it can order its raw material from the collection yard in the form of debarked, graded, and sorted saw logs, it will be freed from the prob- lem, common to many sawmills, of working with an uncertain mixture of logs of various grades and species. At the input end, it will have working for its benefit trained forest management personnel and a saw log procurement program planned and executed in a manner that will result in processing advantages. At the opposite end of the pro- duction spectrum, it will be favored by exact knowledge of what products its "captive" customers want and the specifications that must be met by these products. Many saw- mills manufacturing lumber for sale on the open market have no such advantage; rather, they turn out products in the hope that they will find customers for them. Saw Logs Sawmilling starts with an understanding of saw logs, to the extent that it will be pos- sible to develop the maximum grade of lum- ber from each log. There is no guarantee that a No. 1 grade log will yield better lumber than a No. 2 grade log, nor that a No. 2 grade log will yield better lumber than a No. 3 grade log. The realization of the potential yield of the higher grades of lumber from a given log is the responsibility of the sawyer, assisted by a skillful edgerman and a trimmer man. The debarking, grading, and sorting of logs are processing refinements that will assist the sawyer in his task of sizing-up each log for best handling through the saw. The absence of bark reveals defects clearly, and sorting results in preventing radical changes in characteristics from log to log that might confuse the sawyer's judgment. Regardless of the skill of the sawyer, an economic pro- jection of the activity of the sawmill must be predicated on the repeated achievement of average grade distributions in yield of lum- ber from the various grades of logs. One objective of sawmill management should be to exceed the average yield of better grade lumber; conversely, the failure to achieve average yields will bring about an undesir- able economic condition. Since the price paid for saw logs is based upon what the log should yield in lumber, failure to obtain that yield over a period of time would be disastrous. The importance of purchasing logs accord- ing to established grade specifications and of extracting the highest possible grades of lumber from each log cannot be over empha- sized. Excellent literature is available cov- ering the subject of relationships between logs and lumber grades. Diagram III— I shows the yields in lumber grades that can be expected from estab- lished grades of logs. It is important to realize that, on the average, a No. 1 grade log will yield 67 percent No. 1 common and better lumber, a No. 2 grade log, 44 percent, and a No. 3 grade log, 23 percent. When these yields are related to the distribution of saw logs by grade throughout the forests of eastern Kentucky, it is found that the aver- age yield of No. 1 common and better lumber will be 28.5 percent. The only way to in- crease this yield will be to increase the run of No. 1 and No. 2 logs through the sawmill in proportion to No. 3 grade logs. Proposed Sawmill A properly designed modern sawmill able to operate with utmost efficiency is manda- tory if the complex is to fulfill its mission of stimulating the economy of the region. An attempt to minimize initial investment in the complex by use of an already installed saw- CD O r'w.v. < OH O < mztwm v.\> %s% z III < K J r-'.'.'.-'-W: '.6?iV. ■ z III < K J r -. W H >n « w 5 (0 722-307 0-64-5 * L _ MULTI-SAW TRIMMER ® I V/////M MP I f Iff ih — rir EDGER r^-\ © ! * GREEN CHAIN © ® © lHch IpU J n © ra — — ^ f 4 ® BANDMILL R ♦$• rtt ^°. & J © n n F I c= — BANDMILL HEADSAW If t * u r MANPOWER STATIONS FLOW DIAGRAM SAWMILL (Operated by Principal Corporation) MACDONALD ASSOCIATES INCORPORATED ENGINEERING DIVISION SCAIE |/8" = 1.0' I CHECKED | HIE NO. °*» 10/19/62 I JQ« no. 610 D-6I0I SAW LOG DELIVERY 58 SECTION III mill should be avoided. A non-operative or marginally operating sawmill available for purchase will, in most instances, be available because of inefficient equipment, poor design, or heavy reliance on manpower in lieu of mechanization. An attempt to adapt such a mill to the processing concepts advocated in this report would be a serious error. The design of sawmill machinery and sawmills has undergone radical changes for the better within the very recent past; not to apply these improvements to the contemplated operation would expose it to suppressive competitive forces. The flow plan of the proposed sawmill is shown by diagram on page 56. The sawmill will use a bandmill headsaw and a bandmill resaw with a linebar feed. This combination of machinery is a highly flexible one which can be used to produce either high grade lumber or large quantities of low grade lum- ber. The resaw has a "merry-go-round" system which permits it to cut up large cants or slabs without interfering with the opera- tion of the headsaw. Ample storage space at the resaw permits stockpiling of cants or slabs when a run of low grade logs is sched- uled. An edger and a multi-saw trimmer, at the back end of the mill, complete the manu- facturing machinery. Logs will be supplied to an automatic log infeed system by a yard fork lift carrier. The same carrier can perform other functions within the log collection yard, thus insuring that it will be in full time use. Deliveries should be scheduled so as to permit the saw- mill to operate with like species and com- parable grades of logs for as extended a period as is possible. The actual methods of cutting applied to various types of material may vary to a con- siderable extent. As an example, logs best suited for conversion into lumber that will subsequently be remanufactured into core stock can be cut into cants, without particular regard for grade development. The reduc- tion of these cants into 4/4-inch lumber would take place on the linebar resaw. This method of handling will result in high volume production. On the other hand, in sawing a run of Number 1 grade logs, it is essential that careful attention be applied by the saw- yer to the development of grade cut lumber. It is expected that by far the largest pro- portion of lumber to be manufactured will be 4/4 stock. There is a possibility, however, that the internal requirements for the lum- ber will provide opportunities to cut scant in thickness. If this situation occurs, and efforts should be directed toward making it occur, the volume of overrun between log scale and lumber scale could be appreciably increased. Solid wood sawmill residue, in the forms of slabs, edgings, and end trim, will be free of bark, allowing all of it to be routed directly to a chipper for conversion into pulp chips. Chips will be conveyed from the sawmill by means of a high pressure pneumatic transfer system to a screening station located in the log collection yard. The screening station will be located adjacent to the debar king- bucking-sorting equipment and will also serve to screen chips manufactured from round-wood not suitable for saw logs. Special attention will be given to retriev- ing the solid wood residue developed during the sawing of poplar, basswood, and mag- nolia logs. This can be provided for by in- stallation of a waste conveyor system that will permit selective by-passing of the chipper whenever these species are being run. A cross-cut saw will be required to cut long pieces of slab and edgings into shorter lengths for ease of handling. Next, the material can be accumulated in large box pallets for transfer to the flakeboard plant, where it will be used as a raw material for the manufacture of flakes. The recovery opera- tion will probably require an additional man whenever the desired species are being run by the sawmill. The amount of material in- volved is too small and sawing of the desired species will be too irregular to justify in- stallation of an expensive automatic recovery system. Sawdust will be separated mechanically from the solid residue by the waste conveyor system and will then be carried by a low pres- sure blower system directly to the steam plant or to a waste burner. The manufactured lumber will be graded on the green chain after it leaves the trim- mer. Following grading, the lumber will be manually pulled and placed in piles according to the sorting and grading requirements established in compliance with the needs of subsequent processing operations. Manpower Requirements A total of 11 men, or 10 men if the resaw tailer is eliminated, will be required for the sawmill which will operate for an effective 7.5 productive hours during each eight hour operating day. The normal work week will be five days, with a two man maintenance crew working during the sixth day. Man- power stations and job descriptions are as follows: PROCESSING FACILITIES 59 1. Yard Carrier Operator: Delivers logs to the mill and moves lumber packages to the stacker. 2. Sawyer: Loads and turns logs mechani- cally; makes decisions on sawing sched- ule for each log and saws; routes sawn pieces to resaw, edger, or trimmer by means of automatic conveyors. 3. Resaw Operator: Feeds resaw; makes decisions on face and thickness on each piece sawn, sets linebar; routes pieces to merry-go-round return, edger, or trim- mer by means of automatic conveyors. 4. Resaw Taller: Disposes of large slabs and slivers from resaw; helps resaw operator route pieces. (This man may be un- necessary, depending on the log sizes and shapes.) 5. Edgerman: Feeds edger from headrig and offbearing rolls and resaw; makes decision on width sawing of each piece. 6. Trimmer Operator: Feeds trimmer, disposes of long edgings and resaw slabs; makes decisions as to final length of pieces and trims out defects. 7. Lumber Grader: Grades each piece of lumber by marking it as it passes on the green chain. 8. Lumber Pilers (3): Pull the lumber from the green chain and pile it into packages. 9. Foreman-Maintenance Man: Supervises the crew and carries out preventive maintenance program; makes minor repairs. Approximate Installed Cost of Sawmill The estimated cost of the described saw- mill, complete with building, is $275,000. Expenditures necessary for electric power supply, water, a slab chipper, yard equip- ment, a waste burner, and a high pressure penumatic chip transfer system would bring the total investment to an estimated $336,000. Lumber Drying The complex will not sell green lumber or manufacture products from green lumber. Consequently, the total sawmill production of 35,000 board feet per day will be either air dried or kiln dried. The technical require- ments of drying lumber will reflect on the manner of sorting lumber at the green chain. Species must be segregated with regard to their drying characteristics as well as to product applications, as has been mentioned previously. Moreover, when subjected to kiln drying, certain species have character- istics that make it desirable to separate heartwood from sapwood if economic drying schedules are to be followed. Discussion of these technicalities is not a part of this report, but their influence on facilities and plant investment must be considered. To permit logical planning, it will be as- sumed that 50 percent of the total lumber production (most of it oak) will be air dried for 90 days before kiln drying. This requires an air-yard inventory capacity of about one million board feet of lumber; this lumber will be completely replaced four times a year. The balance of the material will be accumu- lated over a period of up to ten days prepara- tory to kiln drying, assuming the average kiln cycle to be ten days. A ten day kiln charge will be equal to a sawmill output of 7.14+ working days (250,000 board feet of rough green lumber) since the kilns will operate for 350 days per year, less open time for loading and discharging. The sorted lumber from the green chain of the sawmill will be moved by fork lift carrier to an automatic stacking machine that will form it into stickered packages of lumber suitable for drying requirements. These packages will measure 16 feet in length, 6 feet in width, and 5 feet in height; they will have 30 layers each of 4/4-inch lumber. De- pending upon the type and grade of lumber in the packages, they will be moved by fork lift carrier either to the air drying yard or to the kiln-ready yard area; they will be stacked in position three packages high, with two stacks back-to-back and in rows suited to the yard layout. The air drying yard should be carefully designed and laid out so as to assure proper air movement through the piles of drying lumber. The kilns should be of the latest prefabri- cated package type, loaded and discharged by fork carrier. Dependent upon detailed plan- ning of the complex, a final decision can be made with regard to the type of kiln struc- ture. Each kiln ideally should hold 24 packages of lumber, or a total of 50,000 board feet. Five kilns of this size will be required to handle the output of the sawmill; an equal number will be required to dry the lumber that will be purchased from outside sources. The kilns should be heated by high pressure steam at 100 pounds per square inch. Al- though the use of wood residue material as boiler fuel has disadvantages associated with it, the large quantities of residue available as a result of the processing ac- tivities of the complex cannot be logically disposed of by other means. The capital 60 investment required to install a wood fired steam plant of the size needed will be con- siderably higher than for the same steam capacity using natural gas or oil as fuel. Also, the wood fired steam plant will, in satis- faction of state laws, require employment of additional personnel as boiler tenders. Auto- matic gas or oil fired boilers can be left unattended, but a wood fired boiler requires one or more operators present at all times. TABLE III-I PRODUCTION AND USE OF RESIDUE MATERIALS Operating at optimum capacity of 70, 000 bf of lumber per day SOURCE TYPE OF RESIDUE QUANTITY (dry tons /day) BEST USE Collection- bark 22. 5 fuel Yard bark 8. mulch reject logs 6. chips Sawmill sawdust 9. 7 fuel solid green wood 19. chips Remanufacturing hogged solid wood 14. fuel machining residue 7. fuel shavings 9. litter Milled- Products shavings 2. 5 litter Pallet- hogged solid wood 5. 3 fuel Manufacture shavings 1. 5 litter' Unassembled- shavings 0. 8 litter Furniture machining residue 0. b fuel Upholstered- shavings 0. 7 litter Furniture machining residue 0. 8 fuel Based on Table III-I, the production of residue materials used to best advantage as boiler fuel amounts to 60 dry tons per day, or 1500 dry tons per 250 day operating year. The demand for steam by the dry kilns will total 500 boiler horsepower per hour. To produce this quantity of steam will require the consumption of 39.2 tons of dry wood residue per 24 hour day, or 13,720 tons per 350 day operating year. The sur- plus of manufacturing residue above the amount required to produce the necessary quantity of steam will total 1280 dry tons per year. This surplus will have to be dis- posed of; the alternative to using residue as fuel is to burn it as waste. This report leaves as optional the decision of whether to make a comparatively high capital expenditure and install a wood fired steam plant, or to minimize investment and increase daily operating expenses; estimated at $200 more per day if oil is used instead of residue. The wood fired steam plant would involve additional capital expenditure esti- mated at $80,000. SECTION III Routing of Dry Lumber Diagram II-V, provides a concise summary of the routing of both air dried and kiln dried lumber through the complex. This routing must be facilitated by proper scheduling of species and quality of material through the drying operation. One objective of the management throughout the operation of the complex should be to avoid all but an essential inventory of in-process material. Very close coordination between the sawmill lumber-drying operation and each of the processing units using dry lumber as its raw material will be required to accomplish this objective. The satellite units will be par- ticularly dependent upon a smooth in-flow of raw material from the manufacturing facilities of the principal corporation. It is recommended that the principal corpora- tion maintain the major inventory; the logical location for this inventory is the log collection yard, where the raw material will remain in the form of saw logs — prior to the addition of labor and overhead involved in the conversion of logs into dry lumber. Manpower Requirements Seven men and a superintendent will be required to run the air yard and kilns during the five day week that the sawmill and other processing units of the complex are operat- ing. Only two men will be required during the remaining two days of each week. Man- power stations and job descriptions are as follows: 1. Stacker Operator: Operates automatic stacking equipment, marks each stack for identification, and routes stacks to their appropriate drying stations. 2. Stacker Helper: Assists in stacking op- eration. 3. Yard Carrier Operators (3): Deliver stacks of lumber to appropriate drying stations, charge kilns, discharge kilns, deliver dry lumber to destinations within the complex, and receive green lumber delivered by independent suppliers. These operators will work staggered shifts to the extent that one man will be on duty during weekends. 4. Kiln Operator: Responsible for proper operation of the dry kilns. 5. Kiln Operator Assistant: Assists kiln operator and assumes responsibility for proper operation of the kilns during weekends. 6. Supervisor-Maintenance Man: Responsi- PROCESSING FACILITIES ble for air and kiln drying of all lumber; meets delivery schedules of dry lumber to various processing units; receives deliveries of lumber by independent sawmills; performs preventive mainte- nance. Installed Cost of Air and Kiln Drying Facilities The estimated cost of equipment for lum- ber stacking and for facilities required to inventory and handle one million board feet of air drying lumber is $90,000. The installed dry kiln building and equipment, including a wood fired steam plant, will be $185,000; the total investment for processing lumber from the sawmill into dry lumber ready for delivery to product manufacturing activities is $275,000. This estimate includes only 50 percent of the kiln capacity that will even- tually be required to dry lumber, including that purchased from independent suppliers. The kiln structure and the steam plant ar- rangement will be designed to facilitate expansion at some later date. An additional investment of $175,000 will be required to provide facilities for drying at the rate of 70,000 board feet per day. Remanufactured Products Dry lumber, sorted by species and grade prior to drying, will be delivered to the re- manufacturing plant of the complex in stickered packages as removed from the kilns. The remanufacturing activity will process 40,000 board feet of dry lumber per day and will require a backlog inventory of approxi- mately 125,000 board feet of lumber under protected storage. The purpose of this in- ventory will be to smooth out the irregular flow of lumber from the dry kilns, caused by the differences between a five day manu- facturing week and a seven day drying week. The inventory will also serve to facilitate scheduling of like species and grades of lumber through various processing activities. Rough Product Manufacture The first step in the conversion of lumber into processed products will be rough sizing to remove obvious defective areas from each board. A full description of the procedures involved in accomplishing this is not neces- 61 sary at this time; it is sufficient to establish as the objective the removal of knots and other defects and the development of the greatest possible quantity of clear wood in the largest possible pieces. This objective can only be accomplished by a mechanized system, operated and supervised by capable individuals having clear knowledge of the importance of their every decision and action. The flow diagram of the remanufacturing plant on page 64 shows the requisite ma- chining operations and operator stations re- quired for rough product manufacture. The layout is based on an advanced concept of efficient production means designed to ac- complish the greatest upgrading of the rough lumber material. The arrangement shown has a capacity of 20,000 board feet per eight hour operating day. Maximum capacity would be 60,000 board feet for a 24 hour period. The first function, that of unstacking the stickered piles of lumber and feeding it into the production system, is accomplished by a completely automatic machine supplied with fresh material by fork truck. When indi- vidual boards reach one of the three cross- cut stations, the operators judge each piece and cut it selectively — both to remove de- fects and to satisfy orders for material of specified length. According to one authori- tative source, each cut-off station can process 7500 board feet of stock per eight hour shift. Material that has been cut for length is next ripped lengthwise to eliminate defects not removed by cross cutting. The two operations serve to provide blanks of rough dimension that will be refined to a greater extent by other operations that follow in the system. Material rejected during cross cutting and initial rip sawing will be hogged and blown to a refuse burner. The amount of reject ma- terial to be disposed of can be determined only on the basis of experience. Once deter- mined, it should be possible to establish an accurate figure for average yield. A 25 per- cent loss in footage due to reject is the arbitrary figure applied for purposes of the economic projections made in this report. This means that 20,000 board feet of lumber fed into the system will provide 15,000 board feet net output in the form of rough products. Following the initial ripping operation, the pieces will be surfaced on one side to give an accurate plane of reference for the next processing step: glue-line ripping. There will be four ripping stations, each" working to cut each piece into its optimum width, with edges suitable in quality to be used as glue joints. Following hand-pick sorting from a 62 turntable sorter, the output of these operat- ing steps will be semi-processed raw material for core stock, dimension products, and prod- ucts to be manufactured by satellite units. Management programming can be applied to minimize the product mix during any one production run. As an example, raw ma- terial for core stock may be prepared to order during a full 4-hour shift, followed by sizing to meet a two or three day run of some other rough dimension product. Manpower Requirements The rough mill will employ a total of 13 men for each eight hour operating shift: seven machine operators, three sorters, two fork lift drivers, and a foreman-maintenance man. This unit is expected to operate for two shifts per day when the complex is per- forming at optimum capacity. Manpower stations and job descriptions are as follows: 1. Fork Lift Drivers: Operate fork lifts to supply packages of stickered dry lumber to the unstacker; maintain control of lumber inventory; and service produc- tion lines of all remanufacturing activi- ties to assist proper materials flow. 2. Cross-cut Operators (S): Selectively cut rough dry lumber to develop best sound- face yield and to meet customer orders for length of stock. Reject defective material. 3. Primary Rip Saw Operator: Rip saws stock delivered from cross-cut stations to remove defect areas limited to only a portion of the piece; rejects defective material. 4. Finish Rip Saw Operators (4): Rip saw presized pieces that have been single surfaced to permit making an accurate glue-line cut; rip saw core stock material to predetermined width to meet tech- nical product requirements for limiting internal stresses; and cut stock to best yield as related to production orders. 5. Sorters (3): Sort /the various lengths and widths of stock in accord with require- ments for follow-up manufacturing; accumulate separated material on pal- lets; transfer loaded pallets by fork carrier to the next remanufacturing operation or to a point of pick-up for transfer to satellite operations. 6. Foreman-Maintenance Man: Responsible for proper performance of the entire operation, adjusts machinery, serves as a relief operator, and performs pre- ventive maintenance. SECTION III 7. Remanufacturing Superintendent: Re- sponsible for manufacture of rough products, core stock and dimension; coordinates inter-operation production scheduling; supervises all operations and relates orders for products to processing requirements. This man will perform for one shift only, dividing his time proportionately between the three activities under his control. Installed Cost of Rough Processing Line The estimated cost of the equipment to receive, feed, and process 20,000 board feet per operating shift as described above is $148,000. This amount includes the cost of a hog for reducing reject material to a size suitable for low pressure pneumatic transfer to the steam plant or, alternatively, to facili- ties for conversion into animal litter. Core Stock Manufacture At the rough mill, material to be processed into solid wood core stock will be segregated by species ready for assembly into core panels. The species best suited for core stock are the soft hardwoods — principally yellow poplar. Panels will be assembled to customer order; stock panel sizes will be avoided if at all possible, depending upon the functioning of the marketing corporation. The entire core stock operation will be ori- ented toward serving the customer with cus- tom made products of the highest possible quality. Without this theme, there would be little justification in undertaking the manu- facture of solid wood core stock. The manufacturing process consists of assembling several strips of solid wood, each approximately two inches in width, into modular panels. The use of unrelated nar- row strips will result in virtual elimination in the finished product of internal stresses common to solid wood. Each modular as- sembly, hand assembled, will be bonded in a high frequency pass-through press. Two assemblers will work as a team, feeding through the press to a finishing operator sta- tioned at the opposite side. The finishing operator receives the bonded panels, routes them through a double surface planer to bring them to final thickness, and then puts them through a sizing saw to trim the panels to desired length and width. Prior to sur- facing, any small defects present will be removed and replaced with solid wood plugs PROCESSING FACILITIES inserted and bonded into position by an auto- matic plugging machine. Quality control should be stressed through- out the core stock operation. The recom- mendation to manufacture solid wood core stock is conditioned by the necessity for obtaining the very top market price for a quality product. The available species jus- tify this approach, and the emphasis during product preparation and product handling should remain in accord with the objective of producing only first quality core stock. It would be highly desirable, but not manda- tory, to enclose the core stock operation in a humidity controlled section of the remanu- facturing plant. The finished product, packaged in unitized bundles for convenient handling, might also be sealed in a moisture- proof wrap; several such bundles would then be packaged between printed corrugated paperboard covers and held together by steel strapping. Manpower Requirements The core stock manufacturing operation will require four operators per eight hour shift. They will be under the supervision of the general superintendent responsible for the entire remanufacturing operation. Manpower stations and job descriptions are as follows: 1. Panel Assemblers (£): Assemble panels from prepared stock delivered to the work station by fork truck; feed and operate the high frequency bonding press. 2. Panel Finisher: Routes bonded panels through surfacing and sizing operations; routes defective panels through the automatic plugging machine as required. 3. Packager: Receives and prepares fin- ished panels for shipment. Installed Cost of Core Stock Manu- facturing Equipment The estimated cost of the described pro- duction equipment and quality control equip- ment required for the manufacture of up to 8000 square feet of core stock per eight hour day is $71,500. Dimension Products As in the production of core stock, de- scribed above, the rough mill will provide 63 semi-processed material to the dimension operation. Although certain of the prod- ucts produced by the rough mill could qualify immediately as dimension material, the policy of the complex, apart from sales to satellite units, must be to sell only those products that have been refined to the most advanced point. By adhering to this policy, a better monetary return will be realized for the entire production system. It should be kept in mind that the complex cannot func- tion properly by selling wood per se; rather, it must sell the tangible results of applied labor, management, technical knowledge, and capital investment in the form of products responsive to market demand. With this in mind, it is obviously necessary to process all materials to the optimum point. Dimension products will include glued laminated products and machined products made specifically to satisfy customer orders. The principle machining operations, apart from sawing, required to meet normal cus- tomer needs will be shaping, double surfac- ing, multiple boring, mortising, routing, jointing, tenoning, and electronic bonding. Insofar as possible, the operation should avoid involvement in the manufacture of heavy laminated structural components and turned products. These products ordinarily involve proportionately more wood than pro- duction effort and serve to undermine the policy of the complex, outlined in the preced- ing paragraph. Production efficiency is relatively difficult to achieve in a dimension plant, mainly because of performance limitations inherent in wood working machinery. Nevertheless, the competitive standing of the operation will depend upon its ability to approach assembly- line efficiency in its manufacturing activities. Step by step manufacture of parts, which is the conventional production system applied by the dimension industry, should be dis- carded in favor of a continuous, smooth flow of in-process material from its initial rough form to a finished product. A flexible ma- chine layout, permitting ready repositioning of machines, will facilitate a smooth flow of material through each processing station. Inventories of in-process material should be held to an absolute minimum, and simul- taneous processing of more than a very lim- ited number of products should be avoided. The adoption of these measures will result in intermittent use of some items of machinery; but this situation will be countered by the attendant advantage of more effective application of manpower and reduced over- head costs per unit of output. All but a very minor portion of the glue HOG RIP SAWS SALVAGE SAW U 1 CHOP SAW PRIMARY RIP SA -4 t WASTE CONVEYOR i RF ASSEMBLY r= ® o o :J RF ASSEMBLY LAMINATES & DIMENSION ® o o ® 5 (M) O o ROUGH /Ml RF PRESS PLUGGER [~j COM STOCK o SURFACER PANEL TRIM SAW ® 1 CT DRY LUMBER STORAGE O CROSS-CUT SAWS STICK REMOVER UNSTACKER CWRE DRY LUMBER STORAGE 1 SHIPPING ® MANPOWER STATIONS FLOW DIAGRAM REMANUFACTURING PLANT (Operated by Principal Corporation) MACDONALD ASSOCIATES INCORPORATED ENGINEERING DIVISION SCA1E |/|6"=I.O' 1 CHECKED ! 1. M. NO. REV. DRAWN | FIIE NO. D-6102 °*re 11/7/62 1 'Ol NO 610 66 laminated assemblies should be bonded in electronic (RF) presses. Equipment of this type now available will enable greater pro- ductivity and reduced production costs as compared to the conventionally applied meth- ods of cold pressing and glue-wheel assembly. The excepted "very minor" portion of the material not processed electronically will comprise assemblies with physical propor- tions not suited to the application of RF techniques. The dimension operation will have the ad- vantage of receiving its raw material already sorted to end use requirements by the rough mill. Assuming that glue laminating of smaller pieces into larger components will be required, the first manufacturing procedures will be loose assembly of these pieces prepara- tory to feeding the assembly through an elec- tronic bonding machine. Following bonding, the panels will be accumulated to permit batch delivery to subsequent wood machining operations; surfacing, jointing, shaping, sizing, and boring. These opera- tions completed, the product will be ready for packaging and shipping. An estimated 50 percent of the raw mate- rial will be subject to machining operations only; no laminating will be involved. Under these circumstances, the electronic bonding stations will be by-passed. All products, except those manufactured for satellite production units, should be identified by a manufacturers brand mark and packaged in suitable containers. As with core stock, the products would benefit through application of humidity control in the production area; and the products could be packaged in moisture resistant wrapping to assure delivery at a controlled moisture content value. The emphasis should be on the exclusive manufacture of high quality products. The processing loss during the manufac- ture of rough stock into dimension products has been arbitrarily established at 20 per- cent; a gross input of 20,000 board feet will, therefore, yield a net output of 16,000 board feet in the form of finished products. Manpower Requirements The dimension manufacturing unit will require nine operators and a foreman per eight hour shift. They will be under the authority of the general supervisor of the entire remanufacturing operation. Man- power stations and job descriptions are as follows: 1. Stock Feed Man: Receives stock from SECTION III rough product plant and maintains flow of raw materials to proper work stations. He will be assisted by the fork lift opera- tors attached to the rough product plant and, as required, will drive a fork lift carrier to accomplish proper movement of materials. 2. RF Bonding Line Operators (2): As- semble rough sized material and feed into RF bonding machine; when re- quired, build width of assembly by re- circulating through the machine until the desired product size has been de- veloped; man wood machining equip- ment when laminating is not required. 3. Machiyie Operators (5): Man various wood working machining operations, in- cluding: surfacing, jointing, boring, shaping, sizing and sanding. 4. Foreman-Maintenance Man: Respon- sible for proper performance of the en- tire operation under the direct supervision of the general supervisor of the remanufacturing plant; assigns machine operators to their specific per- formances; carries out coordination of materials movement; and assists in machine set-ups. Performs limited pre- ventative maintenance. 5. Packager: Packages finished products as required and routes to shipping point or other destination; remains available for assignment to production activities whenever deemed advisable. Installed Cost of Dimension Product Manufacturing Equipment The estimated cost of the described proces- sing equipment and quality control equip- ment required for the manufacture of finished dimension products at an equiva- lent quantity of 16,000 board feet of lumber per day is $170,000. Solid Wood Paneling (Milled Products Plant) The machinery required to manufacture solid wood paneling can be applied in part to the manufacture of other milled wood prod- ucts. This fact can be taken advantage of by the management of the complex, but it has been intentionally disregarded in de- veloping this initial plan of operation. Rec- ognition is given to the potential, however, by designating the processing unit a milled products plant. PROCESSING FACILITIES Specially selected lumber, picked for length, width, and surface appearance at the saw- mill green chain, will be delivered to the plant directly after completion of kiln drying. The plant will process a minimum of 5000 board feet per day, all 4/4-inch stock, and maintain an inventory of 30,000 board feet of lumber under protected storage. Inventory should be maintained at this level in order to assure a smooth production flow and to permit ex- tended production runs of a single species of wood. The total processing capacity will exceed 5000 board feet by a considerable amount. Nevertheless, it is considered wise to limit projected activity to the quantity of raw material that, by conservative esti- mate, can be developed from the 70,000 board feet processed daily by the complex. The principal product will be pre-finished paneling. The machining and other proces- sing operations required for its manufacture are relatively simple and are readily adapted to semi-automatic production, as shown by the flow diagram on the opposite page. The sequence of manufacture will start with manual placement of individual boards onto a conveyor that will feed a planer- matcher. Surfaced and edged paneling pro- duced by this machine will be conveyed directly to a double-end trimmer that will 67 cut it into modular lengths. A manufac- turing trade mark can be applied to the trimmed ends during this operation. After trimming, the in-process product will be discharged onto an accumulating conveyor that will feed a single surface sander. The sander will prepare the face of the panel for finishing. Finishing preceded by air dust- ing, will be accomplished by an automatic coating and drying machine. An operator stationed at the off-bearing end of the dryer will receive and bundle the completely manufactured paneling (6 to 8 panels per bundle). Alternate pieces will be bundled face to face, with wax paper separators between. Bundles should be packaged in attractively printed corru- gated paper boxes. Manpower Requirements The solid wood panel manufacturing unit will require four operators and one supervisor-maintenance man per eight hour operating shift. Manpower stations and job descriptions are as follows: 1. Stock Control Man/Fork Lift Driver: Procures stock and feeds surfacer infeed conveyor with properly sorted and AUTOMATIC PIANER-MATCHER ® FEEDER TRIMMER ® RAW MATERIAL DILIVIRY ® SHIPPING < DRY WMR STORAGE STORAGE CONVEYOR o (m) COATEE SURFACER ® PACKAGING PiONKT STOKAGt DRYING ®= MANPOWEH STATIONS FLOW DIAGRAM SOLID WOOD PANELING PLANT (OptruUd by Principal Corporation) MACDONAID ASSOCIATES INCOl PO« ATE D ■"" 1/16 -IP 11/13^62 I <»»o 6IO~ D-6103 68 selected rough dry stock; operates fork lift in raw material inventory area; assists materials and product movement throughout the entire plant. 2. Planer-Matcher /Trimmer Operator: Op- erates, adjusts, and maintains planer- matcher; oversees end trim saw; oper- ates and oversees panel storage conveyor. 3. Sander I Coater Operator: Operates, ad- justs and maintains sander, panel coater, and panel dryer. 4. Packaging Operator: Assists in opera- tion of panel coater and dryer, accumu- lates finished panels in modular bundles, places separating sheet between panel faces, and packages bundled panels. 5. Supervisor-Maintenance Man: Respon- sible for manufacture of paneling, regu- lates raw material inventory, corre- lates production scheduling with orders for products and performs preventative maintenance. Installed Cost of Solid Wood Panel Manufacturing Plant The estimated cost of the described process- ing equipment, quality control devices, and packaging facilities required for the manu- facture of prefinished panel products is $90,000. Flakeboard The manufacture of flakeboard is particu- larly recommended because of the unique ad- vantages resulting from the availability of yellow poplar as a raw material and the excel- lent prospects for profitable sales of flake- board within a reasonable marketing radius about eastern Kentucky. Yellow poplar is ideally suited to the production of flake- board, mainly because of its technical characteristics — particularly its superior bondability. Flakeboard manufactured from yellow poplar demonstrates high strength with low density, is readily machined, and has physical characteristics (weight, feel, color, etc.) that commend it to the user. Product Definition and Construction Flakeboard is one of a group of products classified as particle board. This group in- cludes, in addition to flakeboard, such di- versely identified products as chipboard, splinter board, extruded board, and com- SECTION III position board. Fundamentally, all of these products are made by gluing together par- ticles or flakes of whole wood to form a material that has usable properties of strength, appearance, moisture resistance, and other measurable physical characteris- tics. These properties vary widely with the species of wood, the nature of the particles or flakes, and the quality of the bonding agent used. The applications of flakeboard require that the product be in the form of panels having the shape, size, and thickness of plywood. In achieving this objective, large presses are used to compress formed mats of flakes and bonding agent into panels measuring 5' x 16', or other commercially acceptable size. The design and performance charac- teristics of the mat forming machine and the press have much to do with the production efficiency and quality of the product. The control of press time, temperature, pressure, and movement is critical; and proper process- ing requires careful attention to these fac- tors in accord with predetermined schedules. The ordinary board product, ready for marketing, comprises 7 percent water, 6 per- cent resin binder, 0.5 percent wax size and 86.5 percent wood material. The 6 percent resin represents approximately 30 percent of the cost of manufacture, whereas the 86.5 percent wood represents about 18 percent of the cost of manufacture. It is apparent from these relationships that machine func- tions should be as efficient as possible and that processing requires maintaining strict control of all variables. These conditions, to a large extent, dictate an automatic pro- duction system equipped with dependable control devices. The plant recommended in this report will operate within the following production limits: Board type 3-layer or homogeneous flakeboard. Daily production ( 3 A»" basis) 67,500 sq. ft. Standard product density 40#/cu. ft. Maximum product density 52#/cu. ft. Thickness range of product 0.25" to 1.50" Description of Board Manufacture Flakeboard is a comparatively new product and as such has undergone a considerable metamorphosis from a rather crude begin- ning. This applies to the raw materials as well as to the machinery used in product manufacture. There have been several mechanical approaches to board making, and numerous proprietary processes have been developed. At this time, however, mechani- PROCESSING FACILITIES cal methods have been more or less perfected and are premised on the use of multi-platen presses. Continuous presses and extrusion presses have been phased out for either economic or performance reasons. Pro- prietary processes, too, are now relatively unimportant for the reason that the knowl- edge of proper product construction is uni- versally available. There is little reason for a royalty agreement between the engineer or machine supplier and a potential manufacturer. The design of a profitable plant requires a complete understanding by the designer of both processes and machinery. Such an understanding will assure the most economic approach to the output of products that will find a ready market. Over-mechanization is costly, and a failure to understand fully process requirements limits the ability to control product quality. The ideal plant is that which is mechanically simplified to re- duce processing steps, yet is sufficiently automatic to allow manpower requirements to be held at a low level. It is necessary that a particle board plant be operated 3 shifts per day for at least 250 days a year, and preferably, for 300 days a year. The efficiency of flakeboard manufacture is a function of the proper preparation of the wood raw material, the understanding of and exact control over process variables, and the precision conversion of the "rough" pressed product into finished board. The plant flow diagram provided on page 169 shows the ma- chinery layout and the operating stations required by the recommended processing unit. The sequence of processing steps in- volved in product manufacture will be as follows: 1. Procurement of wood raw material (daily requirement of 93 cords of bark- free cordwood, supplemented by 6.1 tons of green solid wood sawmill residue). 2. Reduction of wood raw material to de- sired flake configuration. 3. Drying of flakes to a low moisture con- tent value (ordinarily about 6 percent). 4. Addition of resin binder and wax emul- sion size to dried flakes (much of the economics of board manufacture are contingent upon the most effective use of the minimum quantity of these ingredients). 5. Forming of mats to exact size, thickness, and weight. 6. Pressing of mats into boards with exact control of time, temperature, and pressure. 69 7. Trimming of "hot" boards to finished size. 8. Cooling and curing of trimmed boards. 9. Sanding of cured board to exact thick- ness (industry standard now + or — 5 mills tolerance). The flakeboard manufacturing plant will require 11 operators, a laboratory tech- nician, a shift foreman, and a finishing foreman per eight hour shift; they will be under the general supervision of a plant superintendent. Manpower stations and job descriptions are as follows: 1. Yard Carrier Operator: Transfers wood raw material to wood preparation de- partment from intermediate storage location adjacent to the flakeboard plant; cooperates with the collection yard in maintaining proper inventory of wood raw material. 2. Wood Preparation Operators (2): Con- vert solid green wood into properly pre- pared flakes; maintains in-process material at necessary level to supply production demand. 3. Dryer/Boiler Operator: Oversees opera- tion of the dryer and classifier equip- ment; adjusts and oversees operation of automatic steam plant. 4. Mixing Operator: Prepares properly dried flakes by adding wax emulsion sizing material and resin binder; co- ordinates delivery of prepared flakes with demands of the forming station. 5. Forming Operator: Oversees operation of automatic mat forming and sizing equipment; adjusts performance to con- form with physical requirements im- posed by finished products; uses automatic weight-station to monitor function of the forming equipment; and oversees operation of the pre-press. 6. Press Operator: Operates press charger, press, and press receiver; adjusts variables of time, temperature, and pressure to correspond with product requirements. 7. Trimsaw Operator: Oversees operation of automatic panel saw that performs edge and end trimming of hot boards delivered from the press; uses fork lift to deliver packages of trimmed panels to "hot" storage and feeds cured panels to the sander panel feed machine. 8. Sander Operator: Oversees operation of the automatic panel feeder, adjusts the sander, and replaces sandpaper. 9. Panel Grader: Assists the sander opera- CORDWOOD DELIVERY DRYER FEED C J I BLOWER CROSS TRANSFER SEPARATOR J& £ RECEIVER HOT PRESS CHARGER PREPRESS WEIGH STATION r FACE FORM r CAUL RETURN CONVEYOR PANEL TRIM SAW ft- FORMING Q- IN-PROCESS PANEL STORAGE □ ■ DRYER COATED FINES ® ® 1 8-DRUM SANDER >~ ® PA FEE NEL DER - BEIT SANI (m)= manpowek stations FLOW DIAGRAM 3-LAYER FLAKEBOARD PLANT (Operated by Principal Corporation) MACDONALD ASSOCIATES INCORPORATED ENGINEEIING DIVISION SCAIE NONE 1 CHec "- EP 1 M NO | IEV DRAWN 1 FUE NO D-6106 daie 11/20/62 1 K» no 610 72 tor, inspects surfaces and edges of each sanded panel, and marks each panel with a grade identification stamp. 10. Packager/Fork Lift Driver: Receives panels from the panel grading station; places corrugated paper covers on top and bottom of modular bundles of panels; steel straps packages; and transfers packages to inventory or shipping point with a fork lift carrier. 11. Shipping And Finishing Forem&yi: Responsible for sanding, grading, pack- aging, transfer of panels to inventory or point of shipping, and inventory control of finished panels. 12. Laboratory Technician: Responsible for establishing and conducting a routine quality control program; ad- vises shift foreman of process changes necessary to maintain quality of pro- duction in compliance with product specifications. 13. Supervisor-Maintenance Man: Respon- sible for manufacture of board prod- ucts, schedules raw material deliveries, controls processing performance, fills orders for product and performs pre- ventative maintenance. 14. General Superintendent: Responsible for overall operation of the manufac- turing unit, instructs supervisory personnel, and coordinates shipping requirements with product manufac- ture and raw material procurement. Three additional men will be required dur- ing the second and third shifts (5 days per week) to operate the debarking equipment in the log collection yard. These men should be under the control of the general superin- tendent of the flakeboard plant, and the direct labor and payroll overhead costs involved in their performance should be charged to the flakeboard plant. Installed Cost of Flakeboard Manu- facturing Plant The estimated cost of the described flake- board plant, including buildings, installa- tion, and engineering design fees is $1,425,000. Satellite Manufacturing Activities Satellite processing units are, to a large extent, captive consumers of the products SECTION III manufactured by the principal corporation (complex). In spite of this, the relationship between the complex and the satellite pro- ducer must be one of mutual confidence and respect. In its role as a supplier, the com- plex must consistently furnish the satellite producer with raw materials of a quality at least equal to that furnished its own remanu- facturing activities — and at competitive prices. The satellite, conversely, is obli- gated to produce according to mutually determined specifications; some initial technical assistance from the complex will undoubtedly be required. By following these procedures, the complex gains the loyalty of the satellite producer and is assured the optimum fair return on prod- ucts sold through its marketing organiza- tion. Devious practices by the complex — such as providing sub-standard materials to the satellite — will result in lower profits for all participants and will destroy the operational harmony necessary to the suc- cess of the undertaking. Pallet Manufacture The availability of dry, sorted, and prop- erly sawn lumber from the complex will provide the satellite pallet manufacturing unit with a two-fold competitive advantage; first, it will permit the manufacture of better grade pallets as opposed to those manufac- tured from green lumber; and, second, it will provide a manufacturing cost advantage as opposed to the cost encountered in using un- sorted, roughly sawn lumber. There are many ways to manufacture pallets, ranging from crude hand nailing operations carried on in open sheds next to portable sawmills to the highly sophisticated automated pro- duction lines. The makeshift type of opera- tion produces poor products and sells to the bottom of the market. The highly refined activities require large capital investment, must manufacture large volumes of pallets and ordinarily operate at very low profit margins. The ideal arrangement seems to be a happy medium between these two extremes. The recommended pallet manufacturing arrangement does not use automatic nailing machines — which are regarded in some quarters as being essential to the economic manufacture of pallets. Rather, the plant, diagrammed on page 176, involves the use of manpower as a basic tool, assisted by mechanical handling devices. Drawing on a yard inventory of 200,000 PROCESSING FACILITIES 73 board feet of dry lumber, the first stage of manufacture will be sizing of lumber to meet length and width requirements estab- lished by orders for pallets. Stickered piles of lumber, selected from the inventory for their suitability to a particular processing run, will be broken down by an automatic unstacking machine similar to the unit used by the rough lumber remanufacturing opera- tion. The unstacking machine will feed two cross-cut saw stations which, in turn, feed a double surface planer — for full or skip sur- facing, as may be desired. Two rip sawing stations will be provided to cut individual pieces to width. Properly sized material resulting from these operations will be auto- matically drop-sorted into box pallets, pre- paratory to transfer to the pallet assembly operation. It is assumed that preparation of material into usable pieces of proper width and length will result in a net loss of approximately 15 percent of the infeed lumber. Pallets will be constructed from prepared stock on a manned assembly line. At an average of 10.2 board feet of lumber per pallet, and allowing for the yield factor in converting rough lumber into prepared stock, the assembly line will manufacture 1,666 pallets per eight hour shift. This rate of productivity, based on 7.5 productive hours per shift, will require an assembly line speed of 37 feet per minute and an output of one pallet per minute. The arrangement of work stations along the line will vary with the individual design of each pallet; runs of pallets should be scheduled to permit as long a period of time as possible between model changes. Loads of prepared material will be carried to the proper work stations by fork lift carrier, and each pallet will be constructed as it progresses on the assembly line past individual work stations. When the finished pallets reach the dis- charge end of the assembly line they will be stacked in modular bundles and steel strapped for shipping. A manufacturers identifying brand name could be burned into each pallet as it arrives at the end of the assembly line. Pilot holes for nailing can be drilled as an intermediate step in preparation, prior to delivery of the sized material to the assem- bly line stations. Drilling can be performed with simple machinery using jigs and high speed drill bits. 0= MANPOWER STATIONS FLOW DIAGRAM PALLET MANUFACTURING PLANT (Satellite Operation) AACDONAID ASSOCIATES INCORPORATED Sgj ISS fro —l D-6104 74 SECTION III Manpower Requirements In addition to an administrative and cleri- cal staff, the satellite pallet manufacturing plant will require 17 operators and one fore- man per shift, as follows: 1. Fork Lift Operator: Supplies unstacker with packages of dry lumber selected from inventory to meet production specifications; transfers material from drop sorter to next step in processing; assists in truck and rail car loading. 2. Cross-Cut Operators (2): Cross cut rough dry lumber to lengths required to meet production orders; eliminate defective areas; reject defective material cut from lumber. 3. Rip Saw Operators (2): Ripsaw stock delivered from cross cut stations to proper width to meet production orders; reject scrap developed by the operation. 4. Drill Operators (2): Prepare drill jigs and drill sized stock with pilot holes for nailing. 5. Assembly Line Operators (8): Position component parts and nail in place to construct pallets. The specific activi- ties of these men may differ with each type of pallet that is manufactured. 6. Line Tenders (2): Drive fork lift carrier to service drilling operation and as- sembly line with pallet loads of com- ponent parts; bundle and steel strap pallets as they accumulate at the dis- charge end of the assembly line; and move bundles of pallets to shipping point or storage preceding shipment. 7. F orernan-Maintenance Man: Responsi- ble for general operation of the pallet manufacturing plant; performs prevent- ative maintenance. Installed Cost of Pallet Plant The estimated installed cost of equipment to prepare raw material and manufacture 20,000 board feet of lumber into the equiva- lent of 17,000 board feet of finished pallets per eight hour operating shift is $121,000. The required working area, estimated to be 24,000 square feet, will be leased from the complex. Unassembled Furniture The designation of this satellite unit as an unassembled furniture manufacturing plant is not intended to impose a restriction upon its processing and product ability. This unit has an excellent opportunity for product diversification and for eventual expansion of capacity to additional product lines. Be- cause the inclusion of extensive facilities in the start-up configuration of the plant would be impractical, planning has been limited to the provision of equipment that will serve the manufacturing needs of products that are known to be readily marketable. As the reputation of the satellite and its financial resources grow, it will eventually arrive at a proper position to increase its scope of activity. The products that should be manufactured, which provide the basis for subsequent recommendations, include casual furniture items — e.g.: student furniture, patio furni- ture, novelty furniture, and juvenile furni- ture. It appears at present that these products will find a good market in partially assembled, unassembled, or kit form, either in finished or unfinished condition. The services of a well-qualified consulting designer will be required to design the line of products that will be manufactured. Much of the sales success of this manufac- turing activity will be contingent upon the ability of such an individual to conceive products that will capture buyer interest. It is assumed that the unit will not pur- chase unprocessed kiln dried lumber from the complex; instead, it will use dimension products and some rough remanufactured products obtained from the remanufacturing operations. Flakeboard will be used in con- junction with the use of solid wood. The daily consumption of these raw materials is expected to be in the neighborhood of 3750 square feet of flakeboard and the equivalent of 5000 board feet of lumber in the form of solid wood components. An assumed "aver- age" product will contain 10 board feet of solid wood and eight square feet of veneer- overlaid flakeboard or solid wood core stock. Daily output in numbers of finished items, then, will total 500 pieces. Production facilities will include conven- tional wood working machinery, pressing equipment to laminate veneers (purchased as assembled veneer faces and backs) onto flakeboard cores, and limited means for lac- quer coating. Since a specific product cannot be logically recommended at this time, it follows that to provide a process flow and equipment layout plan would be nothing more than academic. This does not, how- ever, preclude the capacity to recommend specific items of basic machinery that should be available for processing. PROCESSING FACILITIES Equipment Requirements The following are considered to be the basic minimum requirements needed to equip the operation: Fork Lift Carrie?- (1 required) Planer— Single Surface Straight Line Rip Saw Router Shaper Table Saws (3 required) Multiple Head Boring Machine Pedestal Borer Band Saw Panel Edger Double Surface Glue Spreader Shuttle Feed Panel Press Panel Sizing Saw Single Surface Sa?ider Contour Sander (2 required) Spindle Sander (2 required) Scissors Lifts (3 required) Convey ors — Miscellaneous Refuse Collection System Coating and Drying Installation Manpower Requirements In addition to an administrative and cler- ical staff, the unassembled furniture manu- facturing unit will require 17 operating personnel and one supervisor per eight hour shift, identified as follows: 1. Fork Lift Driver: Operates fork lift carrier to supply raw materials to the various work stations; transfers in- process material between stages of manufacture; and transfers packaged products to the shipping point. 2. Panel Preparation Crew U): Edge band flakeboard with solid wood as may be required; apply veneer overlay, faces and backs to flakeboard or solid wood core; and size and sand veneer overlaid panels. 3. Machine Operators (8): Operate various machines to convert dimension products purchased from the complex into fin- ished items; machine panel products prepared internally; and prepare ma- terials for finishing or shipping. 4. Finishers (2): Apply finish coating to prepared component parts. 5. Packagers (2): Assemble component parts and package as units in attrac- tively printed cartons; maintain inven- tory records; and route packaged products to proper destinations. 6. Supervisor-Maintenance Man: Respon- 75 sible for all manufacturing activity; orders raw material; regulates in- process inventory; translates product requirements into production specifi- cations and work schedules; performs preventive maintenance. Installed Cost of Unassembled Furni- ture Manufacturing Plant The estimated cost of the required proc- essing equipment, including only limited facilities for product finishing is $160,000. The required working area, estimated to be 20,000 square feet, will be leased from the complex. Upholstered Furniture Frames The manufacture of upholstered furniture frames offers a profitable small scale busi- ness ideally suited to the theme of satellite operation within the structure of the process- ing complex. Frames are an intermediate product that more and more manufacturers of upholstered furniture prefer to purchase in knocked-down form, ready to be assembled at the point of use with limited application of manpower and a minimum expense in the form of work area occupied. The success of a frame manufacturer in acquiring business is contingent upon his ability to effect effi- cient conversion of raw material into a fin- ished product meeting rigid customer specifications. Quality workmanship is re- quired, but the product is relatively crude by the standards applied in other sectors of the furniture industry. Typically, dimen- sion tolerances are liberal and surfaces of component pieces developed during machin- ing operations are normally accepted with- out additional finishing. Product design is almost always the respon- sibility of the customer. The sizes and shapes of component pieces and the construc- tion of the finished unit are usually established by detailed instructions accompanying each order. It is the responsibility of the fabrica- tor to manufacture the frame in compliance with these specifications. Some latitude of action is extended for improvement by the producer, if both parties can be benefited. Profitable manufacture in this competitive product field is best achieved by the avail- ability of the proper processing machinery and an alert management able to improve operating efficiency. 76 This satellite unit will be able to extract considerable benefit from its relationship with the complex. It will purchase its raw material mainly in the form of lightly proc- essed dimension from the remanufacturing operation. This procedure will give a cost advantage compared to open-market pur- chase of dimension. Further, it will relieve the satellite of the necessity to handle rough dry lumber. The majority of frame suppliers start with rough lumber and, ac- cordingly, must apply a considerable amount of overhead cost against preliminary process- ing. By contrast, the overhead that will apply to all units affiliated with the complex is at a minimum. The satellite will keep a very limited in- ventory, not exceeding 25,000 board feet of prepared dimension material. This inventory will be required only to assure the capa- bility to maintain continuous operation in the event supplies from the dimension plant are temporarily curtailed. Daily consump- tion of dimension stock will total the equiva- lent of 5000 board feet of lumber. Assuming an average consumption of 11 board feet per unit, this amount of raw material will enable the manufacture of 450 frame assemblies per eight hour operating day. As explained in the discussion of the manu- facture of unassembled furniture, no real object can be served by providing a floor plan and process flow diagram. The manu- facturing operation will comprise a logical arrangement of conventional wood working machinery positioned to allow efficient in- feed of material preparatory to machining and to facilitate smooth flow to the next operation after the completion of each task. Equipment Requirements The following are considered to be the basic minimum requirements needed to equip the operation: Fork Lift Carrier Sur facer — Single Surface Straight Line Rip Saw Mortiser Band Saw Table Saw (2 required) Cut-Off Saw (2 required) Multiple Boring Machine {3 required) High Speed Drill Scissors Lift (2 required) Refuse Collection System Roller Conveyors —Miscellaneous SECTION III Manpower Requirements In addition to an administrative and cleri- cal staff, the upholstered furniture frame manufacturing unit will require 13 operating personnel and one foreman per eight hour operating shift, identified as follows: 1. Fork Lift Operator: Drives fork lift carrier to supply raw material to the various work stations; transfers in- process material between stages of manufacture; transfers bundled frames to the shipping point; and assists in loading shipments. 2. Machine Operators (7): Operate various machines to convert dimension products purchased from the complex into frame components. 3. Assemblers (2): Assemble component parts into sub-assemblies, group sub- assemblies required for each frame, and accumulate assemblies in steel strapped bundles preparatory to shipping to customer. 4. Foreman-Maintenance Man: Respon- sible for all manufacturing activity, orders raw material, regulates in-process inventory, translates orders into pro- duction specifications and work sched- ules, and performs preventative maintenance. Installed Cost of Upholstered Furni- ture Frame Plant The estimated cost of the required process- ing equipment is $89,900. The required working area, estimated to be 16,000 square feet, will be leased from the complex. Bark Mulch and Animal Litter Bark mulch and animal litter find entirely different uses and their physical character- istics are dissimilar. Nevertheless, simi- larities involved in their processing make it desirable and prudent to consolidate facili- ties for their manufacturing under a single management. Both products are derived from the conversion of processing residues that will be generated by various other activi- ties of the complex. The debarking opera- tion at the collection yard will develop 11.7 tons of bark per day, and the various wood machining operations will develop 12 tons of shavings per day. PROCESSING FACILITIES Bark Mulch is manufactured by hammer- milling bark into coarse particles. All species of hardwoods, with the exception of walnut, are equally acceptable in the end product. Hammermilling should be per- formed with the bark at 40-60 percent mois- ture content, thus avoiding the output of an excessive amount of undesirable fine ma- terial. A limited quantity of a chemical source of nitrogen should be added to the bark prior to milling. The milling action serves to thoroughly distribute the chemical throughout the resulting particles. Ammo- nium sulfate and ammonium nitrate are com- mercially available chemical sources of nitrogen; one or the other of these compounds can be added in the respective proportions of 115 pounds or 72 pounds per ton of dry bark. The application of the chemical can be either in solid or liquid form; liquid spray applica- tion is preferred if the bark tends to be dry. The addition of nitrogen minimizes disrup- tion of the nitrogen balance of the soil caused by bacterial decay of bark particles. The output of bark particles from the ham- mermill will be fed to a surge hopper and thence, by volumetric metering, to a flash 77 type high temperature dryer. The dryer will reduce the moisture content of the par- ticles to an average of 15 percent; this step serves mostly as a means of reducing ship- ping weight. Drying is not mandatory, but it does add to the quality of the product and seems well worth the slight additional ex- pense involved in its performance. The dried bark-chemical mixture — now mulch — will be collected in a storage bin preparatory to bagging in large attractively printed mois- ture resistant bags, each holding 4.25 cubic feet of product. Optimum processing ca- pacity has been established at 1360 cubic feet per eight hour day, the equivalent of eight tons of prepared product. Animal Litter will be manufactured in two different forms: (1) as shavings, and (2) as prepared particles. Dry shavings are the most commonly used form of litter. They ordinarily are shipped to the user dried to about 12 percent mois- ture content value and compressed into bales weighing from 50 to 60 pounds each. The volume users in the poultry and hog raising business prefer softwood or low density hard- wood shavings, but they are not unwilling to ® ® BAGGER o o SHIPPING FLOW DIAGRAM (m) = MANPOWER STATIONS BARK MULCH & ANIMAL LITTER (Satellite Operation) MACOONALD ASSOCIATES INCORPORATED ">" 3/6*1 "IQl o*™ I M MO f. 0*AWN | fH( NO P-- .^ o*n IU7/64 tJOtNo. 610 78 SECTION III accept the denser hardwood species. Small animal breeders, also volume consumers of shavings, have a strong preference for non- resinous softwoods and low density hard- woods. In most instances they will not accept dark colored or high density woods. These diverse requirements can be met through proper provision by the manufac- turer, but they impose a need to maintain a warehouse inventory to permit product accumulation by species characteristics. Particles used as litter have limited but growing demand. The principal outlet is the small animal breeding industry, which de- mands commercially sterilized material. This sterilizing step is to kill bugs, render harmless the germs in rodent feces, etc. before shipment. Fortunately, the type of flash dryer best suited to processing require- ments also qualifies as an acceptable steriliz- ing device. Shavings will derive from two sources: (1) the processing activities of units of the com- plex that produce shavings as a by-product of machining operations, and (2) through direct conversion of green round wood by means of a shavings manufacturing machine. Shavings from the first source will be trans- ferred to a surge storage receiver by a low pressure pneumatic conveyor system linked with the remanufacturing, unassembled fur- niture and furniture frame plants. It is expected that these processing facilities will be a source for approximately 12 tons of dry shavings per day. The production of shav- ings from the second source will involve the daily conversion of 20 cords of low grade poplar, magnolia, soft maple, and basswood in cordwood form. The material flow and processing steps are shown by the flow diagram on the opposite page. Briefly described, most green shav- ings manufactured from cordwood will be dried, baled, and stored pending shipment. A certain percentage will be routed through a hammermill before the drying step, to reduce them to particle size. Following drying, the resulting particles will be bagged with the same equipment and procedures as those applied to the manufacture of bark mulch. Dry shavings derived as a manufacturing by- product will by-pass the dryer and go directly to the baling machine. The plant will operate for two eight hour shifts per day, processing 20 tons of material, dry weight basis, per shift. The day shift, corresponding to the operating period of most other units of the complex, will split its out- put between baling shavings and manufac- turing bark mulch. The second shift will manufacture baled shavings and bagged particles from green cordwood. Manpower Requirements In addition to an administrative and clerical staff, the mulch and litter manufac- turing plant will require four operating per- sonnel and one foreman per eight hour operating shift, identified as follows: 1. Payloader operator: First shift: recovers bark from bulk storage pile and delivers to the processing starting point. Second shift: picks up cordwood in the storage yard and delivers it to the proc- essing starting point. 2. Milling-Dryer Operator: Operates ham- mermill as required for conversion of bark or green shavings into particles; adds chemical to bark mulch; operates dryer for drying bark, green shavings or green particles. 3. Balersl Baggers (2): Operate bagging machine or baling machine, depending upon material being processed; use fork lift carrier to transfer baled and/or bagged material to warehouse storage; assist in shipping. 4. Foreman-Maintenance Man: Responsible for manufacture of various end products; regulates product inventory; directs shipping; performs preventative maintenance. Installed Cost of Mulch-Animal Litter Plant The estimated cost of the required process- ing equipment is $123,000. The required working area, estimated to be 10,600 square feet, will be leased from the complex. Preservative Treating Plant The proposed preservative treating plant will be a small processing unit intended to service a relatively restricted market for treated fence posts, treated poles for signs and similar uses, and treated lumber. Mar- ket investigation has disclosed a good market potential within Kentucky, provided suitable treated products are made available and merchandised with up-to-the-minute selling techniques. The Bluegrass region offers a particularly attractive possibility for the sale of upgraded fence posts and rails (usually red PROCESSING FACILITIES oak cut 1" x 6" x 6") for rail fences. Since product requirements reflect directly upon the establishment of processing facilities, it is pertinent to summarize at this point the type and character of products that should be manufactured to satisfy the detected market potential for fencing materials. Insofar as the buying public is concerned, the differences between technicalities of various treating methods and the chemicals used are purely academic. A treated fence post sold by a reputable manufacturer is a treated fence post. If a post is treated, it assumedly has durability, leaving the buyer to be attracted by the appearance and utility of the product. A neat appearance derived from rounding, a pointed end to simplify the job of installation, a product that is clean to handle, a flat face on posts intended for rail fences, and even the availability of pre- painted posts and rails — these are the char- acteristics that should attract customers. They are the characteristics of proprietary products, not those of a roughly modified product of the growing forest. Upgraded products of the nature described obviously will appeal only to a limited segment of the total market for fencing; they will not com- pete against the rough products available from farm wood lots. They are, however, the type of products that are recommended for manufacture by the satellite treating plant. The capacity of the recommended plant will be 7.5 thousand board feet per eight hour operating day, assuming that two retort loads will be processed during this period of time. The retort will be 4 feet in diameter by 34 feet in length, this being about the minimum practical commercial size. Preferred treat- ment will be with a trade brand of fluor- chrome arsenate phenol, a water borne wood preservative, with a minimum standard of .50 pounds of retained solids per cubic foot of treated product. The equipment will be a pressure system and will be able to apply pentachlorophenol if the occasion arises for the application of this preservative. It is planned that the unit will treat five cords of roundwood and 5000 board feet of lumber and cord squares per shift. The average round post will be five inches in diameter at the small end and seven feet in length; there will be approximately 60 pieces per cord. Cord squares, excellent for con- version into treated sign posts, will average five inches across a single face and will be available in lengths up to 16 ft. An in- ventory of cordwood will be maintained for the plant by the log storage yard, and an in- ventory of sawn material intended for treat- 79 ing will be maintained by the air drying yard. These off-premises inventories will free the treating plant from the need to maintain its own inventory of raw material preparatory to processing. The treating plant will, however, keep a one or two day working supply on hand, distributed in proportion to the relative quan- tities of cordwood and sawn material to be processed. It is expected that an inventory of treated products averaging 30 days pro- duction (225,000 board feet) will be main- tained by the plant in its own product storage yard. The manufacturing facilities will include means for turning, pointing, and facing posts. Properly prepared material will be batch loaded into the retort and subjected to tem- peratures and pressures appropriate to the type of treatment and the nature of the preservative being applied. Facilities for surface coating of treated products with paint or pigmented acrylic materials will not be included in the original plant installation; they may be added at an appropriate time in the future. The transfer of products from one processing stage to another will be accom- plished by fork lift carrier. Deliveries of raw materials to the plant will be made by equipment and personnel attached to the sources of such materials. Equipment Requirements The following are the basic minimum equip- ment requirements needed for the operation: Fork Lift Carrier Pole Lathe Post Pointer Post Facer Cross Cut Saw Pressure Treating Plant Steam Generator Waste Hog Waste Disposal System Manpower Requirements In addition to an administrative and cleri- cal staff, the preservative treating unit will require four operating personnel and one working foreman, identified as follows: 1. Fork Lift Operator: Drives fork carrier to procure material from the standby storage yard and feeds it into processing; transfers in-process material between operator stations; assists in loading and unloading charges for the treating re- tort; places treated material in storage area; and assists in loading for shipment. 80 SECTION III 3. 4. Machine Operators (2): Operate lathe, pointer, facer, and cross cut saw as required to prepare material for processing. Treating Plant Operator: Responsible for proper charging, operation, and dis- charging of the pressure treating plant. Foreman-Maintenance Man: Responsible for overall operation; maintains de- livery schedules of material to be proc- essed; maintains yard inventory control; oversees shipment of products; performs preventative maintenance. Installed Cost of Preservative Treating Plant The estimated cost of the required proc- essing equipment is $65,000. The required building space, estimated to be 5000 square feet, will be leased from the complex. Section IV Operational and Economic Performance Scale of Enterprise The processing facilities recommended in the preceding section will provide direct employment for 157 production employees, 25 supervisors, 8 clerical workers, and 3 individuals at top management level. In addition, each of the five satellite units will have its own management and clerical per- sonnel. The subsidiary marketing corpora- tion will employ a total of nine, including the sales manager. The number of jobs that will be indirectly created in servicing the needs of the complex cannot be precisely established; however, a conservative estimate calls for at least 60 men to be engaged in procurement and de- livery of rough forest products. Using fig- ures applying to the average production per man in Kentucky, 1958, an additional 100 to 120 men will be employed in logging, hauling, and sawmilling to provide the complex 35,000 board feet of rough green lumber. Other jobs will be created in the geographic area about the complex to meet requirements for supplies, machine parts, transportation services, and maintenance services. The annual payroll for all activities of the complex, including the two subsidiary corpo- rations and the satellite units, will approach $1.21 million. This amount is premised on the payment of wages and salaries somewhat above the prevailing regional level, in agree- ment with the absolute recommendation that the complex should not be established within eastern Kentucky with any intent of exploiting the present level of wages. It is likely that wages throughout the region will increase, and it is felt that a valid eco- nomic projection must recognize this fact. The annual cash flow for goods and services will exceed $7.5 million for the combined operations. The purchase of saw logs, cord- wood, and rough green lumber from in- dependent sources -i.e., other than from the subsidiary land management corporation — will involve an additional expenditure of approximately 1.2 million dollars, which will be dispersed throughout the 50 mile procurement radius. The processing facilities that have been de- scribed for the principal corporation will require an investment of $3.87 million, including working capital. Of this amount, $801,300 will be for buildings and $135,000 for an "improved" site. Total investment in satellite processing facilities is estimated at $750,700 for installed equipment and work- ing capital; the satellite producers will rent building space from the principal corporation. The subsidiary land management corporation will require an estimated $551,000, mostly for purchases of forest land; and the market- ing corporation will, at an optimum level of operation of the complex, require $249,- 000 — mostly to cover accounts receivable. Table IV-I on pages 82-83 provides a tabu- lar summary of important economic and op- erating characteristics of the complex. Data from which the summary has been compiled are provided in this section together with descriptions of the organization and conduct of business of each major element of the com- plex. It is to be noted that the return on invested capital shown by the summary is over and above the allowance for 6 percent interest included as an indirect cost in the projected operating statement of each activity. Start-up Configuration Now that the order of magnitude of invest- ment that will be involved in establishing the complex has been determined, a review of the approach that should be taken to permit it to reach its optimum production capacity is pertinent. Of necessity, the de- tailed economic projections that follow in this section are based upon full scale activity; i.e., processing 70,000 board feet of lumber and 137 cords of cordwood per day. Ideally, the operations of the complex should be initiated with installed facilities extending through the remanufacturing plant and milled products plants, but with production geared to a gradual build-up to a capacity of 35,000 board feet per day. Among the satellite activities, the most important from the standpoint of facilitat- ing utilization of low grade material is the pallet plant. The early installation of this unit should be encouraged from the onset by the management of the complex. TABLE IV-I CUNbUL IDAI SHIFTS EMPLOYEES DAYS PER (super- (oper- PER DAY visory) ating) YEAR PRINCIPAL CORPORATION Administrative Office General Office Collection Yard Lumber Manufacture Air Yard k Dry Kiln Rough Lumber Processing Core Stock Manufacture Dimension Manufacture Solid Wood Paneling Flakeboard Manufacture Improved Site Buildings & Facilities TOTAL LAND MANAGEMENT CORPORATION MARKETING CORPORATION SATELLITE UNITS Pallet Manufacture Unassembled Furniture Upholstered Furniture Frames Mulch & Animal Litter Preservative Treatment TOTAL INDEPENDENT SUPPLIERS Sawmills Saw Log Suppliers Cordwood Suppliers Loggers and Haulers (contract) 2 2 43. 1 2 5 61. 5 1 1 6 250 32. 5 1 1 10 250 58. 1 1 1 7 350 55. 7 2 3 24 250 139. 4 1 1 4 250 23.0 1 1 9 250 51. 3 1 1 4 250 29. 8 3 8 33 300 270. 9 21 104 1 1 16 1 1 17 1 1 13 2 2 8 1 1 4 58 737. 4 28. 2 98. 9 88. 9 94. 73. 5 57. 3 29. 9 343. 6 PERFORMANCE DATA INSTALLA- WORKING TOTAL NET NET NET RATE OF TION COST CAPITAL INVESTMENT SALES PROFIT AFTER RETURN thnncanrl a /~>f H r» 1 1 a v c TAXES %!/ 5. 4.6 9.6 10. 8. 8 18. 8 155. 136.0 291. 863. 1 14. 8 311. 1 1.5 312. 6 572.5 55. 9 450. 79. 8 529. 8 369.0 104. 8 147. 5 10. 5 158.0 906. 9 71. 5 15. 6 87. 1 436. 9 71.6 170. 5 30. 4 200. 9 808. 3 58. 9 90. 11.0 101. 290. 1 106. 9 1, 150. 74. 1, 224. 135. 801. 3 2,041. 8 420. 3 525. 20. 26. 229. 3, 868. 8 551. 249. 7, 288. 6 292. 7 1, 042. 3 833. 2 27. 6 607. 7 351. 3 19. 3 274. 3 13. 8 121. 54. 6 175. 6 700. 2 87.4 46.0 26.2 160. 64. 3 224. 3 808. 7 111. 5 57. 7 25. 3 89. 17. 106. 458. 5 49. 4 29. 1 27.5 122. 5 27. 5 150. 269. 7 28. 3 19.6 13. 1 65. 29. 8 94. 8 252.6 21.5 15. 3 16. 1 750. 7 2, 433.6 568. 7 168.0 291. 6 174.0 1 / in excess of 6% interest charged on investment and working capital. 84 SECTION IV In the event that the availability of invest- ment capital is restricted, the installation of the flakeboard manufacturing plant could be delayed. This is not desirable, however, because the present market situation for the sale of flakeboard is excellent, and entry into the field will not be faced with strong competition. The situation could well change to the extent that other plants might be placed in production and impose a serious competitive challenge to starting operations in eastern Kentucky at some later date. A delay, therefore, could result in a disad- vantage to the complex. As an alternative to the above approach, it would be feasible to initiate the complex based on the immediate installation of flake- board manufacturing facilities, to be followed at a later date by the expansion to lumber manufacture, etc. This approach would permit an orderly program of land pro- curement during the time that the flakeboard plant was the sole operating facility of the principal corporation. The installation of partial facilities, or facilities modified to any appreciable extent from the recommendations provided in this report is to be avoided. None of the recom- mended activities of the principal corpora- tion, with the exception of the manufacture of flakeboard, is capable of profitable opera- tion without the full support of the other facilities. Likewise, not one of the satellite units should be established unless it is associated with the processing complex. The reasons for these recommendations are economic and are self evident in the data provided in subsequent pages of this section. The complex as a whole is able to provide a processing cost advantage, within the frame- work of outside economic forces, that must be present if any one of the recommended processing activities is to succeed. The Land Management Corporation This subsidiary corporation will perform both as a primary source of wood raw ma- terial supply and as a purchasing agent serving to procure rough forest products to meet the processing needs of the com- plex. Along with these activities, it will have the long range assignment of working toward improvement of the average quality of wood raw material available within the established procurement area about the complex. As a primary source of supply, this corpora- tion will depend wholly upon independent contractors to conduct logging and hauling, working in timber that it owns or otherwise controls. It should function only as a service activity and should not become involved in the ownership of equipment. It should con- duct its activities as a profit making business and should invoice the manufacturing corpo- ration of the complex, through the log collec- tion yard, on the same basis as other saw log and cordwood suppliers. Forest Land Ownership and Control The need to own forest land has been dis- cussed previously and should be considered essential in terms of the effect it will have on the security of supplies of rough forest products needed by the complex. The ex- tent of ownership or control of forest land is established at a minimum of 26,000 acres, well stocked with mature timber. This acre- age should provide a sufficient quantity of sawtimber to give a sustained yield of 50 percent of the annual saw log requirements of the complex. This determination has been based on an expected average annual growth of 150 board feet per acre. The economic projection for the land management corporation, as provided below, has been predicated on the outright purchase of 26,000 acres of forest land at $20 per acre, a total investment of $520,000; this aggregates a rather heavy investment. Alternatives to purchase include first option agreements, long-term leases, and forest management agreements. A first option agreement held by the land management corporation, in return for forest improvement/management services, would give the corporation the right to request sale by sealed bid for portions of the timber stand included under the terms of agree- ment. Such sales would be heavily weighted to the advantage of the corporation, largely because of its complete familiarity with the timber gained through the discharge of its management responsibilities and its resulting ability to provide a bid at the true value of the timber. A bid made with the benefit of the complete knowledge of the timber obviously can be higher than bids for the same timber submitted by other potential purchasers less familiar with the particular stand of timber being considered. The high bid would receive the award. Agreements of this nature have met with good acceptance in Appalachian and South- ern Hardwood forest areas. Mutual benefits OPERATIONAL AND ECONOMIC PERFORMANCE accrue to the parties: the land owner benefits through stand improvement and receives a higher return for his stumpage, and the holder of the option is able to procure selected timber without the necessity of tying up cash assets in land ownership. Some option agreements have included the payment of annual taxes by the holder of the option. This is a worthwhile considera- tion that, if applied, may result in successful negotiation of an otherwise unsuccessful attempt to reach agreement with a land owner. Leasing of forest land, when based on a long-term lease agreement, can be more ad- vantageous than purchase. This is particu- larly true when viewed from the standpoint of the heavy requirement of the complex for investment capital. Leased land should be treated as land under direct ownership; for- est management techniques should be ap- plied to improve the quality of the forest stand and to increase the board foot yield per acre. The terms and cost of leasing should be carefully evaluated from the stand- point of the long-range best interest of the complex. The use of forest management agreements to assure the availability of sawtimber is fine in theory, but it is probable that the ability to acquire stumpage in this manner will be very limited. Owners of private for- est land do not readily become enthused about implementing forest management programs when they cannot see an immediate business benefit. The conduct of a manage- ment program will require reinvestment of a portion of the proceeds from sale of tim- ber, applied to the carrying out of planting, thinning, and other management recom- mendations. Such a requirement for invest- ment beyond the original cost of the acreage, plus the payment of annual taxes, provides a stumbling block in arousing the interest of a land owner in reaching an agreement. Rein- vestment will require faith in the future of the market for forest products; conditions applying to the utilization of the forest crop in eastern Kentucky have not been the least bit encouraging in this respect. A record of successful performance by the processing activities of the complex and the catalytic action it may have upon establishing intensi- fied utilization of forest resources will with- out doubt result in the firming up of a com- modity market that the owner of timber can look toward with business interest. This is not the situation that prevails at the present time, and efforts to attract a land owner in the absence of favorable conditions in this 85 regard will undoubtedly meet with very limited success. Procurement From Independent Suppliers In acting as a purchasing agent for the complex, the subsidiary corporation will operate on a commission basis, such commis- sion to be earned for maintaining a steady inflow of saw logs and cordwood in accord with the requirements of the complex as to species, quality, and quantity. To facilitate the development of an economic projection the rate of commission has been established at 3 percent of purchase price. While performing this service, the subsidiary should have and must apply knowledge con- cerning forest management, logging methods, and the transportation of forest products. It will apply its own abilities in negotiating to best advantage for deliveries of raw ma- terials by contractors and independent sources of supply. The assignment to the subsidiary of the responsibility of procuring rough forest products will free the complex to involve itself completely with the task of processing, assuming that within its organ- ization it has a reliable supply of raw material at acceptable cost. Forest Management Activities This subsidiary corporation will bear the burden of working toward improvement of the forest cover within the designated pro- curement area from which the complex will derive its raw materials. Corporate owned and controlled lands should be brought under a long range management program of selec- tive cutting, improvement cutting, tree plant- ing, and fire control. This program should be directed toward improving the average quality of saw logs and the replacement of undesirable species with those that are more valuable. The proportion of soft hardwoods in the forest stand should be increased, with emphasis placed on improving the avail- ability of poplar and soft maple. The more valuable species in the red and white oak groups should be encouraged, and the poorer species (principally black and chestnut oaks) should be replaced when practicable. The condition of the forest cover in eastern Ken- tucky is in general so poor at this time that the application of any reasonably conceived and organized forest improvement program will be bound to give beneficial results. The most direct and least costlv means of effect- 86 SECTION IV ing stand improvement will be for the land management corporation to insist that con- tract loggers apply logging methods that will assist management objectives. Assistance in applying and carrying out effective stand improvement programs can, under certain circumstances, be obtained from the Ken- tucky Division of Forestry. It is assumed that the corporation will work closely with this Division in working toward its established objectives. Performance Requirements To perform these outlined tasks, the land management corporation must necessarily be staffed by competent individuals. The prin- cipal staff requirement will be for a qualified forest engineer able to negotiate the acquisi- tion of a suitable amount of acreage, to contract with loggers and truckers, and other- wise to negotiate the purchase of rough forest products outside of the quantities that will be obtained by contract cutting and hauling from owned or controlled acreage. The forest engineer should be assisted by a trained forester, a records clerk and a secre- tary. Office space will be rented from the complex. Land Management Corporation Economic Performance Data Daily Activities- Deliver to the complex 15,750 board feet of saw logs and 35 cords of cordwood obtained from forest land that is o\vned or otherwise controlled. Procure for and have delivered to the complex 15,750 board feet of saw logs and 102 cords of cordwood from independent suppliers. A. Annual Operating Costs: 250 day operating year Salaries: Forest engineer $9,000 Assistant forester 7,000 Records clerk 4,500 Secretary 4,000 Salary overhead 15 percent 3,675 Expenses: Telephone 1,200 Supplies 1,500 Travel 10,000 Rent 720 Legal, audit and credit 2,000 Contract Costs: Cutting and skidding 82,688 Road building 11,813 Loading and hauling 87,500 Equipment: Pick-up trucks (2) — rented Tools and supplies Instruments (Depreciation) Office equipment (Depreciation).. Interest on Investment (6 percent). $1,800 600 300 200 31,200 Total Annual Cost . „. B. Projected Annual Operating Statement : Annual Sales (Sales to Complex): a. 3938 thousand board feet of saw logs at $44.00/M b.f. delivered b. 8750 cords of cordwood at $12.00/ cord delivered c. 3 percent commission earned on sale of 3937 thousand board feet of saw logs, and 25,500 cords of cordwood from independent suppliers Net Sales. Direct Costs: Salaries Expenses Contract costs. Equipment $28„175 15,420 182,001 2,900 Gross Margin Indirect Costs: Interest on investment Interest on working capital. Taxes Net Profit Less — Allowance for Taxes: Federal tax* Kentucky tax $31,200 1,560 3,832 $6,839 1,429 Net Profit After Taxes. $247,032 $173,272 105,000 14,377 $292,649 228,496 $64,153 36,592 $27,561 8,268 $19,293 C. Saw Logs Costs (per thousand board feet): Stumpage (Average logs) $20.00 Cutting and skidding 11.00 Road building 3.00 Loading and hauling 10.00 Total Cost Cordwood Costs (per cord): Stumpage Cutting and skidding.... Loading and hauling $2.00 4.50 5.50 Total Cost E. Forest Land Ownership: Investment: 26,000 acres at $20/acre Yearly Taxes: 26,000 acres assessed at 28 percent and taxed at $2.05/100 Fire tax 2tf /acre Corporate license-$.70/$l,000 Total F. Determination of Working Capital: Advance payments to contractors. Operating cash Total. 44.00 $44.00 12.00 $12.00 $520,000 $2,948 520 364 $3,832 $21,000 5,000 $26,000 *Federal depletion allowance on timber holdings not deducted. On ownership of 26,000 acres at 2,500 b.f./acre the approximate allowance will be $15,752. OPERATIONAL AND ECONOMIC PERFORMANCE The Principal Corporation The principal corporation will operate the major processing facilities and be respon- sible for the overall conduct of business of the complex. It will obtain its rough forest product raw materials through the services of its subsidiary land management corpo- ration and sell its finished products through its subsidiary marketing corporation. In addition, it will give every possible assistance to the establishment and continued profitable operation of satellite processing units. The General Manager The administration of the principal corpo- ration will be the responsibility of a general manager who is trained and experienced in business administration and who has re- lated sales experience. It is strongly recom- mended that the individual selected for this position should come from outside of the lumber industry. To use an experienced manager from within the industry would undoubtedly result in modification of the recommended approach and closer conform- ance to the conventional procedures of wood conversion and product manufacture. Throughout this report, the point of em- phasis is that the complex should not sell lumber as a product; this recommendation in itself is the principal point of difference between what is advocated by this report and what is labeled as conventional proce- dure within the sawmill and wood processing industry. An attempt to operate in accord with past experiences will have very little chance for success in the environment offered by eastern Kentucky. The general manager will be the highest salaried employee of the entire organization and, in addition to receiving a salary, he should be the beneficiary of a liberal bonus or stock option plan. A bonus payment based on a value of between one and one half to two percent of net profit after taxes would provide an attractive incentive and would be a fair payment from the standpoint of all parties concerned. An exact determina- tion of the value of such a payment must be withheld to be applied as a measure of the individual offered the position. The objective of both the recommended relatively high salary and liberal bonus is to attract the best available talent to the position. If this position is not properly filled, the opportunity for full growth and realization of the aims of the complex will be heavily jeopardized. 87 The administrative offices of the complex should be near the sales office operated by the marketing corporation and should prob- ably be located at a center of population away from the actual processing facilities. The routine planning and operational respon- sibilities of the general manager will require close liaison with the production activity to enable a continually current working familiarity with its routine performance. The general manager will, however, delegate managerial control of processing activities to the production manager. In addition, he will be the immediate superior above the sales manager. A physical working prox- imity between the general manager and the sales manager should serve to intensify the responsiveness of the processing activi- ties of the complex to recommendations evolving from sales activities. To facili- tate the conduct of routine administrative activities the general manager should be aided by an administrative assistant, prefer- ably a younger individual trained in business management. Production Management The production manager in addition to as- suming immediate responsibility for the production performance of the complex, will operate a general business office located at the processing site. The function of this office will be to carry out the routine business of purchasing, shipping products, employ- ment, payroll accounting, etc. This office will also be responsible for overall plant maintenance, under the direction of a main- tenance coordinator. Each processing activ- ity will perform its own preventative maintenance in accord with recommenda- tions established and enforced by the maintenance coordinator. The actual per- formance of maintenance will be accom- plished by competent independent organiza- tions located in the surrounding community. Each processing activity will be under the immediate supervision of a foreman, super- visor, or superintendent, as established in the description of manpower requirements in the preceding section. All first line super- visors will be responsible to the production manager. The degree of individual authority that the various supervisory personnel will have is implied by each job title. A foreman will have the least responsibility, and a super- intendent will have the greatest range of responsibility and authority. 722-307 0-64-7 88 The Production Manager This individual will be a key member of the management group, entitled to incentive payment as a reward for successful perform- ance. The position should be held by a person having a record of successful manage- ment performance in processive industry. Direct experience in the wood products field will be helpful, but it is not considered to be a prerequisite to filling the position. Much of the actual detailed processing knowl- edge required for successful conversion of wood into products will derive from the capabilities of an assistant selected for his demonstrated experience in wood processing, and from the lower echelon of supervision. The production manager must have the ability to employ such talent and to recognize and encourage the application of that talent by others to the best advantage of the processing activities. In essence, the ideal individual to fulfill the task of production management will be one who can apply practical and persuasive direction to achiev- ing economic manufacture of products. While the raw material, wood, is certainly influential, the proper application of funda- mental principals of good management will be much more important than an involved understanding of and/or dexterity in han- dling the raw material. The production manager will be one of the key personnel of the organization and as such should be included as a member of the board of directors of the principal corpo- ration. A properly qualified individual will demand a relatively high salary and expect a yearly bonus or other incentive. Physical Plant To attract satellite units to the complex, as well as to house its own processing facili- ties, the principal corporation will provide all necessary buildings, grounds, and serv- ices. It will also serve the satellites as a dependable source of supply of reasonably priced processed raw materials. Building space should be made available to the satel- lites on a rental basis, thereby reducing their required investment and simplifying the task of financing that they will confront in establishing their respective production facilities. This recommendation, of course, throws the burden of providing capital for construction of buildings onto the principal corporation. Structures required to house and service the processing activities de- scribed in the previous section will involve SECTION IV an estimated expenditure of $761,300. They are identified as follows: Floor Esti- Space mated Buildings* sq.ft. Cost Sawmill 7,200 $25,200 Remanufacturing plant 24,000 120,000 Pallet plant 12,800 64,000 Milled products plant 7,200 36,000 Flakeboard plant 58,000 257^500 Unassembled furniture plant 20,000 100,000 Furniture frame plant 16,000 80,000 Animal litter and mulch plant 10,600 38,700 Preservative treating plant 5,000 17,500 General office 3,200 22,400 *Refer to the Preliminary Plan of Processing Facilities on page 50. Other physical plant facilities to be pro- vided by the principal corporation include a minimum 54 acre improved site, having an estimated value of $135,000, and a main elec- tric sub-station, valued at $40,000. Economic Factors The functions of the various processing activities operated by the principal corpora- tion have been thoroughly discussed in previ- ous material. The economic factors con- cerned with these functions are projected by the next several pages of data and informa- tion. These data are provided as guide lines to the operation of the complex and are not intended to represent an exact accounting of all of its financial involvements. Each processing unit is treated as an entity, with a consolidated operating statement combin- ing the results of individual performances. The earnings that are predicted should easily be exceeded by the application of prudent and capable management. Prices for sawtimber, cordwood, and rough green lumber included in the projections are carefully weighted and averaged figures premised on prevailing prices in eastern Ken- tucky and surrounding areas. For instance, the established value of $44 per thousand board feet for saw logs delivered to the col- lection yard includes a range in price of various log grades and species from $30 to $80 per thousand board feet. The value of $65 for rough green lumber from independent suppliers includes a range from $47 to $108 per thousand board feet. While it is possible that the basic pricing structure may rise, as a result of gradual inflation in the national economy, the relative values between the cost of raw material, the cost of production, and the market price for finished products should remain proportional. As a result of this, the earning ability of the entire complex will tend to remain near the projected level. OPERATIONAL AND ECONOMIC PERFORMANCE The cost factors for each major step in con- verting saw logs into kiln dried lumber are: yarding, debarking and sawing, $15.04 per thousand board feet; and kiln drying, $13.20 per thousand board feet. It is to be noted that operation of the saw- mill and remanufacturing activities for an additional daily shift is fully feasible. To do so will result in a decrease in production cost per unit of output, largely because fixed daily overhead charges will be prorated over the increased volume of products. In many in- stances it is possible to operate additional shifts with fewer employees than required during a normal daytime shift. Although it is not specifically stated in the following projections, all selling prices for products are on an f.o.b. plant basis. Principal Corporation Economic Performance Data A. Responsibilities: Provide general management and administra- tion of all business affairs and production activities of the processing complex. Coordinate the activities of subsidiary corpo- rations with the overall business objectives of the organization. Coordinate the activities and relationship of satellite processing units in conformity with the objectives of the complex. Provide the necessary improved site and build- ings for the processing facilities; assume overall responsibility for proper maintenance of produc- tion facilities; and provide watchman protection over the physical plant. B. Administrative Office Expenses: Annual Costs Salaries: General manager $18,000 Administrative assistant 9,000 Secretary 5,500 Receptionist 5,000 Payroll overhead (15 percent) 5,625 Expenses: Telephone $2,600 Supplies 700 Rent 2,400 General manager's travel 4,800 Equipment: Automobile (Lease) $1,200 Office equipment (Depreciation) 500 Total Administrative Expense $55,325 C. General Office Expenses: Annual Costs Salaries: Production manager $15,000 Assistant to the production manager . . . 9,000 Secretary 4,000 Bookkeeper 6,000 Clerical assistant 4,500 Watchmen (2) 8,000 Maintenance supervisor 7,000 Payroll overhead (15 percent) 8,025 Expenses: Travel $1,200 Telephone 2,000 89 Supplies $3,000 Site and building maintenance 35,000 Equipment: Pick-up truck (Lease) $900 Automobile (Lease) 1,080 Office equipment (Depreciation) 1,000 Maintenance equipment 500 Total General Office Expense $106,205 D. Annual Income: Net Revenue From Processing: Units: Collection yard $14,800 Lumber manufacture 55,923 Air yard and dry kilns 104,838 Core stock manufacture 71,641 Dimension manufacture 58,871 Solid wood paneling manufacture... 290,079 Flakeboard manufacture 420,306 Total Revenue *$1,016,458 * Detailed development provided by projected annual operating statements for each processing unit, pages 88 through 96. E. Income From Building Rentals: Factory Space: Pallet plant Unassembled furniture plant Upholstered furniture frame plant. Mulch and animal litter plant Preservative treating plant Office Space: Land management corporation Total Rent Income $6,400 10,000 8,000 5,300 2,500 720 $32,920 F. Consolidated Annual Operating Statement: Annual Income: Total revenue from processing units (Schedule D) $1,016,458 Income from rental of factory and office space (Schedule E) 32,920 Net Income $1,049,378 Operating Expenses: Administrative office $55,325 General office (including maintenance of build- ings and site) 106,205 161,530 Gross Margin $887,848 Indirect Costs: Depreciation on buildings. $50,081 Interest on investments (6 percent): Site and buildings 56,178 Working capital 22,326 128,585 Net Profit $759,263 Less: General manager's bonus. $9,490 Production manager's bonus 7,590 Federal tax 51,453 Kentucky tax 339,429 407,962 Net Profit After Taxes $351,301 G. Determination of Working Capital: Administrative Office: 30 days operating expense $4,600 General Office: 30 days operating expense 8,800 90 Log Collection, Sorting, and Storage Yard: 1.5 million saw log inven- tory $66,000 5,700 cords 68,400 Supplies 1,500 $136,000 Lumber Manufacture: Supplies 1,500 1,500 Air Yard and Dry Kiln: 1.0 million air drying in- ventory 59,040 125 M b.f. accumulation... 7,380 200 M b.f. in-process 11,808 Supplies 1,500 79,750 Rough Lumber Processing: 125 M b.f. dry lumber in- ventory 9,030 Supplies 1,500 10,500 Core Stock Manufacture: 10 days inventory 14,618 Supplies 1,000 15,600 Dimension Manufacture: 10 days inventory 28,856 Supplies 1,500 30,350 Solid Wood Paneling Manu- facture: 30 M b.f. inventory 2,167 10 day inventory 7,256 Supplies 1,500 11,000 Flakeboard Manufacture: 30 days inventory (1 shift) 54,047 10 days supplies 20,000 74,000 Total Working Capital $372,100 Economic Performance Data for Corporate Processing Facilities Log Collection, Sorting, and Storage Yard Economic Performance Data Daily activities — Receive and process 31,500 board feet of saw logs and 136 cords of cordwood. Inventory 1.5 million board feet of saw logs and 5700 cords of cordwood. Manufacture 6 units of chips from log ends and material not acceptable as saw logs. A. Daily Operating Costs: 8-hour operating day, 250 day operating year.* Saw log purchases $1,386.00 Cordwood purchases 1,632.00 Electric power (1235 kw.-hr.) 20.00 Fuel for yard carriers 15.00 Supplies and maintenance 60.00 Labor (+ 15% overhead) 102.50 Supervision (+15% overhead) 27.60 Depreciation . 62.00 Taxes (Business and property) 12.75 Insurance 6.35 SECTION IV Interest on investment and inventories (6%) $69.00 Total Daily Costs $3,393.20 * Debarking of cordwood will take place for three shifts per day — see page 82. B. Projected Annual Operating Statement Annual Sales (internal): a. 7875 M b.f. of mixed grade saw logs at $47 per M b.f. — delivered to saw mill $370,125 b. 34,150 cords of debarked cordwood at $14 per cord 478,100 c. 2000 tons of bark (dry) at $1.25 per ton 2,500 d. 1500 units of chips at $8.25 per unit* 12,375 Net Sales $863,100 Direct Costs: Labor and supervision $32,525 Electric power 5,000 Fuel for yard carriers 3,750 Supplies and maintenance... 15,000 Saw log purchases 346,500 Cordwood purchases 408,000 810,775 Gross Margin $52,325 Indirect Costs: Depreciation $15,500 Taxes and insurance 4,775 Interest 17,250 37,525 Net Profit $14,800 *Sold to external customers. C. Cost Factors: Labor $2.23/hour Supervision $3.00/hour Payroll overhead 15 percent Electric power 1.62" thick, 3-layer flakeboard at a density of 40 pounds per cubic foot — at $120 per thousand square feet $2,430,000 Less Selling Cost: At selling discount of 5/5/5/2 (388,250) Net Sales $2,041,750 Direct Costs: Labor and supervision $270,849 94 Electric power $72,900 Resin binder 446,700 Sizing material 25,200 Fuel for carriers 6,000 Fuel oil 29,250 Packaging 42,700 Supplies and mainte- nance 45,000 Wood raw material 412,335 $1,350,934 Gross Margin $690,816 Indirect Costs: Depreciation $140,100 Taxes and insurance 42,030 Interest on plant invest- ment 84,000 Interest on inventories 4,380 270,510 Net Profit $420,306 C. Cost Factors: Labor $2.23/hour Foreman $3.00/hour Supervision $3.25/hour Superintendent $10,000/yr. Binder (Solids) 12.5^/pound Size (Emulsion) 9.5^/pound Electric power 1 /62^/kw.-hr. Fuel oil 7.5^/gallon Cord wood $14/cord Slab (Green) $7.79/ton Packaging 0.25<|!/sq. ft. Satellite Processing Units A development of the organization and administration of the recommended satellite processing units is outside the scope of this report. However, in encouraging their formation, the management of the complex should be conscious of the manner in which these factors will influence the ability of any one satellite to achieve a healthy business stature. The satellites will be fully inde- pendent businesses, but their success or failure will have significant impact on the entire complex. The economic performance of satellite units described in Section III has been pro- jected to provide data that will substantiate the business potential of each. This data is included on pages 97 through 101. In reviewing the data, it will be noted that each satellite will be charged a substantial mark-up above the cost of manufacturing the raw materials that they will require. In spite of this, they can be supplied by the complex at costs considerably below the cost of comparable materials purchased f.o.b. destination from sources outside the complex. This, truly, is an advantage to both parties; the complex will benefit by its ability to convert lumber otherwise unsuited for com- mercial sale into good raw material for the satellites. Without this internal source of consumption, the cost of production encoun- tered in each processing step of the complex SECTION IV would be appreciably increased as the result of a much higher waste factor. Pallet Manufacture Economic Performance Data Daily Activities — Process 20,000 board feet of rough dry lumber into an average of 1,666 pallets (10.2 board feet each). A. Daily Operating Costs: 8-hour operating day, 250 day operating year. Value of rough dry lumber $1,800.00 Electric power (1100 kw.-hr.) 17.82 Fuel for fork lift carriers 10.00 Supplies and maintenance 50.00 Labor (+ 15% overhead) 382.00 Supervision (+ 15% overhead) _. 27.60 Depreciation 48.40 Rent 25.60 Administration 96.00 Taxes 9.68 Insurance 4.84 Interest on plant investment 29.04 Interest on investment in inventories... 4.32 Total Daily Costs $2,451.30 Cost of Average Pallet $1.47 B. Projected Annual Operating Statement: Annual Sales: 416,666 pallets at an average selling price of $2 per pallet $833,332 Selling Cost: At selling discount of 5/5/5/2 133,141 Net sales $700,191 Direct Costs: Labor and supervision $88,900 Electric power 4,455 Fuel for carriers 2,500 Supplies and maintenance... 12,500 Value of rough dry lumber. . . 450,000 558,355 Gross Margin $141,836 Indirect Costs: Administration $24,000 Rent 6,400 Depreciation 12,100 Taxes and insurance 3,630 Interest on plant invest- ment 7,260 Interest on inventories 1,080 54,470 Net Profit $87,366 Less — Allowance for Taxes: Federal tax $35,760 Kentucky tax 5,616 41,376 Net Profit After Taxes $45,990 C. Determination of Working Capital: 15 days of processed inventory $36,770 10 days of operating supplies 1,500 200,000 bf of yard inventory 18,000 Total Working Capital $56,270 D. Cost Factors: Labor $2.23/hour Payroll Overhead 15 percent Supervision $3.00/hour Electric Power 1.62^/kw.-hr. Rough Dry Lumber $90.00/M b.f. OPERATIONAL AND ECONOMIC PERFORMANCE 95 Unassembled Furniture Manufacture (Satellite Operation) Economic Performance Data Daily Activities — Process 5,000 board feet of dimension components and 4,000 square feet of fiakeboard into an average of 500 pieces of furniture. A. Daily Operating Costs: 8-hour operating- day, 250 day operating year. Value of veneer assemblies $400.00 Value of dimension components 1,202.50 Value of fiakeboard 480.00 Electric power (l,'l00 kw.-hr.) 17.82 Fuel for fork lift carriers 5.00 Adhesive 15.00 Lacquer 22.00 Supplies and maintenance 35.00 Labor ( + 15% overhead) 348.50 Supervision (+ 15% overhead) 27.60 Depreciation 64.00 Rent 40.00 Administration 96.00 Taxes 12.80 Insurance 6.40 Interest on plant investment 38.40 $3,211.02 $6.42 Total Daily Costs Cost of Furniture Per Unit B. Projected Annual Operating Statement: Annual Sales: 125,000 pieces of furniture at an aver- age selling price of $7.70 per piece Selling Cost: At selling discount of 5/5/5/2 Net Sales Direct Costs: Labor and supervision Electric power Fuel for carriers Adhesive Lacquer Supplies and maintenance. Value of raw materials $962,500 153,778 $808,722 $94,025 4,455 1,250 3,750 5,500 8,750 520,625 632,855 Gross Margin $175,867 Indirect Costs: Administration $24,000 Rent 10,000 Depreciation 16,000 Taxes and insurance 4,800 Interest on plant invest- ment 9,600 64,400 Net Profit $111,467 Less — Allowance for Taxes: Federal tax $47,413 Kentucky tax 7,307 54,720 Net Profit After Taxes C. Determination of Working Capital: 20 days of processed inventory 10 days of operating supplies $56,747 $64,220 1,000 Total Working Capital $65,220 D. Cost Factors: Labor $2.23/hour Supervision $3.00/hour Payroll overhead 15 percent Electric power 1.62^/kw. = hr. Adhesive 15^/mixed pound Lacquer 2^/sq. ft. Dimension $240.50. Fiakeboard $120/M sq. ft. Veneer (face and back) 10^ sq. ft. Upholstered Furniture Frames (Satellite Operation) Economic Performance Data Daily Activities — Process 5000 board feet of rough dimension products into an average of 450 furniture frames. A. Daily Operating Costs: 8-hour operating day, 250 day operating year. Value of rough dimension $1,115.49 Electric power (900 kw.-hr.) 14.58 Fuel for fork lift carriers 5.00 Supplies and maintenance 28.00 Labor (+15% overhead) 266.50 Supervision (+ 15% overhead) 27.60 Depreciation 35.60 Rent 32.00 Administration 80.00 Taxes 7.12 I nsurance 3.56 Interest on plant investment 21.60 Total Daily Cost $1,637.05 Cost of Furniture Frames Per Unit $3.64 B. Projected Annual Operating Statement: Annual Sales: 112,500 furniture frames at an average selling price of $4.85 $545,625 Selling Cost: At selling discount of 5/5/5/2 87,175 Net Sales $458,450 Direct Costs: Labor and supervision $73,525 Electric power 3,645 Fuel for carriers 1,250 Supplies and maintenance... 7,000 Value of raw material 278,873 364,293 Gross Margin $94,157 Indirect Costs: Administration $20,000 Rent 8,000 Depreciation 8,900 Taxes and insurance 2,420 Interest on plant invest- ment 5,400 44,720 Net Profit $49,437 Less — Allowance for Taxes: Federal tax $17,418 Kentucky tax 2,961 20,379 Net Profit After Taxes $29,058 C. Determination of Working Capital: 10 days of processed inventory $16,500 10 days of operating supplies 500 Total Working Capital $17,000 D. Cost Factors: Labor $2.23/hour Supervision $3.00/hour Payroll overhead 15 percent Electric power 1.62#kw.-hr. Dimension $223.10/M b.f. 96 SECTION IV Animal Litter and Bark Mulch (Satellite Operation) Economic Performance Data Daily Activities — Process 8 tons of bark (dry weight) into mulch. Process 20 cords of green roundwood and 12 tons of shavings (dry weight) into baled or packaged litter. A. Daily Operating Costs: 16-hour operating- day, 250 day operating year. Value of bark $10.00 Value of shavings 15.00 Value of cordwood 280.00 Electric power (1600 kw.-hr.) 25.92 Fuel oil for dryer 36.00 Fuel for fork lift carriers 12.00 Chemical additive for mulch 14.40 Bags for mulch 48.00 Bags for wood particles 30.00 Supplies and maintenance 50.00 Labor (+15 % overhead) 164.00 Supervision (+ 15% overhead) 55.20 Depreciation 49.00 Rent 21.00 Administration 96.00 Taxes 9.80 Insurance 4.90 Interest on plant investment 29.40 Total Daily Cost $950.02 Cost Per Pound of Product 1.19^ B. Projected Annual Operating Statement : Annual Sales: 167,000 cubic feet of bark mulch at 40tf/ cu. ft $66,800 96,000'cubic feet of particle type litter at 25 v\Msefr>an J l ; ■, McKinney • \^ ' \ V IT -- 3 ' i '% ocelli} y ■...- ■;■; .'iiV- -IRVINE 722-307 0-64-8 SITE ANALYSES State Route 89, contains about 112 acres of rolling - land, a bit more level than Site #1, that could be graded to make suitable level areas. The railroad forms the boundary on one side. About 3 Aj of a mile of road could be built to permit access from State Route 89. Electricity and natural gas can be made available. Process water could be obtained from the Kentucky River. A water district, now being organized, will service the area. Site #3 — Located four miles up river from Beattyville, this site includes two separate pieces of property containing 13V2 and 49 acres respectively. The first is adjacent to State Highway 52 and the L. & N. Railroad; the second is 1000 feet to the north, accessible from a paved rural road. It is possible that the properties could be joined; both are rela- tively level. Electricity is available. Water can be pumped from the Kentucky River or obtained from shallow wells. Area 2 — Upper Cumberland River Valley This area, centering on Williamsburg, occupies 5128 square miles within the con- fines of eastern Kentucky and contains 2,259,000 acres of forest land. The total forest resources in the area comprise 5.6 billion board feet of sawtimber and 9.4 million cords of cordwood. The wood raw material available annually for use by new industry is: Sawtimber 160,000 thousand board feet Cordwood 829,990 cords That portion of the procurement radius which extends into northern Tennessee has been disregarded as a source of raw material. Without doubt, a considerable quantity of saw logs and cordwood can be obtained from across the border. The general area presently supports a moderate level of sawmilling and wood processing activity. This should serve to strengthen the log buying market and to make available a limited amount of experi- enced labor. Active support of a kind that would benefit the complex appears to be available from the major communities within the area. Area Facilities Williamsburg is served by the Knoxville- Atlanta Division of the Louisville and Nash- ville Railway. Rail transit times are 21 Vz hours to Louisville or Cincinnati and 7V2 105 hours to Knoxville. U.S. Highway 25-W and State Route 92 pass through the town, and the proposed north to south Interstate Highway 1-75 will pass just west of it. High- way distances are 184 miles to Louisville, 208 miles to Cincinnati, and 81 miles to Knoxville. The London Muncipal Airport, 30 miles away, is served by Piedmont Air- lines. Barbourville is served by the Cumberland Valley Division of the Louisville and Nash- ville Railway. Rail transit times are I8V2 hours to Louisville or Cincinnati and 15 hours to Knoxville. U.S. Highway 25-E and several state routes serve the area. Highway distances are 200 miles to Louis- ville, 203 miles to Cincinnati, and 94 miles to Knoxville. Air transportation is available at London Municipal Airport, a distance of 26 miles. Available Sites Five sites have been selected within this area; three are adjacent to Williamsburg, and two are adjacent to Barbourville. Site #h— This site, located a short dis- tance from the southern limits of the city of Williamsburg, contains 61 acres and is adjacent to a line of the Louisville and Nashville Railway and U.S. Highway 25-W. The land is gently rolling. Electric power is supplied by the Kentucky Utilities Company. Natural gas is available from the City Gas Company of Williamsburg. City water and sewer lines are available to the site. Site #5 — Located to the south of the city limits of Williamsburg, the site is bound on two sides by lines of the Louisville and Nash- ville Railway and by U.S. Highway 25-W and a light-duty road. This site contains 52 acres of level to gently rolling ground. Electric power is supplied by the Kentucky Utilities Company. Natural gas is available from the City Gas Company of Williamsburg. City water and sewer lines are available to the site. Site #6 — Located approximately one-half mile to the southeast of the Williamsburg city limits, the site contains 129 acres and is bounded by a light-duty road, a line of the Louisville and Nashville Railway, and the Cumberland River. The ground is level to gently rolling. Electric power is supplied by the Kentucky Utilities Company. Natural gas is available from the City Gas Company. City water and sewer lines are available to the site. Site #7— This site, located south of Barbour- WILLIAMSBURG few :H W'.\\ : ':*v^H ^il^iM^ ^ ;i % y- ■L-2 N . r ,' y Creel I c o't>-'\/ • / \ / .a. /; v JUSSS* iCane Cr 110 ville, between the railroad and the river, con- tains about 75 acres, of which about 50 are said to be flood-free. Water, gas, and elec- tricity can be made available. Site #8 — This site adjoins Site #7, above. Adjacent to State Route 225, it runs to the river and is bisected by the railroad. The site contains about 50 acres; most of it is said to be above flood level. Water, gas and electricity can be made available. Area 3 — Big Sandy River Valley This area, centering on Prestonsburg, occu- pies 5938 square miles within the confines of eastern Kentucky and contains 2,698,000 acres of forest land. The total forest re- sources in the area comprise 6.7 billion board feet of sawtimber and 11.2 million cords of cordwood. The wood raw material available annually for use by new industry is: Saw timber 192,000 thousand board feet Cordwood 991,267 cords That portion of the procurement radius which extends into West Virginia has been disregarded as a source of raw material. Without doubt, at least limited quantities of saw logs and cordwood can be obtained from across the border. The area is more distant from favorable marketing territory than either Area #1 or Area #2. Although the procurement area includes the greatest amount of forest acreage within Kentucky of the three areas that have been selected, much of the acreage is in large tracts that are considered unavail- able as sources of saw logs. While the Big Sandy River is an excellent source of process water, the character of the processing activi- ties being recommended does not impose a requirement for water. A pulp or wet-fiber processing activity, affiliated with but not part of the complex, could be situated on the river to good advantage. Area Facilities The entire valley is served by the Big Sandy Division of the Chesapeake & Ohio Railway Company. This Division connects SECTION V with the C. & O. main line at Ashland, to the north, and with the Clinchfield Railroad at Elkhorn City, to the south. Approximate rail transit times from Prestonsburg are 24 hours to either Cincinnati or Louisville and 48 hours to Knoxville, Tennessee. Major highways now serve the area; por- tions of U.S. 23 are scheduled for improve- ment, and the East Kentucky Turnpike will be completed to Salyersville in 1964 and to the Big Sandy during 1967. Highway dis- tances from Prestonsburg are 218 miles to Cincinnati, 219 miles to Louisville, and 246 miles to Knoxville, Tennessee. The Tri- State Airport, near Ashland, is 60 miles from Paintsville and 73 miles from Prestonsburg. It is served by Eastern, Piedmont, and Allegheny Airlines. The area is substantially covered with distribution and transmission lines of the Kentucky Power Company. Natural gas, produced in the area, is available at. most points. Available Sites Two sites have been selected within this area. Site #9 — Located east of Paintsville, it is owned by the Paintsville Development Council. It contains approximately 60 acres of flood-free level land. It is bounded on the east by the Chesapeake & Ohio Railway and Kentucky Route 270, and on the west by the Levisa Fork of the Big Sandy River. Process water can be obtained from Levisa Fork. All city utilities can be made avail- able. The site may be a bit too far from the raw material source unless substantial quantities of timber can be obtained from Martin County to the east. Site #10 — Located north of Prestonsburg, the site lies about 2000 feet east of U.S. Highway 23 and is bounded on the south by the C. & O. Railway. It contains about 30 to 35 acres of level ground; and another 15 to 20 acres can be added by grading to the 760 foot contour. The site is owned by four individuals. Electricity, gas, and water can be made available. Section VI The Corporate Organization Operating Structure This section provides recommendations and a self-contained description of the corporate organization of the complex, presented in a manner that will enable it to serve as a guide to the preparation of related portions of an investment prospectus. The preparation of such a prospectus will appropriately be the responsibility of an attorney versed in Ken- tucky corporation law. For this reason, dis- closures that are made are of a general nature and they refrain from involvement in the legal ramification of establishing a busi- ness instrument complying with Kentucky laws. In creating a private organization, with ownership by the public at large, to operate a wood processing and marketing complex in eastern Kentucky, a corporate structure must obviously be used. The organization will require extensive financing and will have to be premised on a broader basis of partici- pation than will be possible for any joint venture or partnership. The size and com- plexity of the overall operation detailed in this report largely precludes the carrying-on of a project by a single owner. The corporate structure should not be over- complicated. However, the simplest struc- DIAGRAM VII THE MULTIPLE CORPORATION ORGANIZATION MANUFACTURING CORPORATION (BOARD OF DIRECTORS) GENERAL MANAGER. SALES MANAGER. PRODUCTION Private Capital, SB*. KM & BDC Funds SATELLITE OPERATIONS INDEPENDENTLY OWNED Protil rhoring i.lot.omh.p -.lh lh« Morkc'.ng Co'poioiion. oiher-ii* non.parlTelpotlng FURNITURE FRAMES UNASSEMBLED FURNITURE PALLETS BARK MULCH PRESERVATIVE TREATING ANIMAL LITTER "I General Manager MANUFACTURING DIVISION [Production Monagor| COLLECTION YARD (SUPERVISOR) SAWMILL (FOREMAN) KILN DRYING (SUPERVISOR) REMANUFACTURING (SUPERINTENDENT) FLAKEBOARD (SUPERINTENDENT) MULED PRODUCTS IS UPERVISOR) LAND MANAGEMENT CORPORATION (Foreil Engineer] B0% OWNERSHIP BT MANUFACTURING CORPORATION OWNERSHIP OF FOREST LAND ADMINISTRATION OF CONTROLLED FOREST LAND FOREST MANAGEMENT . SAW LOG S. CORDWOOD PROCUREMENT 1 1 1 MARKETING CORPORATION (Sale* Mortager] 80*". OWNlRSHiP BY MANUFACTUSlNG CORPORATION INDUSTRIAL SALES DISTRIBUTOR SALES ADVERTISING & PUBLIC RELATIONS PRODUCT DEVELOPMENT 112 ture — i.e., a single corporation controlling and owning all of the necessary functions — will not offer the maximum benefits to the parties involved. It is, therefore, recom- mended that the organization should be designed as the multiple-corporation opera- tion as shown by Diagram VI-I on the opposite page. In making this recommendation, con- sideration has been given to the following factors: 1. Ownership, including the possibility of varying ownerships of operating sub- sidiaries. 2. The organizational structure which will assure the most tax advantage, con- sidering: (a) income taxes on corporate earnings, (b) ability to retain earnings for reinvestment, (c) treatment of gains and losses, and (d) merger, consolidation, liquidation, and reorganization problems. 3. The location of facilities and personnel. Principal and Subsidiary Corporation It is suggested that there be created under Kentucky law a principal corporation which would own manufacturing facilities and would have ultimate responsibilities for the project. For convenience in this discussion this corporation will be referred to as the "manufacturing corporation." There should further be created, also under Kentucky law, a subsidiary corporation which would have the primary responsibility for sales, and a second subsidiary corporation which would have the responsibilities of real estate owner- ship and investment, extending to the devel- opment and management of forest land. The manufacturing corporation would be owned by the investors as a group; and its board of directors should include the general manager of the corporation, the sales man- ager (who would also be an executive of the sales corporation), the production manager, representatives of the investors, and such other persons as would be deemed advisable to be included — up to a total of seven or nine. The two subsidiaries, the sales corporation and the land management corporation (orga- nized as a real estate corporation), could either be wholly owned by the parent, or partially owned with minority ownerships available to persons having special interest in the functions of a particular subsidiary. If partially owned, the parent should own at least eighty percent of each corporation, so that they can be considered as a consolidated operation for the purposes of pension and retirement plans, etc. Further, consolidated returns could be filed, if it were deemed SECTION VI advisable, so that a deficit by one corpora- tion—a likely matter in initial years — could be used to reduce the taxable income from another. Changes to separate tax returns, at appropriate times, could be made in the manner provided in the Internal Revenue Code. The land management corporation would own and operate timber properties; would obtain from forest land owners an option to purchase stumpage; or would lease timber properties, together with the right to cut trees in an orderly manner. Alternative arrangements might involve long-term cutting, reforesting, and management agree- ments. As a further function, it would administer forest management projects so as to improve the quality and quantity of timber on both owned and optioned properties. It is to be noted that the land management corporation, being a real estate corporation, will be entitled to special Federal tax benefits. These include a depletion allowance and authority to treat income from the sale of timber on property owned more than six months as a capital gain. Losses can be treated as ordinary income. Multiple Corporation Operation The principal reasons supporting the recommendations of a multiple-corporation operation are as follows: 1. The three corporations that have been suggested, each with its separate func- tions, can file separate tax returns. In each instance, corporate profits will have the benefit of up to $25,000 income per year at the lower available tax bracket. At the present tax rate, a net saving of $5500 a year on taxes of a single corporation will be effected for each additional corporation, assuming that the profits of each will be in excess of $25,000 a year. 2. Each corporation will be able to accumu- late separately the minimum accumu- lated earnings credit of $100,000, and such additional amounts as are proper for its operation, without the necessity of having to dispose of the same as dividends. 3. This type of organization has the ad- vantage of being able to provide for partial separate ownership and thus at- tract the investments of persons spe- cially interested or qualified in portions of the activities of the complex — i.e., marketing or forest ownership and management. THE CORPORATE ORGANIZATION 4. The multiple corporations will permit merger, consolidation, partial or com- plete liquidation, reorganization or sale involving only one of the corporations. 5. The manufacturing company, being the controlling owner of the subsidiaries, will control the board of directors of each. Also, assuming investment by individuals with special interests and abilities, there will be available for each subsidiary's board additional persons especially familiar with its problems. To the extent that the multiple corporation organization will have a total capital not in excess of $1,000,000, of which not more than one-half is in shareholders' debt and the balance in stock ownership, with the re- mainder of its operations financed entirely from loans, it may qualify under Section 1244 of the Internal Revenue Code. If more than this amount were involved, this provision could not be available unless the subsidiaries were less than 80 percent owned, but it would be available to any independent organization meeting the financial limitation. Investors in such a corporation enjoy a tax advantage, in that losses sustained in the operation may be taken by the investor as a full loss against income, for income tax purposes. The purposes of this section of the Internal Revenue Code is to provide inducement for investing in new businesses, and it, therefore, seems peculiarly adapted to this situation, provided the organization can qualify financially. Service Organizations Trucking and similar functions can be car- ried on for the complex either by means of establishing contracts with independent service organizations able to do the work, providing these organizations financial sup- port required for additional equipment, or by creating internal facilities either as departments of one of the three corporations or as additional corporations. The manu- facturing corporation will have the legal ability to make funds available if necessary to give financial support to independent serv- ice organizations under contract. As an alternative, it could assist in obtaining funds through a small business investment corpo- ration (SBIC) or similar agency. A long- term contract between the manufacturing- corporation and an independent service organization could be used to support applications for loan assistance. In the event it is elected that internal facili- ties are preferable to using the services of 113 independent organizations, it is pointed out that the creation of additional corpora- tions is an easy technical problem and in- volves no great expense other than for initial incorporating costs. The important require- ment is that each corporation have a truly separate function, or different ownerships, so as to prevent the group from being treated as a single, consolidated corporation. Satellite Operations It is contemplated that certain manufac- turing activities at the complex will be carried on by independent operators. It is recommended that in dealing with such manufacturers, referred to as "satellite operation," a very close relationship should be developed. In return for making raw material available to the satellites at a reasonable price, for serving the satellites with a sales organization prepared to reach markets not otherwise available, and for extending assistance to the satellites in obtaining adequate financing for installation, modernization or expansion of manufactur- ing facilities, the manufacturing corporation should establish a strict contractual rela- tionship with each of the satellites. It is expected that the satellite operations will be able to obtain loans through local bank sources or from a small business investment corporation, these funds being funds which are available only in view of the favorable qualification derived from the contractual relationship with the manufacturing corpo- ration. In order that this will not undermine the position of the manufacturing corpora- tion, the contracts with the satellites must limit purchases of raw material elsewhere, provided it is supplied by the manufacturing- corporations at reasonable agreed prices. And furthermore, the satellites should not be allowed, under the terms of their con- tracts, to dispose of products elsewhere pro- vided the sales company of the complex is willing and able to handle them. The agreement must also be fair to the satellites and, therefore, the manufacturing company must be bound to furnish them with raw material as needed on long-term contract. An escalator clause should pro- vide for long-term adjustments of the "reasonable price" mentioned above. That is, some external standard should be ap- plied that will properly reflect increases or decreases in price resulting from the state of the general economy or changes in produc- tion costs. A proper trade or governmental 114 index that is not influenced by the particular operation but which reflects the problems involved should be used for this purpose. In further consideration of the sales rela- tionship, the manufacturing organization should have a contractual obligation to dis- pose of a definite volume of products made by each satellite; for example, the full weekly production of a one-shift, five-day operation. In the event of failure by the sales company to dispose of agreed volume a satellite should be free to sell its products through other channels. It might be necessary, especially during the first years of the venture, to give the satellite protection in meeting loans if neither it nor the sales company could dispose of the amount of product that was contemplated. This would be particularly true if a satellite had under- taken material expense based upon a sales covenant. Investment by Independent Manu- facturers It is anticipated that certain investors already engaged in wood processing activi- ties may wish to set up additional manu- facturing facilities in proximity to the complex and also to invest in the manufac- turing corporation. In such instances, the complex should be protected from either improper competition or from having the profit of such an activity accrue only to the benefit of the investor rather than to the benefit of the manufacturing corporation. To assure such protection, it is recommended that a long-term contract be entered into by the parties for the supplying of a partially- manufactured product by the manufacturing corporation, on a basis that insures a profit to both corporations. The contract should require the investor's manufacturing oper- tion to accept this product to the extent needed and not to purchase elsewhere so long as this product is offered in stipulated quantities and at a stipulated price, even if competing production should be offered at a lesser price. It is realized that this is a somewhat rigid requirement, but it seems to be justified in order to avoid future complica- tions in the situation where an individual investor is operating on both sides of the picture. While the final details of these contracts probably cannot be agreed until operations actually start, they should be set forth in basic principle at the onset of the relationship. This will assure full dis- closure to all potential investors that the SECTION VI particular project is properly for the benefit of the manufacturing corporation, and is not a use of this corporation merely to assist the investor in making a profit in his own business. Personnel Incentives The manufacturing corporation will have to attract personnel both from within and without eastern Kentucky, but top executive personnel, especially, probably must be found outside the region. Appropriate induce- ments must be offered not only to such personnel but also to locally recruited per- sonnel entering the organization who, it is to be hoped, will remain to develop into the future executive cadre. One such inducement would be a properly designed vested plan of pension and profit sharing, for the purpose of insuring re- tirement income to its employees. A well designed plan should be available to all employees, from top management on down, excepting those unionized employees other- wise protected by means of union-negotiated plans or by wage rates negotiated in lieu of such a plan. The advantage to the em- ployee of this type of provision for retirement income is that it provides supplemental income with no tax to be paid until the in- come is received at retirement age. Al- though it is then taxable, it presumably will be at reduced rates, as it will be in place of a higher salary. Insofar as the corporation is concerned, the company's payments from profits into the retirement fund are considered for tax purposes as ex- pense at the time the contribution is made. Earnings of funds deposited in the plan during its period of operation are exempt from income tax. A capital gains tax is payable by the employee if he takes his share in a lump sum at the time of retirement, but he pays only income tax if his share is paid out periodically thereafter. A profit sharing plan of this type may exclude employees with less than two years of service, in order to assure that it will be available only to those showing some permanence with the corporation. An extra inducement to top management personnel is the granting of a stock option which allows for the purchase of stock over a period of time and on terms which will be most satisfactory to participating personnel after the success of the corporation causes a rising market in its stock. These options are established at a price approximately equal to the current market price at the time the THE CORPORATE ORGANIZATION 115 option is granted and allow for purchase at any time or at specified times over an ex- tended period of years. The employee is thus provided an appropriate inducement to work toward increasing business, resulting in a related increase in the value of the corpora- tion's stock, since he can personally benefit by such an increase. This is especially valuable as a long-term incentive for an employee planning to stay with the corporation for many years. Type of Securities The stock structure best suited to the recommended organization would ordinarily be a simple common stock. However, if it were desired to attract small investors who wish to obtain regular dividends commencing with the start of the operation and who have a greater interest in dividends than in capital appreciation, it would be well to include a preferred stock with the usual cumulative dividend features and callable at any time at a small premium. If desired, this stock could be made convertible, giving to the investor the right to obtain common stock if desired. In creating the manufacturing corporation, especially, consideration should be given to the issuance of debt securities as well as equity securities, so that with proper atten- tion to the restrictions of the Internal Reve- nue Code a portion of the investment will be a debt and can be repaid without being a taxable dividend to the investor. Section VII Meeting the Financial Requirements of the Complex The magnitude of the wood products com- plex recommended in this report inevitably suggests problems to be faced in the field of financing, particularly in view of the relative scarcity of venture capital in eastern Ken- tucky. Furthermore, the fact that the several operations of the complex are inter- related and cannot operate efficiently as independent units means that the usual device of time-phased expansion of facilities cannot be applied. The purpose of this section is to examine some of the means available for proper financing of the complex. Perhaps the first step in the analysis of the situation is to break down the total costs of site, site improvements, timber land, produc- tion facilities, and working capital into their component parts. Once this is done, dis- cussion of the means available to finance particular requirements of the principal corporation of the complex becomes some- what simpler. The costs, projected in another section of this report on page 82. are summarized here as follows: Principal Satellite Item Corporation Corporations Site and site improve- ments $135,000 Timberlands 520,000 Industrial buildings 801,300 Installed equipment 2,560,600 $557.50 Working capital 359,700 193.20 Totals $4,071,600 $749.70 In this analysis, non-productive facilities (e.g., the corporate offices in Lexington and the space required for the marketing corpora- tion) have been omitted. These activities can occupy leased quarters initially, at least, and can later arrange to have facilities con- structed and leased to them on a long-term basis. No significant investment will be required by the corporation. Once the nature of the overall costs has been analyzed, it will be necessary to deter- mine how each component can be funded. For it is more or less obvious that no new company can expect to do the job itself in eastern Kentucky. Fortunately, however, Kentucky has made numerous provisions for community and State contributions to the financial requirements of new industrial undertakings, thereby extending the effect of conventional lending institutions. Other governmental sources of industrial financing include the Area Redevelopment Administra- tion, the Small Business Administration, the Rural Electrification Administration (in selected areas of the State), and the Commu- nity Facilities Administration of the Housing and Home Finance Agency — all activities of the Federal Government. The capability of each of these agencies to support various aspects of the necessary industrial financing TABLE VII-I ANALYSIS OF FINANCIAL SOURCES IN KENTUCKY FINANCING SOURCES AND AGENCIES ITEM OR FUNCTION FINANCED Industrial Site Acquisition &t Improvements Timberlands Industrial Buildings Utilities & Services (1) Electric Service (2) Water (3) Sewerage Machinery 8* Equip. Working Capital 1. Non-Government Sources Banks Insurance companies Ky. Business Development Corp. Public utility companies Savings and loan banks Small Business Investment Companies (SBIC) 2. State Government Sources Local industrial development corporations Kentucky Industrial Development Finance Authority Municipal general obligation bonds Municipal industrial revenue bonds 3. Federal Government Sources Area Redevelopment Admin. (1) Industrial loans (2) Public facility loans and grants Housing and Home Finance Agency (CFA) Public Health Service Rural Electrification Admin. Small Business Admin. (1) Loans to community development corporations (2) Loans to small business XXX XX XXX XX X X XX X X X X XX XX FINANCIAL REQUIREMENTS 117 are summarized in Table VII-I on page 116. The subsequent discussion illustrates the manner in which several of these agencies, private and governmental, together with available venture capital, could support the financing required for the complex. Financing the Principal Corporation The successful launching of the corporation to operate the proposed wood products com- plex depends basically upon the ability to mobilize private venture capital, particularly in eastern Kentucky. The organizers of the corporation, however, have some basic tasks to perform before a public issue of stock may be made. The founders, who will be a group of com- munity leaders and businessmen seriously interested in the project and who will serve initially without pay, must first establish the legal existence of the corporation and con- tribute appropriate funds in exchange for common stock. To begin with, a minimum of about $50,000 will be required; common stock could be issued at a nominal par value of $1 per share, for example. Subsequent to the legal establishment of the corporation, the founders will embark upon a preparatory program roughly as follows: (1) a project engineer will be engaged to implement final plans for the complex, selecting a site and adjusting the broad outlines of the project to the local circumstances; (2) the founders will endeavor to secure the support of the local community development corporations respon- sible for tentatively identified sites and will confer with community leaders, bankers, Chamber of Commerce groups, and others whose support will be required; (3) the founders will locate and secure options to buy up to 26,000 acres of suitable timberland; and (4) when discussions have reached the proper stage, the corporation will issue a detailed prospectus — based on the present report and including information relative to the final site, purchase options, and other details — offering stock of the corporation to the public. The size of the public stock offering should total about $1.5 million; it is suggested that the initial offering be made at par value in minimum blocks of 100 shares of common stock. This method of financing should attract support from a relatively large num- ber of private investors with moderate sav- ings—mainly from professional groups. Sizable investments should, of course, be solicited from prominent citizens of eastern Kentucky and from within the wood products industry, including proprietors of future satellite operations and consumers of the products to be manufactured by the complex. Unless the issue is registered with the Se- curities and Exchange Commission, however, stock sales must be limited to Kentucky residents. Assuming the success of the stock issue, the corporation will have cash assets of about $15 million and broad-based support throughout the State. It will then be ready to consum- mate the plan of the complex. The following outline of procedures for financing the ac- tivities of the complex is intended to be illustrative only; details will depend on local conditions, money markets, and other factors not amenable to discussion at this point. Site Acquisition, Site Improvement, Buildings Most suitable industrial sites in eastern Kentucky are already owned by the various community development corporations in the region and can be leased to an appropriate industrial undertaking. If, however, the site needed for the complex (54 acres) is not held by such a group, tested procedures in Ken- tucky make it a relatively easy matter for the group to acquire it. Providing the com- munity development corporation can secure guarantees amounting to 50 percent of the purchase price (for a tract of 50 acres or more), from within the community or from institutional lenders or both, it can apply to the Kentucky Industrial Development Finance Authority (KIDFA) for the balance. Funds secured from KIDFA can be used for site improvements, installation of necessary utilities and construction of access roads, and for industrial buildings. KIDFA policies require that adequate conventional loans are not available from banks prior to the applica- tion from a community development corporation. Several alternative means of financing sites and site improvements are available to local groups in eastern Kentucky, short of seeking the support of the Area Redevelop- ment Administration. These include (1) the issuance of municipal industrial revenue bonds (25 years, 6 percent) for land, build- ings, and equipment for industrial enter- prises; (2) municipal general obligation bonds covering land and buildings (rarely used); (3) water and sewerage development under 118 municipal bonds, for extension of services to industrial sites; and (4) State assistance to county highway development, especially for access roads. Depending upon the circumstances, public utility companies may agree to construct electrical facilities suitable to the industrial undertaking, providing future revenues warrant the expense. Area railroads, similarly, may construct industrial spurs if the site is not already on a railroad, providing sufficient freight revenues may be expected in the future. Special sources of financing available from U.S. Government agencies include low cost ARA industrial loans (up to 65 percent of the cost of land and buildings and equipment) under feasible circumstances; ARA public facility loans and grants to communities (for extension of water and sewerage facili- ties to new industry); Small Business Admin- istration loans to community development corporations (land, buildings, and equipment, up to $250,000, provided 20 percent of the cost is obtained locally). Expanded or additional water and sewerage installations required to service the site can also be financed by loans from the Community Facilities Administra- tion, HHFA, or — in some cases — by grants from the Public Health Administration. The construction of electrical facilities for rural industries in some areas of eastern Kentucky can be accomplished with the aid of loans from the Rural Electrification Administration. In view of the fact that industrial sites are already available on lease from community development corporations, the emphasis to be expected at the community level will be on site development and the provision of build- ings. Loans from KIDFA and other sources should be readily available for site develop- ment. Municipal industrial revenue bonds perhaps offer the best means to finance the cost of buildings (about $801,300), to be leased to the complex. Whatever means, or combination of means, used by the local development corporation, the provision of an improved site with ade- quate buildings is a relatively easy task and one which will require no permanent invest- ment by the corporation. Acquisition of Timberlands The plan for the operations of the complex provides for outright purchase of about 26,000 acres of timberland by the land man- agement corporation, at an estimated cost of $520,000. There are no statutory provisions that enable community development corpora- SECTION VII tions, KIDFA, or other development assist- ance agencies to purchase timberland. It is conceivable, however, that the laws could be interpreted in such a way as to class such land as industrial property. Nevertheless, it should be a reasonably simple matter to arrange for purchase of the required land through conventional lending agencies. In such a case, the corporation would expect to pay 25 percent to 40 percent of the purchase price of the property under option ($130,000 to $208,000) and to obtain a mortgage for the balance. Considering the extent of the mort- gage, it may be necessary for several area banks to pool resources as a consortium to fund this undertaking. Repayment of the mortgage should be based on corporate earn- ings, with a moratorium on repayment of principal for the first five years. On the other hand, provisions should be made for prepayment of the mortgage by the corpora- tion when possible. The arrangement suggested here will conserve the cash assets of the corporation, which will be required to purchase machinery. Installed Machinery and Equipment The major direct investment of the corpo- ration will be for the machinery and equip- ment to be installed at the complex site. Assuming the successful issue of $1.5 million of capital stock, the corporation will be able to pay only about 40 percent of the total projected cost of equipment required. Sev- eral approaches to financing the balance are available: 1. Outright purchase of some equipment, plus the negotiation of long-term credit with equipment suppliers for the balance. 2. Outright purchase of some equipment and lease of other equipment from in- dustrial leasing organizations. 3. Reliance on municipal industrial revenue bonds for a portion of the equipment, perhaps for a complete major installa- tion such as the flakeboard plant. This alternative, however, requires the corporation to lease the equipment from the community, a situation to be avoided if possible. 4. Private placement of capital stock and/or debentures with conventional lending agencies to finance the balance of the equipment cost ($1.5 million). 5. Private placement of capital stock and/or debentures with the Business Develop- ment Corporation as in (4) above, or for any portion not accepted by conventional lending agencies. FINANCIAL REQUIREMENTS 6. ARA industrial loans, preferably for a Working major installation such as the particle capital. board plant; this type of financing is rare with ARA, however. 7. Small Business Administration loan, as in (6) above. Working Capital Initially, working capital will be available to the corporation in the form of the proceeds from the public sale of capital stock. Addi- tional short-term loans for working capital, as required, can be negotiated with banks in Kentucky, with the Business Development Corporation, and — under certain circum- stances—with the Small Business Admin- istration. The availability of short-term credits from banks in the region will be par- ticularly important, and procedures for utilization of such credits should be estab- lished as early as possible. Summary of Financing for Principal Corporation Working from the original assumption that the corporation will be able to sell about $1.5 million in capital stock through a public offering within the State, the corporation will be able to commence operations with the following financial condition: Item Improved in- dustrial site. Industrial buildings. Timberlands. Machinery and equipment. Disposition of Corporate Cost Assets $135,000 Financed by community and leased by corporation. $810,300 Financed by municipal in- dustrial revenue bonds plus KIDFA and/or ARA loans; leased to corpora- tion. $520,000 Corporation paid $208,000 in cash (maximum), secured a mortgage on balance (20 years at 6%) for $312,000. $2,560,000 Corporation bought equip- ment for $1.0 million; secured loans or credits for balance (or leased equipment). 119 $359,700 Corporation has $292,000 available for startup costs, wages and salaries, operating expenses, raw materials, and debt serv- icing; balance on revolv- ing line of credit with local banks or BDC. Financing Satellite Operations Since the satellite operations will, in most cases, be tenants of the principal corporations, the primary problems faced by them will be to secure adequate financing for equipment and working capital. In no case does the requirement for capital exceed $225,000; and in most cases the requirement is in the range of $150,000 or less. Assuming that most proprietors of satellite operations will have some experience in their fields of manu- facturing, they will already have available some equipment and liquid assets and will have established credit with local banks and suppliers. Additional capital required will be obtained from within the local community, by public sale of securities, and/or by re- course to such agencies as the Business Development Corporation. The latter agency is empowered both to make loans and to take equity positions in new or expanded industry in Kentucky. In addition, the smaller opera- tions will have more readily available to them SB A loans — assuming some previous product experience — and financing from Small Business Investment Corporations. If the proposed commercial or industrial facility is to be located in an ARA designated area of critical unemployment, it is possible to obtain long-term financial assistance from ARA for the acquisition of capital assets (not working capital) contingent upon other circumstances being favorable. However, of the total financing such assistance requires at least: (1) 10 percent furnished by a local development company (acceptable to ARA); (2) five percent from the applicant; and (3) 20 percent from private fund sources. 722-307 0-64-9 Section VIII Marketing Potentials for Selected Products It is apparent that the volume of sales projected for the wood products complex depends as much upon realistic appraisals of markets as upon aggressive and imagina- tive salesmanship. This section presents summary market analyses for each of the principal products recommended for the complex. These summaries were developed during the course of this project and are believed to be reliable within the limits of the data available. Market data used in these summaries de- rived from a variety of sources, including manufacturers of wood products and furni- ture, consumers of wood products, trade association, and several agencies of the Fed- eral Government and of the Kentucky State government. Data accumulated from these sources were analyzed and projected against data available in such published sources as the 1958 Census of Manufacturing, in- dustry reports, and the annual Outlook for Manufacturing. In several instances, not- ably the market summaries for preserva- tive treated products, litter, mulch, wood chips, paneling, and pallets, no published data were available and the discussions and projections are based largely on original research. Appropriate credit is due Mr. Harrod Newland, Kentucky Department of Commerce, for his initiative in conducting a survey of the market for preservative treated posts and railing in Kentucky in connection with this report. Despite the inherent limitations of the summaries, they serve to confirm the size of the existing or potential markets for several classes of wood products and to support the magnitude of production en- visaged for the several operating plants included in the recommended wood proc- essing complex. A more precise study of market potentials for many of these prod- ucts is available in the form of a compre- hensive report, Wood Used in Manufacturing, compiled by the U.S. Forest Service. Two related conclusions of significance appear as a result of the market summaries pre- sented below. First, eastern Kentucky is well-situated to supply raw materials and semi-finished wood products (dimension, core stock, furniture frames) to a major part of the important U.S. furniture industry, and at competitive prices. Second, markets for these and other eastern Kentucky wood products should not be artificially restricted to nearby furniture centers in border States. Although a nominal market area, with a radius of 300 miles from a central location in eastern Kentucky, has been used in this report, the rapidly improving transportation network — in particular, the Eastern Ken- tucky Turnpike and the Federal interstate highway system — provides increasingly easy access to more distant industrial mar- kets: Chicago, Detroit, New York, Philadel- phia, Baltimore, St. Louis, and even Los Angeles, for example. Finally, it will be the continuing function of the marketing corporation of the complex to test and adjust the projections presented in this report. The furniture industry, probably the most important single customer of the complex, will certainly continue to grow in the future in rough proportion to the growth of the population. But steadily increasing wages in the major furniture manufacturing areas will force the adoption more and more of semi-assembly line tech- niques, with increased demand for dimension, prefabricated parts, semi-finished assemblies, and prefabricated frames. The sales and technical assistance program outlined ear- lier will undoubtedly turn up requirements for products other than those included in this section — and in industries other than furniture manufacturing. Market analysis, after all, can alert a competent sales organi- zation to profitable opportunities; but it cannot replace an aggressive and imaginative sales force. Dimension and Laminates Dimension stock consists of wood machined to the specifications of an ultimate manu- facturer. In a broad sense, dimension stock comprises the interchangeable parts that permit some mass production techniques to be used in the wood products industry. In- cluded in dimension stock are edge glued panels and simple laminated stock. Dimen- sion stock is widely used by the furniture MARKETING POTENTIALS 121 LOCATION OF DIMENSION MILLS Hardwood Dimension & Flooring Mills, 1958 Hardwood Dimension & Flooring Mills - 50 or more employees, 195! (Figures show total number of mills in each state) 122 SECTION VIII industry but is also used in the production of other wood end items, including ladders, stair treads, picture frames, boats, house- hold items (screens, room dividers, cutting boards, trays, etc.), and industrial items (wooden bakery ware, cutting boards, shelv- ing, counters, etc.). This section does not include a consideration of laminated struc- tural members, known as "glue-lam." Rough dimension stock consists essentially of blanks for items that will later be manu- factured in a using plant: chair arm blanks, for example. Or, as another example, rough dimension can be edge-glued panels of the approximate size for drawer sides; these panels are cut to exact size, surfaced, and machined by the using plant or by an inter- mediate processer. The production of rough dimension stock requires a minimum number of skilled personnel; uses conventional saws, planers, and gluing devices; and adapts itself to mass production techniques, ease of handling, and convenient packaging for shipment. Finished dimension stock takes the basic blanks one step further and requires the use of woodworking machinery to shape, turn, sand, route, groove, slot, joint, bore, etc. Some additional skills are required to insure high quality production, though mass pro- duction techniques can be utilized, and greater attention must be given to packaging and shipment of finished dimension. The increasing acceptance and use of dimension by the furniture industry, in particular, is a result of several interrelated factors including the high cost of labor in many of the furniture producing centers of the country, shortages of suitable hardwoods, and production economies. Although many of the dimension mills are located in or near furniture producing areas in the Southeast, as shown on the map of hardwood dimension and flooring mills, comparison with the map of wood furniture plants and that of uphol- stered furniture plants shows that there is no necessary correlation between the loca- tion of dimension mills and furniture plants. Rather, dimension mills tend to locate near the source of raw material. The heavy con- centration of furniture mills in the North- eastern States, southern Indiana, northern Illinois, eastern Wisconsin, and southern Michigan — where raw materials must often be imported and where wage rates are rela- tively high — are obviously dependent to a large extent on the production of dimension mills in the Southeastern States. The mar- ket for dimension stock, therefore, extends far beyond the primary production centers. Many existing mills, in fact, have established national markets for their products. Additional dimension mills in eastern Kentucky can expect to tap furniture markets in Kentucky, Indiana, Ohio, Virginia, North Carolina, and Tennessee on very favorable terms. In particular, the furniture industry in Indiana and Ohio should be unusually available to a dimension mill in eastern Kentucky. Most existing plants in these areas must now draw on plants located far- ther away (and with higher labor cost). Similarly, eastern Kentucky is favorably located as a source of dimension stock for the furniture industry in northeastern Illi- nois (Chicago area), southeastern Wisconsin (Milwaukee-Sheboygan areas), southern Michigan (Grand Rapids and Detroit areas), and the large concentration of plants in or near New York City, Philadelphia, and Baltimore. While the above discussion has emphasized the use of dimension stock to the furniture industry, any plant established in eastern Kentucky will also be able to develop a market for dimension within the nearby truck and trailer body industry, the electrical appliance industry (shaped wooden parts for packing and crating), the boat building in- dustry, and others. Aggressive market development is, or course, an essential factor in this field, as it is in any product line recommended here. The potential for a profitable industry is particularly good with respect to dimension stock. The discussion in the preceding sections of the report has already indicated that high grade lumber is not a necessary raw material in the production of dimension. Rather, lower grade lumber can be upgraded by selectively cutting rough dimension from it, thereby removing knots, fire scars, and diseased spots. This rough dimension, all of which will be essentially prime raw ma- terial, has a value far in excess of the boards from which it was cut. While prices vary widely, because of the range of materials and operations involved in manufacturing dimension stock, a recent average price is about $240/M b.f. Since freight charges play a large roll in determining the profit- ability of dimension, eastern Kentucky's favorable location near the Nation's major furniture centers is a prime factor in recom- mending the production of dimension stock. Demand The demand for dimension stock has increased rapidly as more and more manu- MARKETING POTENTIALS 123 LOCATION OF PARTICLE BOARD PLANTS MINNESOTA ¥ MICH. ) WISCONSIN MISSOURI LUNOIS m 'MICHIGAN foHlO r f\U- Voi^ «uc^ CA p , ARKANSAS [gEO^ LOUISIANA i £ CA ROLINP W FLORIDA # = plants reported in production, 1962 OU/C = plants under construction, 1962 124 facturers close down their in-plant wood- working shops in the interests of economy of operations. In 1958, sales of dimension stock and laminates to all segments of in- dustry were about 485 million board feet. Considering the fact that this was a slow year for industry, and that many of the using industries have since recovered and/or expanded, current demand for dimension and laminates should be about 560-600 million board feet. The distribution of shipments of dimension stock and laminates in 1958 was as follows: SECTION VIII Industrial uses for dimension stock — agricultural equipment, sporting goods, railroad car and motor vehicle parts, gun- stocks, brushes, ladders, and household goods, etc. — should provide a large, attractive market for a dimension plant located in eastern Kentucky. There appears to be no reason why an efficiently managed dimension mill in eastern Kentucky cannot easily pro- duce and sell 4-5 million board feet of rough and finished dimension a year, for a gross income of $500,000 to $1,000,000. TABLE VIII -I SHIPMENTS OF HARDWOOD DIMENSION STOCK AND LAMINATES Furniture Dimension, including glued laminates: Green or dried, rough or surfaced Semifabricated Other Industrial Dimension Semifabricated Industrial Parts Completely Fabricated Indus trial Parts: Furniture parts except frames Vehicle stock Other hardwood parts Hardwood Dimension, not specificed 195 8 1954 QUANTITY VALUE QUANTITY VALUE (MBF) ($1000) (MBF) ($1000) 134, 134 30, 503 219, 539 37, 171 41, 704* 6, 243 85,702* 15,118 117,521* 1 9, 6 1 9 NA 2, 990 NA NA NA NA NA NA 30, 936 2, 917 6, 757 NA NA NA 29, 934 4, 362 NA 7, 531 485, 400* 102, 895 Source: 1958 Census of Manufacturers, "Logging Camps, Sawmills and Planing Mills, " MC58(2)-24A, U. S. Department of Commerce, Washington, D. C. * Estimated Value About 50 percent of all dimension stock is consumed by the furniture industry, or an estimated 280-300 million board feet in 1962. About 50 percent of all non-upholstered household furniture and 37 percent of all upholstered furniture, by value, is produced within a 300 mile radius of eastern Kentucky (see maps of furniture plants, pages 123 and 132). If the North Central and Northeastern furniture producing areas outside this radius are included as possible markets, a dimension plant located in eastern Kentucky could serve an estimated 75 percent of the house- hold furniture industry. Additional sales, of course, will be developed among the nearby office furniture producers, manufacturers of mattresses and box springs, and miscel- laneous furniture plants. Laminated Solid Wood Core Stock Laminated core stock made from solid wood is widely used in the quality furniture industry as a base material for the applica- tion of veneers, plastic overlays, etc. The product competes with plywood and particle board, extensively used in the furniture industry for the same purposes, but many manufacturers of quality furniture prefer to use lumber core stock. Laminated core is manufactured by edge- gluing narrow strips of hardwood into modu- lar panels; modern production techniques include the use of synthetic resins and elec- tronic bonding presses. The soft hard- woods—particularly yellow poplar — are best suited to its production. Laminated core stock is notably stable and is well suited to the manufacture of case goods, tables, office furniture, and other furniture requiring long, wide unsupported panels. From the stand- point of the core stock producer, modern production techniques permit him to make efficient use of lower grade lumber — in a manner similar to the techniques discussed above for dimension stock — for a substantial monetary return. High grade laminated core stock markets at prices averaging about $.30 per square foot. While laminated core stock is more expen- sive than particle board or plywood, industry spokesmen indicate a distinct preference for its use in high quality furniture, particu- larly in North Carolina. As shown by the map of non-upholstered wood furniture plants, page 129, eastern Kentucky is well- situated to serve this market. Demand The annual demand for laminated core stock remains fairly steady at about 45-50 million square feet. The rapidly increasing MARKETING POTENTIALS production of particleboard in the South- eastern furniture producing area undoubt- edly will act to prevent any large increases in the use of laminated core stock, but su- perior qualities of laminated core stock will serve to keep demand reasonably steady for many years to come. Because laminated core stock is used most extensively by manu- facturers of quality furniture, it is not likely that the flakeboard operation of the eastern Kentucky wood processing complex will compete for more than a small portion of the existing market for this product. Flakeboard Flakeboard is an engineered product con- sisting of wood flakes, of a controlled moisture content and size, bonded together with a synthetic resin or other added binder into panel form under controlled heat and pres- sure. Flakeboard is a member of the generic product group called particleboard. Par- ticleboard, including flakeboard, is used in increasing quantities for veneer overlaid core material; furniture tops, end panels, and drawer fronts; underlayment; decorative paneling; cabinet and counter cores; veneer overlay; paper plastic overlay; and interior partitioning. During 1962, greater use of particleboard by the construction industry was forecast, based upon the development of an exterior phenolic board. The wood particleboard industry continues to be the fastest growing segment of the wood products industry, with production conservatively estimated at 354 million square feet ( 3 /4 in. basis) from 47 plants in 1962. This repre- sents an increase of 11 percent over 1961 production and annual growth in excess of 10 percent since 1954. Industry estimates for 1970 provide for production of 800 million square feet from 75 plants. See map on page 123 for location of production facilities, 1962. The extensive use of flakeboard and par- ticleboards of various types by the furniture industry has resulted in the establishment of "captive plants" designed essentially to produce for internal corporate consumption. Many of these plants are located in North Carolina. The single operating plant in Kentucky (at Henderson) is owned by Jaspar- American Company, a furniture manufac- turer. Lane, Kroehler, and Storkline are other large furniture manufacturers operat- ing captive plants. As a partial result of this situation, a large 125 but undetermined portion of the total pro- duction of particleboards of all types in the Eastern United States has not been available commercially. A 1958 survey of the poten- tial for particleboard production in Georgia showed that about 50 percent of all material sold in that State originated from west coast plants. Assuming a similar situation in other nearby States, it appears that a sizable market exists tor particleboard produced regionally, since the cost factor of freight rates from the west coast will be eliminated (about $38-$40 per thousand square feet). The validity of this conclusion is confirmed by the fact that three new Southeastern plants entered the market during 1961-62, adding about 110 million square feet capacity for mat-formed particleboard. A fourth plant with a design capacity of 23 million square feet is under construction in New York State. As shown on the map, there are two plants within a 100-mile radius of eastern Kentucky, one of which is a captive producer. Seven additional plants are located within a 100-200 mile radius of eastern Kentucky, five of which are captive plants. Five more plants are located within a radius of 200-300 miles from eastern Kentucky, including at least three captive plants. The rated capacity of plants located in Kentucky and surrounding States in 1958 and 1962, was as follows: NO. PLANTS PRODUCTION - Million Square Feet Estimated Rated Reported STATE 1958 i%i y Capacity 1958 Capacity 1962 If Output 1962 i/ Kentucky 1 1* 2. 3 10. 5 5.0 Virginia 3 4# 35. 105. 49. 7 Tennessee 2 2* 8. 9. 8 2. 5 North Carolina 14 10@ 118. 111.8 57. 4 Indiana 1 1 5. 10. N. A. Illinois 1 22 1 19 18.0 186. 3 30. 277. I 26. 4 141. 0+ U Source: Current Industrial Reports, BDSAF-582 (61)-1, June 5, 1962, U. S. Department of Commerce. 2/ Source: Forest Industries , July 1962 (1962 Directory of Board Producers). * - One plant produces extruded board only. # - Includes two plants producing extruded board. @- Includes seven plants producing extruded board. The trend toward the larger independent producer is shown in the above table; despite a net loss of three plants between 1958 and 1961, production capacity more than doubled. Most, if not all, the newer capacity is de- signed for the production of mat-formed particleboard suited to several markets. The effects of changing technology and market conditions on producers as a whole is suggested by a listing of product fields served by the 49 United States plants report- ing production in 1961: ' 1 Source: Forest Industries. July 1902, p. 42. 126 SECTION VIII LOCATION OF PALLET PLANTS • Pallet Plant Centers (may be more than one plant) • Major Pallet Plant Locations in Kentucky (36 plants) XX Pallet Wholesalers (may be more than one at each location) MARKETING POTENTIALS 127 TABLE VIII-II PARTIC LEBOAR D PRODUCTION, 1959-1962 (Million Square Feet) AREA 1959 I960 1961 (Estimated) 1962 Rated (Active) Production Capacity Northeast/North Central States* Southern States** Western States United States (Total) 37. 3 107. 7 150. 8 295. 8 38. 103. 2 127. 2 268. 4 30. 7 124.0 164. 6 319. 3 3 8. 1 148. 8 199. 5 386. 4 60. 288. 4 398. 8 747. 2 Source: 1959-61 data from Current Industrial Reports, BDSAF-586 (61) -1, June 5, 1962, "Particleboard 1961, " U. S. Dept. of Commerce, Washington 25, D. C. Rated production capacity based on data in Forest Industries, July 1962, pages 122-128. *Northeast/North Central States: Pennsylvania, Indiana, Illinois. A plant with additional capacity of 23. million square feet is under construction in New York. **Southern States: Virginia, N. Carolina, Kentucky, Tennessee, Mississippi, Arkansas, and Texas. Form or Application Number of particleboard production is roughly equiva- Corestock°._! Producing Plants lent to demand. Table VIII-II on page 127 PurnitureV".\V".'.'.'.'.'"!.'!!!!!!!!!!!!!!!."!!!!!!!!!!!!!!."!.'"!!!!!!!!l 39 shows U.S. Government estimates of produc- Underlayment 25 tion, 1959-1961, and a projection for 1962. Cut-to-size.. 30 Although official U.S. Government produc- Paper-plastic overlay!!!." 10 tl0n estimates for 1962 show only 354 million Cabinet stock !!!!!!!!!!!!!!!!!!!!!!!!!!.!!!!!!!!!!!!!!!!!!!! 28 square feet, an increase of 11 percent over Prefinish 4 1961, preliminary industry reports and other ^ imed .-, 13 data suggest total production of 375-400 Floor tile 4 . ir » , r ■ „ ,-..-. nr Construction 21 million square feet, or an increase of 20-25 Siding (Exterior)!!.........!!!!!!!!!!!!!!!!!!!!!!!!!!!!.!!!!!!.!!!!!! 2 percent for the year. While this figure is Decorative 14 only about 50 percent of installed capacity, Otif 6 banded 15 much of the existing capacity comprises spe- 12 cialized production units and obsolete or marginal units scheduled for retirement. Largely because of the rapid growth of the While some of the original (smaller) captive particleboard industry, reliable statistics for plants -largely established to produce core consumption by industry sector are not avail- stock for the furniture industry -are still in able. It is generally agreed, however, that operation, almost all the plants produce about 50 percent of all production is used bv board for core stock, as well as for a variety the furniture industry: i.e., in 1962, about of other end uses. 185-200 million square feet. Possibly an- other 150 million square feet is now being Demand consumed by the construction industry, prin- cipally for floor underlayment, interior panel- In the absence of firm data on shipments by ing, and built-in cabinets. A distinct spurt manufacturers, it must be assumed that in the use of particleboard for residential 128 construction in 1962 has resulted from the promulgation of an industry standard and approval by FHA for use of the board as floor underlayment. Sales for this purpose were reportedly up 73 percent in January-June 1962, as compared to the same period of 1961. The development of phenolic board for exterior use will also help increase future sales of particleboard in the construction industry. The balance of current production is used in numerous applications in the auto- motive field (truck and trailer bodies), the electrical industry, and other fabricating industries. After 1962, demand will probably continue to increase at a rate of 10-12 percent annu- ally, reaching about 500 million square feet in 1965 and about 800 million square feet in 1970. These, of course, are conservative estimates based on average performance. National promotion by industry trade associ- ations, research leading to new product appli- cations, and aggressive sales programs can probably better this projection. Kentucky's favorable location in the center of the largest furniture production area in the United States will insure any flakeboard plant there a reasonable share of this large and growing market for particleboard. The long term trend favoring increased resi- dential construction, together with the in- creased use of asphalt tile, vinyl, and other plastic floor covering, will also insure a grow- ing market for flakeboard within the market area served by a Kentucky flakeboard plant. Provisions for the production of panels for exterior sheathing may also be worth con- sidering, since a larger potential market exists as construction techniques tend to minimize the use of sawn lumber. Decora- tive interior paneling for residential and com- mercial construction could provide another major product line, possibly by a satellite operation which would apply veneer or plastic overlays to flakeboard panels produced by the primary unit. Solid Wood Paneling Solid wood paneling is a long established product that is experiencing considerable increase in use as a decorative material applied to the interiors of commercial and residential buildings. A present upsurge in use, involving almost all types of wood paneling is attributed to a renewed apprecia- tion of the aesthetic character of grain pat- terns and other appearance features that are unique to wood. SECTION VIII For many years the use of wood paneling was very much in disfavor, largely because varnish, shellac and other commonly used finishing materials tended to craze and darken with age. The unattractive appear- ance that resulted reflected against the popu- larity of paneling for architectural treat- ment. It was customary to paint paneling within a relatively short span of years fol- lowing installation in order to hide the un- sightly appearance that frequently developed as a result of aging. Within the past decade, great strides have been made in perfecting non-deteriorating finishes and devising means of applying them in production. Present day finishes add to the natural beauty of wood in a lasting man- ner and avoid virtually all of the objections so justly levied against earlier finishing ma- terials. Improvements in finishing materi- als and methods have been brought about by efforts of the plastics and chemical industry, which has teamed with some segments of the wood industry to develop materials and tech- niques that have made possible the excellent paneling products that are now available. The plywood manufacturers have been the leaders within the wood industry in perfect- ing paneling products and promoting their use. Their success has lead to the presently expanding market for all types of paneling, the greatest demand being for prefinished products. The manufacture and sale of solid wood paneling shows a close parallel to the great strides that have been made with plywood paneling. Prices for paneling vary over a wide range and are closely associated with species and character of the wood: i.e., grain pattern, color, etc. Prefinished plywood paneling, in 4' x 8' sheets, sells in the price range from 42 cents to 75 cents per square foot, f.o.b. plant. Unfinished solid wood paneling in six inch, eight inch, ten inch, and twelve inch widths sells in the range from 25 cents to 65 cents per square foot; and prefinished solid wood paneling sells from 35 cents to 90 cents per square foot, f.o.b. plant. Demand No source of data could be found that ex- actly identified the scope of the market for paneling products. In general terms, how- ever, an excellent market appears to exist for volume sales of the highest quality prod- ucts, and there are strong indications that demand will stay at a high level for a number of years. Architects, manufacturers of ply- MARKETING POTENTIALS 129 LOCATION OF WOOD FURNITURE PLANTS, 1958 MINNESOTA 40 LONG ISLAND 268 NYC AREA 115 N.J. 34 PHILA. 24Y0RK 25 MARYLAND Wood Furniture Plants (not upholstered) • Wood Furniture Plants - 100 or more employees, 1958 (Figures show total number of plants in each state) 130 wood panels and manufacturers of overlaid particle board who presently supply the market for paneling look toward increased sales in the future. Pallets The development of the fork-lift truck during World War II and its general adoption by industry has made the allied pallet in- dustry one of the fastest growing segments of the wood products industry. Pallets are cellular wooden platforms used in conjunc- tion with fork-lift trucks; loads are placed on or in the pallet, which in its basic design has apertures for the forks of the lift truck, and can be moved at will by means of the fork- lift truck without additional handling. Since the introduction of the original plat- form-type pallet, modifications have extended to bin pallets, box pallets (for loose ma- terials), and palletized shipping containers. Pallets are generally made to the custo- mer's specifications, though a few producers specialize in a limited range of sizes in order to utilize mass-production methods. There are about one thousand producers of pallets in the United States, but only about 200 "permanent" concerns. About 75 percent of all pallets are sold through wholesalers or brokers, a factor which probably contrib- utes to the fact that the pallet industry has the highest mortality rate and the lowest profit margin of any segment of the wood products industry. Only about 25 producers can claim annual sales in excess of $1 mil- lion. The market radius for the pallet in- dustry is about 250 to 300 miles. In 1961, there were 36 pallet producers in Kentucky, ranging in size from four employees to 128 employees. The average plant employed about 19 men. Production in Kentucky is concentrated in two major areas: the northeastern sector, in the vicinity of Morehead, and the southwestern section, near Hopkinsville. It is estimated that the 13 plants in eastern Kentucky employ about 400 persons and consume about 40 million board feet of lumber (mostly oak) each year. This area is well situated to serve a large number of industrial centers in Kentucky and surrounding states, and production can probably be expanded, particularly for a quality product using kiln dried lumber. While the production and consumption of pallets has exceeded all expectations, the industry is concerned about the adverse effects of low quality products arriving on the market. An effort is being made to SECTION VIII induce pallet-makers to accept standards recently drawn up by the industry trade association; increasing use of the association service mark by licensed producers is ex- pected to result in the elimination of some of the marginal producers from active com- petition. In the meantime, the trade asso- ciation is also conducting "users' clinics" in an effort to educate industry to the ad- vantages of pallets of all types. Any pallet plant envisaged for Kentucky should seek the guidance of the trade association -which welcomes new producers of quality products. Demand The rapid growth of modern materials handling techniques and the diversification of the original platform-type pallet has meant a steady long-term uptrend in demand for pallets. New types of pallets are entering the market, including box pallets for produce and palletized shipping containers. Al- though there have been some peaks and valleys, production (equal to consumption) since 1945 is as follows: Production (Millions Year of units) 1945 30 1950 23 1954 36 1958 44 1961 63 According to industry spokesmen, the trend has been steadily upward since 1958. By 1975, demand for pallets is expected to reach 75 million a year. The requirement for a quality product will become more important as major users change their accounting methods to consider pallets as a capital investment rather than a cost of production. Unassembled Furniture and Consumer Kits The advent of "do-it-yourself" in recent years has sparked a trend toward knocked- down or semi-assembled wood end-products of various types, including limited furniture lines, small boats, tool sheds and garden shelters, dog houses, bird feeders and bird houses, and similar items that can be assem- bled and finished by a relatively unskilled consumer. Knocked-down furniture kits and most other do-it-yourself kits are marketed through mail order houses, department store chains, i MARKETING POTENTIALS supermarkets, and hardware stores without benefit of wholesalers. Markets are limited by low profit margins and high freight rates; and considerable competition has developed from imports from Eastern Europe and Finland — where lower labor and material charges permit economical production for export. The industry is characterized by its con- centration on a relatively few items. In the furniture and household goods field, for example, lines are incomplete and emphasize case goods, tables, outdoor furniture, dec- orative screens and room dividers, and book- cases. The design of most consumer items follows simple, modern lines and accents the use of simple joints and fasteners. Ideally, knocked-down kits are sold as com- plete units, including necessary sandpaper, glue, and hardware. Since most items are painted, high quality woods are not common. Demand The demand for knocked-down consumer items tends to be selective and is difficult to assess. Buyers of knocked-down furniture tend to fall at the lower end of the income scale, but young married couples and students also appear to account for a large portion of sales. In the latter case, however, the pat- tern is extremely selective: most young couples buy some standard furniture and augment it with such inexpensive do-it- yourself items as chests, bookcases, and tables. Recent data for some items of unas- sembled and unpainted household furniture suggests the size of the market for these products: TABLE VIII-III SHIPMENTS OF UNASSEMBLED AND UNPAINTED FURNITURE 1/ PRODUCT 1958 1954 Quantity (1000 unit9) Value ($1000) Quantity (1000 units) Value ($1000) Kitchen cabinets, unassembled Chest of drawers, unpainted Other unpainted furniture Wood outdoor furniture and unpainted furni- ture not specified 5 82 604 10, 589 7, 166 14, 477 6, 656 NA 743 NA 9, 154 13, 626 NA 1/ Source: 1958 Census of Manufacturers , MC58(2)-25A, Household Furniture, U. S. Department of Commerce, Washington 25, D. C. 131 The demand for boat kits, garden and tool sheds, bird feeders and bird houses, dog houses, etc., appears to be rising in proportion to the increase in outdoor living and do-it- yourself. In particular, it would appear that the development of recreational facili- ties in association with flood control projects in Kentucky will increase the demand for small boats of simple construction. Produc- tion and marketing of such products, however, must be geared to detailed market studies and aggressive marketing techniques not possible in the course of this study. Frames and Parts for Upholstered Furniture Pre-cut and semi-assembled frames and/or parts for upholstered furniture are used extensively by furniture manufacturers, many of whom lack the facilities to produce their own. Frames are produced to the buyer's specifications and are usually shipped in knocked-down condition, either as kits or in bulk, for assembly at the destination. The decentralized production of frames for upholstered furniture is a comparatively recent development, and one which opens up a small but lucrative market. Since the frames are generally assembled at destina- tion, the advantage to the producer is that frames (and parts) may be made on the same equipment used for production of hardwood dimension. The quality standards for the materials used in furniture frames — prin- cipally "soft" hardwoods — may be somewhat lower than those applied to dimension stock. Considerable poplar and gum are used. The opportunity to use raw materials of lower grades and differing species than required for dimension permits the producer otherwise unexpected economies of operation. Further, the production of frames and parts does not require the highly skilled (and highly paid) personnel common to the uphol- stered furniture industry. In addition to frames, destined to be cov- ered by upholstery, the same producer can supply furniture parts (arms, legs, etc.) exposed to view in the finished piece. These parts are usually shaped according to the buyer's specifications but are not finished. A limited line of standard frames can be assembled for shipment to small custom upholstery shops, or, alternatively, the frames and associated pre-shaped parts can be packaged into kits designed for easy assembly by the same type of customer and marketed through jobbers. 132 SECTION VIII LOCATION OF UPHOLSTERED FURNITURE PLANTS MINNESOTA 1 20 MICH. IwiSCONSIN ® •:?< IOWA * Michigan 68 lUJNOI^. 1// \-& it 223 IN N.Y. CITY AREA MISSOURI 75 ; 56 •* 26 %••(• *'J40§ ARKANSAS &*■ ■It 24 LOUISIANA LESSEE l ^sslisTp pl 21 ^ROUN^ v .. . 28 • t * FLORIDA 42 • Upholstered Furniture Plants, 1958 £ Upholstered Furniture Plants - 100 or more employees, 1958 "51 PHILA. (Figures show total number of plants in each state) MARKETING POTENTIALS Demand for Frames The plant location map on page 132, shows the distribution of upholstered furniture manufacturers in the eastern United States. About 375 plants accounting for 35-40 per- cent of total United States production of upholstered furniture are located within a radius of 300 miles from eastern Kentucky. If nearby States (beyond 300 miles) are added, eastern Kentucky is seen to be centrally located in an area that produces about 70 percent of all upholstered furniture manu- factured in the country. Moreover, the majority of the larger upholstered furniture plants — those employing more than 100 employees — are located within the primary market for eastern Kentucky. TABLE VIII-1V UPHOLSTERED FURNITURE (Value of Shipments in $1000) 1958 1959 1960 1961 1962* $764,691 $869, 399 $759, 958 $712, 926 $780, 000 In 1958, the upholstered furniture industry consumed furniture frames and parts valued at about $36.5 million. On the basis of slightly increased production and of greatly increased acceptance of premanufactured frames, the current demand should be $40- $45 million annually. Because of its favor- able location, eastern Kentucky is in a position to tap a primary market (300 miles radius) amounting to $13-$15 million a year. Extension of the market area to other pro- ducers in Chicago, Milwaukee, Grand Rapids, Philadelphia, New York City, and Baltimore — including many small producers lacking their own facilities to produce frames — could in- crease this potential market to $20-$22 mil- lion a year. Over the long term, this market will be- come intensely competitive as the demand for upholstered furniture stabilizes. Con- trary to the situation in the furniture market as a whole, the production of upholstered furniture has reacted to the recent trend toward Scandinavian-design modern furni- ture, with its emphasis on exposed fine woods. A countertrend toward traditional furniture and reproductions of antiques probably will help stabilize the upholstered furniture industry but will not result in dramatic in- creases in sales. 133 Animal Litter Wood shavings are widely used as bedding for livestock, poultry, and laboratory ani- mals because of their high absorptive ca- pacity, cleanliness, and resistance to matting. Discarded shavings are subsequently used for their manure content. A source of addi- tional nitrogen is required when the refuse is used as manure or a mulch, since the bio- logical decomposition of the wood is carried out by organisms that require nitrogen. The U.S. Department of Agriculture recom- mends the use of about 50 pounds of ammo- nium sulfate ( to supply the necessary added nitrogen) for each ton of shavings — thus the problem is not serious in any event. The nitrogen requirement for hardwood shavings is less than for softwood. Although the market is not organized and shavings are largely secured from local saw mills and planing mills, the great potential market promises to make the pack- aging and shipment of shavings commercially feasible. The price of shavings ranges from about $6 to $34 a ton, delivered, depending upon the distance from the mill. The major factor is that the price must be competitive with locally available straw and ground corn cobs (for poultry), bedding materials which are about as satisfactory as shavings. For commercial sales, shavings should be baled to permit easy handling. Maximum absorp- tion can be achieved by air drying the ma- terial before packaging. Shavings are also a preferred material for litter required by commercial breeders of laboratory animals. A ready market for this material exists within the triangle Indianapolis-Madison (Wisc.)-Detroit, where many breeders, pharmaceutical plants, and research laboratories are located. A far larger market exists on the East Coast. The potential market, largely untapped on a com- mercial scale, can be estimated from the fol- lowing data on annual national production of laboratory animals: Annual United Animal Type Production States 1957 1962 (est.) Mice 20,000,000 40,000,000 Rats 6,000.000 12.000.000 Guinea pigs 600,000 1.200.000 Hamsters 400,000 800,000 Rabbits 300.000 600,000 Although white pine shavings are favored by most users, poplar shavings are very acceptable — thus fitting in with the raw material resources in Kentuckv. Certain 134 SECTION VIII specialized requirements must be met for breeders of laboratory animals, however, including preliminary steam cleaning to remove insects and feces and other contami- nants likely to be deposited by wild rodents in the vicinity of the producing mill. Paper or plastic wrappings applied upon baling of cleaned litter helps keep the material free of further contamination. A "specialty mar- ket" for steam cleaned and sterilized shav- ings, packed in plastic bags, can probably be developed, particularly for the smaller breed- ers who cannot afford autoclaves in which to sterilize the litter they buy. A random sampling of commercial breeders showed that they prefer shavings in bales of about 50 pounds. Current prices, when given, range between 70 cents and $1.10 for a 50-pound bale. Most breeders indicated that they would prefer to use shavings if they could find a reliable source of clean material at a reasonable price. One breeder reported paying $90 a ton for loose shavings. Demand The use of wood shavings for poultry litter has increased rapidly. A U.S. Department of Agriculture report estimated United States demand for all types of poultry litter as follows: Year Litter Requirements 1935 8,000,000 tons 1949 12,000,000 tons 1952 13,300,000 tons 1960 15,500,000 tons Independent estimates made during the course of this study show an annual re- quirement for about 2,540,000 tons of litter for poultry and 105,000,000 tons for livestock (cattle and hogs) for the State of Kentucky and the seven bordering States. If four additional southern States are added — where, however, pine shavings are abundant, the potential market for poultry litter triples. Kentucky is ideally situated to supply the livestock areas in Illinois, Indiana, Ohio, TABLE VIII-V PRINCIPAL POULTRY RAISING CENTERS IN KENTUCKY MARKET AREA DISTANCE FROM MANCHESTER, KENTUCKY Chickens (including commercial broilers) Within 100 miles 100 to 200 miles 200 to 300 miles No major centers Southern Indiana, near Ky border NW N. Car. , north of Charlotte N. Central Ga. (near Atlanta) S. Ohio, scattered Southbend-Elkhardt, Indiana Near Cleveland, Ohio NW Va. (Shenandoah Valley) Central N. Car. , south of Greensboro Turkeys Near Winchester, Ky SW Indiana (North of Evansville) S. Ohio (scattered) E. Tennessee (") Central Indiana Southbend-Elkhardt, Indiana N. Ohio (S. of Akron and scattered) NW Virginia (Shenandoah Valley) N. Central S. Car. , (from Spartanburgh to Rockville) Western part of Central Ga. , near Columbus Estimated 750 million birds in radius of 300 miles 25 million head of livestock, 300 mile radius = 5. 76 million tons litter /year. = 50 million tons of litter /year. MARKETING POTENTIALS 135 DISTRIBUTION OF CHICKENS, BROILERS AND TURKEYS i I MINNESOTA C17.9 B 11.6 T,8 -\^/^K■> (*y C7.6 B4.7 T0.2 C = Chickens Raised, 1961 (millions) B = Commercial Broilers Produced, 1961 (millions) T = Turkeys Raised, 1961 (millions) C 5.4 B12.2 T 0.3 = PRINCIPAL POULTRY AREAS 722-307 O-64-10 136 SECTION VIII TABLE VIII-VI REQUIREMENTS FOR POULTRY AND LIVESTOCK LITTER 1962 1/ (Thousands of Tons 1 STATE POULTRY LITTER LIVESTOCK LITTER (Hogs and Cattle) TOTAL LITTER CONTIGUOUS STATES ONLY 7, 200.0 7, 411. 3 Kentucky 211. 3 Illinois 177. 8 23,200.0 23, 377. 8 Indiana 474. 14, 400.0 14, 874. Ohio 240. 3 9, 800.0 10,040. 3 W. Virginia 199. 5 600.0 799.5 Virginia 435. 5 4, 000. 4, 435. 5 Tennessee 317. 8 6, 600.0 6, 917. 8 Missouri 483. 8 16, 400.0 16, 883. 8 Subtotal 2,540.0 82, 200.0 84, 740. NEARBY STATES (300 Mile Radius) 5, 200.0 6, 805. 8 Alabama 1, 605. 8 Georgia 1, 783. 3 6,000.0 7, 783. 3 South Carolina 250.5 2,000.0 2,250.5 Mississippi 1, 112. 8 5, 200.0 6, 312. 8 North Carolina 1,086. 3 4, 400. 5,486.3 Subtotal 5, 838. 7 22,800.0 28,638.7 TOTAL 8, 378. 7 105,000.0 113, 378. 7 1/ Litter requirements (from Dept. of Agriculture) Chickens - 25 lbs /year /animal Turkeys Broilers - 15 lbs /year /animal Livestock - 5 lbs /year /animal 2 tons /year /animal MARKETING POTENTIALS 137 DISTRIBUTION OF CATTLE AND HOGS MINNESOTA C 4.3 H 3.5 C 0.5 H 0.4 10.6 J^\ C 0.5 H 0.2 C 0.9 ^/ H 1.3 r^J ARKANSAS C 1.4 H 0.4 LOUISIANA ■ GEOW C 2.1 H 0.5 C 1.7 H 0.9 C 1.5 H 1.5 FLORIDA C 0.6 H 0.4 C 1.8 H 0.2 C - Cattle and Calves, Inventory January 1962 (million head) C 1.6 H 0.4 H = Hogs, Inventory January 1962 (million head) TABLE VIII-VII ANNUAL LITTER REQUIREMENTS, EASTERN USA (Less New England) Thousand Tons STATE POULTRY LITTER LIVESTOCK LITTER TOTAL Minnesota 357. 5 15, 600. 15,957.5 Iowa 375.0 39, 200. 39, 375. Missouri 483. 8 16, 400. 16, 883. 8 Arkansas 1, 813. 8 3, 600. 5, 413. 8 Louisiana 241. 5 4,000.0 4, 241. 5 Wisconsin 264. 3 12, 400. 12, 664. 3 Michigan 105. 5 5, 000. 5, 105. 5 Illinois 177. 8 23, 200. 23, 377. 8 Tennessee 317. 8 6, 600. 6, 917. 8 Mississippi 1, 112. 8 5, 200. 6, 312. 8 Indiana 474.0 14, 400.0 14, 874. Kentucky- 211. 3 7, 200. 7, 411. 3 Alabama 1, 605. 8 5, 200. 6, 805. 8 Ohio 240. 3 9, 800. 10, 040. 3 Georgia 1, 783. 3 6, 000. 7, 783. 3 New York 159.5 4, 600. 4, 759. 5 Pennsylvania 496. 5 5, 000.0 5, 496. 5 Virginia 435. 5 4,000. 4, 435. 5 West Virginia 199.5 600. 799.5 North Carolina 1, 086. 3 4, 400. 5, 486. 3 South Carolina 250. 5 2, 000. 2, 250. 5 Florida 154. 8 4,000. 4, 154. 8 New Jersey 130. 8 400. 530. 8 Delaware 683.0 184. 867. Maryland 821.8 700. 1, 521. 8 MARKETING POTENTIALS and Missouri. Probable annual demand for litter within a 300 mile radius of eastern Kentucky, based on 1962 poultry and live- stock populations/production, is about 5.75 million tons for poultry and 50 million tons for livestock. The demand for litter to be used in connec- tion with commercial breeding and laboratory animals is harder to estimate, except on a broad national basis. If all breeders were to use shavings for litter, the potential market would be about 5000 tons a year for a gross return of about $250,000, based on a nominal price of about $50/ton. The use of shavings by research laboratories for animal colonies could double these figures. This is a small but highly lucrative market well worth further investigation. Accord- ing to industry spokesmen, the demand for a good quality natural litter is great enough to warrant shipment far beyond the arbi- trary 250-300 mile limits used in most of the market studies made in connection with this project. Bark Mulch The use of ground bark as a mulch and soil conditioner is a new product application that has been successfully promoted in various parts of the country. Its promotion must be directed to overcome a resistance to use of wood residue materials as mulch that is a result of bad experiences during widespread attempts many years ago to use sawdust for this purpose. Nitrogen depletion of soil due to bacterial action involved in the decay of sawdust was incorrectly interpreted as a toxic effect upon plants by the sawdust itself. Soil bacteria acting on organic matter incorporated in the soil require nitrogen for their growth. The total nitrogen demand depends on the growth of bacteria, which is related to the concentration of organic matter and rate of decomposition. When the nitro- gen demand becomes an appreciable propor- tion of the available supply, competition for nitrogen develops between the bacteria and crops or other vegetation, tending to cause nitrogen starvation in the plants and limit- ing the decomposition rate. This nitrogen competition terminates when decomposition is complete, and the nitrogen taken up by the bacteria is returned to the soil as the bacteria die. Nitrogen starvation obviously is a temporary effect that can be prevented by adding a nitrogenous fertilizer to the organic material applied to the soil. If this is not done, the effects of nitrogen starva- 139 tion can be avoided by letting the treated area lie fallow during the decomposition period. Wood particles or sawdust incorporated into the soil usually decompose completely during one growing season. Bark, especially the outer bark, usually decomposes more slowly than wood and the nitrogen demand may not rise enough to cause severe compe- tition for it, hence the nitrogenous fertilizer added may be reduced appreciably below that required when wood is the mulching material. In mulching applications, decomposition proceeds more slowly than when the ma- terial is mixed into the soil. The decomposi- tion occurs at the soil surface and may be extended slightly into the soil by the action of worms and other microfauna. The bac- terial demand for nitrogen is of no conse- quence when the mulch is applied as an erosion preventative, but if the mulch is applied on a crop area, a combination of unfavorable conditions may result in some nitrogen starvation. This may occur when the nitrogen supply in the soil is low, when the climate is hot, and when the bark is from young trees or a species having a thick inner bark. In general, species is of no major impor- tance in the use of bark as a mulch, with the possible exception of walnut. This species is suspected of having inhibitory effects on vegetation under or near growing trees, but it is not clear whether the observed effects are real or accidental, nor whether, if real, they are caused by root competition or leachates from leaves or nut husks. Demand The relative newness of bark mulch as a product has prevented development of data applying to existing or potential consump- tion. Interviews with nursery supply houses and wholesalers of hoi'ticultural products have indicated a good market potential. Prices for bark mulch tend to be high. One product identified at 100 percent "or- ganic shredded hardwood bark" was found in Kentucky that retailed at $2.70 for a bag containing three cubic feet. On the whole the price was found to be about equal to that charged for peat moss. Mulch is sold primarily through nurseries and garden supply, feed and seed stores. The foremost competitor is peat moss, which has long been the standard in the nursery industry. Bark products seem to be superior to peat moss in several ways. For instance, they last about three times as long as peat moss in the soil and thev tend to be more 140 SECTION VIII LOCATION OF PRESERVATIVE TREATING PLANTS MINNESOTA ty ffllCH. I WISCONSIN • • i& 1^dc# MCHIGAN IOWA ,0H>0 ,M^ rv> \cc IS5 • • MISSOURI V • [UCKN &»»' •~y*\ • «J ARKANSAS 4ESSEE To U1SIANA ■MISSISSIPPI • • • •. •• • • • • • *i • •« • •-• • ; TorTda" • • W w Wood Treating Plants, 1958 (reporting more than 50 employees) • Wood Treating Plants, 1961 26 PLANTS' £ Wholesalers of Treated Wood, 1961 MARKETING POTENTIALS effective in keeping soil from packing-. The recommended product has no fertilizer value and should be sold only as a mulch and soil conditioner. Preservative Treated Posts, Poles, and Lumber Wood preservatives of various types are used to retard decay and to minimize insect damage to exposed wood products, such as utility poles and crossarms, lumber and timbers, crossties and switch ties, fence posts and rails, marine piling, etc. Although the initial impetus to the wood preserving industry came from the railroads, many of which long ago operated their own creosoting plants for treating crossties, switch ties, piling, and bridge timbers, the industry has been undergoing a process of adjustment to new techniques and new prod- uct lines. Creosote, creosote derivatives, and mixtures of creosote and petroleum are still used in the largest quantities, but the use of pentachlorophenol, chromated zinc chloride, and such patented preservatives as Wolman Salts, Celcure, Protexol, and Osmosalts is firmly established. Many of these newer preservatives are suited to products where the color and odor imparted by creosote is objectionable; some of them — including Osmosalts — permit the applica- tion of paint without any special surface treating. Early reports that such chemical preservatives harmed livestock, either on direct contact or by ingestion of "contami- nated" vegetation, have been proved to have no foundation. At the same time that competitive preserv- ing techniques have been developed, markets for some traditional products are shrinking, largely because of the declining role of the railroads, which have traditionally accounted for 50 percent of the market. The market has been fairly steady for treated poles, lumber and timbers, piling, and cross-arms; the market for fence posts, treated plywood, and mine timbers appears to be increasing. In the face of technological improvements in the treating industry and declining de- mand for certain treated products, the indusr try is now operating at about 60 percent capacity. At least part of this unused capacity represents the withdrawal of in- efficient producers from active operations. It can be concluded, on the other hand, that the larger and relatively more efficient pro- ducers are successfully meeting the challenge of competition and are enlarging their shares 141 of the market — partly by diversifying opera- tions. Two examples of this trend are Koppers, which operates 34 plants (including two in Kentucky), and Osmose Preserving Co., which has been expanding its sales of treating plants at a rapid pace. In 1961, there were seven commercial treating plants in Kentucky (five pressure plants), more than 20 within a radius of 200 miles of eastern Kentucky (including those in Kentucky), and more than 60 within a radius of 300 miles. Of these plants, at least 30 treat with creosote, 16 use an oil- pentachlorophenol mixture, and 32 use water- borne preservatives — such as Osmosalts. Two of the plants using water-borne pre- servatives are located in Kentucky. About 28 wood preserving companies maintained sales offices for the State of Kentucky in 1961; none of these offices are located in Kentucky, though about 25 percent of them are within 150-200 miles of the State line. Demand The market for preserved wood products is expanding in unforeseen ways, partly because of educational campaigns carried on by the industry in an effort to make up for declining sales in certain areas. The rapid expansion of rural electrification, the development of new building techniques such as pole barns, and the application of preservatives to lumber and plywood used for exterior construction have created steady markets for preservative treated products. The use of preservative-treated fence posts and railings is gaining favor with farmers and appears to be of special interest to the horse breeders of the Kentucky Bluegrass region — particularly if the treated products can be painted easily. A survey conducted during the period of this study revealed a potential annual demand for nearly one million board feet of treated red oak fence rail (1" x 6" x 16') and about 58,000 treated sawn red oak fence posts in the Bluegrass region. About half the demand for fence posts is not being met, but almost none of the fence rail is known to be treated. In other regions of Kentucky, farmers rely to a large extent on untreated, locally cut black locust, eastern red cedar, osage orange, and sassafras for fence posts, a fact that has tended to keep fence post prices low. At the present time, therefore, the market for posts outside the Bluegrass region is small. An educational campaign is prob- ably required to put across the benefits of treated fence posts, with their average life 142 of 30 years, as opposed to a somewhat higher initial cost. It is possible that regionally available yellow pine posts can be treated and marketed in Kentucky. Where treated fence posts are now used in Kentucky, they are often southern pine shipped from treating plants in Alabama and Arkansas. Some typical prices for treated fence posts in several regions of Ken- tucky, developed during the survey, are as follows: TABLE VIII-VIII PRICES FOR TREATED FENCE POSTS, KENTUCKY, 1962 (7' - 7' 6 " post s) REGION 3" TOP DIAM 4" TOP DIAM 5" TOP DIAM REMARKS Western Ky. 45* 64* -- FOB Hot Springs, Arkansas 56 89 $1. 20 FOB Mt. Vernon, Illinois 60 82 1.23 FOB Centreville, Alabama Bluegrass 68 86 1. 19 FOB Guthrie. Kentucky Northern 85 0. 95 Average price farmers would pay for treated posts SECTION VIII grams will also provide additional markets for preservative treated posts, poles, and lumber. It is, or course, obvious that similar demands will be generated in adjacent and nearby States less favored with forest resources. Finally, railroad companies are becoming increasingly aware of the economies to be derived from the use of treated lumber for railroad car decking and other wood compo- nents; the life of these wooden components is increased three times by preservative treatment. A considerable market is said to exist in Kentucky and nearby States for treated poles used in the erection of "pole barns" and other structures. A small but growing demand is also being generated for treated lumber used in building bunker type silos. In the utility field, the treatment of crossarms should provide an important market in Kentucky; while the many coal mines in eastern Kentucky should provide a market for treated mine timbers. At this stage, however, definite data for these potential local markets are not available. Despite the tendency to use steel and aluminum highway guardrails, signposts, and right-of-way fencing, industry research has proved that preservative treated wood posts, rails, and poles are cheaper, stronger, and more durable. Maintenance costs, a major factor when metal posts and poles are used, are virtually eliminated. The pro- posed highway construction programs in Kentucky and nearby States could provide an attractive market for preservative- treated products. In the case of Kentucky, however, it would be necessary to change State highway specifications to permit the use of native woods and treatment by Osmo- salts; steps have been taken to insure these changes. A known requirement exists over a ten-year period for about 525,000 fence posts for right-of-way fencing along limited access highways; many of these posts could be treated wood if the highway specifications are changed. Additional requirements will be generated during the long-term construc- tion of some 15,000 miles of other State and county roads in Kentucky; with an average of 100 guardrail posts each mile, a potential initial demand for 1.5 million posts can be anticipated. Signposts, right-of-way fenc- ing, roadside parks and picnic areas, and other construction along these roads will create demands for still more preservative- treated wood posts and poles. The develop- ment of State parks in association with Kentucky's flood control and water-shed pro- Wood Chips Hardwood chips are used in place of round- wood pulp logs in the expanding pulp and paper industry to augment softwood pulp- wood supplies, particularly by sulfate (kraft) pulp mills. Recently developed processes for producing hardwood pulp — notably the cold soda process — and the growing pressure on supplies of softwood pulpwood outside the southern States combine to focus industry attention on increased use of available hardwoods, particularly in the production of newsprint and other pulp and paper products. Chips used in the manufacture of pulp are (1) derived from peeled green hardwood pulp logs by means of a mechanical chipper, or (2) developed by chipping solid sawmill waste. Portable debarkers and chippers are some- times set up along a railroad siding to process pulp logs trucked from the woods; chips pro- duced in this manner are usually loaded di- rectly into railroad cars for shipment to a pulp mill. With regard to solid waste, a typi- cal hardwood sawmill will produce about .5 tons (dry weight) of chips for each thousand board feet of lumber manufactured. Chips are usually sold on the basis of cord- equivalents; one cord equivalent of poplar, for example, is about 2.5 tons at 86 percent moisture content. A minimum railroad car load is about 15 cord-equivalents. 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F.O.B. price is about $5 a ton (green weight). Most shipments of hardwood chips from eastern Kentucky are now made by truck, but the railroad lines operating in the region also haul chips to nearby pulp mills. It is apparent, however, that the marketing radius is limited by freight charges. Demand Although there are more than a dozen pulp mills within a nominal marketing radius of eastern Kentucky, only one or two can be regarded as consumers of hardwood chips from the region. The Meade Paper mill at Chillicothe, Ohio, is currently buying about SECTION VIII one-third of its daily requirements of raw material in the form of chips in eastern Ken- tucky. An additional market for about 80 to 100 tons daily may exist at this one plant. The other plant is the Diamond National pulp products plant at Middletown, Ohio, near Cincinnati, which may be a potential market for hardwood chips. In the future, the Meade plant at Kingsport, Tennessee, may also be a buyer of hardwood chips for pulp. While technological changes may be ex- pected to develop more potential for hard- wood chips in pulp mills located in central and northern Illinois and at Memphis and Chattanooga, in Tennessee, it is doubtful if the economics of the situation will permit them to purchase chips from eastern Kentucky. US GOVERNMENT PRINTING OFFICE : 1964 OL — 722-307 PENN STATE UNIVERSITY LIBRARIES ADDDD71EflTD7b