Supply chain management and industry cyclicality. A study of the Finnish sawmill industry

290 Pages·2006·1.84 MB·English

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G OULU 2006
G 22
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ACTA
UNIVERSITY OF OULU P.O. Box 7500 FI-90014 UNIVERSITY OF OULU FINLAND
A UNIVERSITATIS OULUENSIS
C G
A C T A U N I V E R S I T A T I S O U L U E N S I S
T
A
S E R I E S E D I T O R S Heikki Holma OECONOMICA
A
SCIENTIAE RERUM NATURALIUM H SUPPLY CHAIN
Professor Mikko Siponen e
B ik
k MANAGEMENT AND
i
HUMANIORA H
Professor Harri Mantila o
INDUSTRY CYCLICALITY
C lm
a
TECHNICA
Professor Juha Kostamovaara
D A STUDY OF THE FINNISH SAWMILL INDUSTRY
MEDICA
Professor Olli Vuolteenaho
E
SCIENTIAE RERUM SOCIALIUM
Senior assistant Timo Latomaa
F
SCRIPTAACADEMICA
Communications Officer Elna Stjerna
G
OECONOMICA
Senior Lecturer Seppo Eriksson
EDITOR IN CHIEF
Professor Olli Vuolteenaho
EDITORIAL SECRETARY
Publication Editor Kirsti Nurkkala
FACULTY OF ECONOMICS AND BUSINESS ADMINISTRATION,
DEPARTMENT OF MARKETING,
UNIVERSITY OF OULU
ISBN 951-42-8073-3 (Paperback)
ISBN 951-42-8074-1 (PDF)
ISSN 1455-2647 (Print)
ISSN 1796-2269 (Online)

ACTA UNIVERSITATIS OULUENSIS
G Oeconomica 22
HEIKKI HOLMA
SUPPLY CHAIN MANAGEMENT AND
INDUSTRY CYCLICALITY
A study of the Finnish sawmill industry
Academic Dissertation to be presented with the assent of
the Faculty of Economics and Business Administration,
University of Oulu, for public discussion in Auditorium
TA105, Linnanmaa, on May 12th, 2006, at 12 noon
OULUN YLIOPISTO, OULU 2006
Copyright © 2006
Acta Univ. Oul. G 22, 2006
Supervised by
Professor Kimmo Alajoutsijärvi
Professor Henrikki Tikkanen
Reviewed by
Docent Mats B. Klint
Docent Juha S. Niemelä
ISBN 951-42-8073-3 (Paperback)
ISBN 951-42-8074-1 (PDF) http://herkules.oulu.fi/isbn9514280741/
ISSN 1455-2647 (Printed )
ISSN 1796-2269 (Online) http://herkules.oulu.fi/issn14552647/
Cover design
Raimo Ahonen
OULU UNIVERSITY PRESS
OULU 2006
Holma, Heikki, Supply chain management and industry cyclicality. A study of the
Finnish sawmill industry
Faculty of Economics and Business Administration, Department of Marketing, University of Oulu,
P.O.Box 4600, FI-90014 University of Oulu, Finland
Acta Univ. Oul. G 22, 2006
Oulu, Finland
Abstract
The aim of this study is to deepen current understanding concerning cyclicality in the Finnish sawmill
industry. Traditionally, economic actors in the sawmill industry have faced dramatic price and
demand fluctuations. Managers often regard cyclicality as natural and unavoidable in the industry.
Accordingly, research related to business cycles in the Finnish sawmill industry has consisted of
short-term studies that have mainly focused on predicting the turning points of cycles. In contrast to
these short-term investigations, this study proffers research on cyclicality that is both empirical and
historical. It aims to emphasise the actor perspective that seems to be absent in existing research on
business cycles and cyclicality. In line with the adopted perspective, business cycles are not merely
objective economic phenomena external to their observers. As regards the research, the above view
necessitates a more complete understanding of business cycles and historical knowledge of the
industry and the actors in its supply chain.
The idea that heavy economic fluctuation is detrimental to all is emphasised in this thesis, though
it has been argued that in the short term, some actors at the lower end of a distribution chain may take
advantage of cyclicality by game playing. However, in the long run there are very few actors, if any,
who profit from business cycles. The empirical data was primarily collected during a number of
discussions with sawmill experts and in essence, the problem of cyclicality is observed through the
eyes of Finnish sawmill managers. However, interviews with intermediaries as well as many public
statistics and archive documents were also used to describe and explain the economic fluctuations
over three decades in the industry.
Industry-, supply chain- and dyadic business relationship-levels are used in the empirical and
theoretical parts of the thesis. Business cycle theories by economists form the context for the study of
cyclicality. Systems thinking presents the total picture of cyclicality as a problem in a specific
industry, whereas the Bullwhip/Forrester effect describes cyclicality in a supply chain, and
explanations for cyclicality in the Finnish sawmill industry are studied in terms of supply chain
management. In particular, the presented sub-cases of dyadic business relationships shed light on the
power of long-term business relationships as a smoothing-out strategy.
The findings of this study reveal that there is another option for managers other than considering
the cycles as being "natural", and that there is an opportunity to affect the traditional mode of
behaviour in coping with business cycles. It is argued that the structures, behavioural patterns and
management components of supply chain management play major roles when the sources of
cyclicality and opportunities to moderate business cycles are investigated.
Keywords: business cycles, business relationship, cyclicality, industry-specific cyclicality,
sawmill industry, supply chain, supply chain management

Acknowledgements
The road to this doctoral dissertation has been a personal challenge. A great number of
people have supported me in so many different ways along the long and often winding
road to complete this thesis. Firstly, I am extremely grateful to my supervisors. First and
foremost, I owe many thanks to Professor Kimmo Alajoutsijärvi for urging me to carry
out the post-graduate studies in marketing at the University of Oulu. I thank Kimmo for
his many ideas and fruitful comments to advance this study as well as for his supportive
attitude towards all my doings in the department. The opportunity to work with him has
been a privilege. I am also extremely grateful to my other supervisor, Professor Henrikki
Tikkanen, for his enthusiastic way of encouraging me right through my postgraduate
studies and research activities. Among other things, he has given me several valuable
comments on the theoretical contribution of the thesis and inspired me to continue
working under all circumstances.
There are a number of other people to whom I owe a debt of gratitude. Dr. Kjell
Nyberg from Karlstad University has been like a third supervisor, and working with him
has improved my scientific thinking and writing one step further. In addition, I would like
to extend my warmest thanks to Dr. Riitta Hänninen and other former colleagues from the
Finnish Forest Research Institute for their empathy. During the research process,
discussions with my present colleagues in the Faculty of Economics and Business
Administration at the University of Oulu have widened my understanding on the
management of research. I would like to give special thanks to Professor Jaana Tähtinen,
Dr. Tuija Mainela, Dr. Pauliina Ulkuniemi, Dr. Satu Nätti, Professor Jari Juga, Professor
Timo Koivumäki and Professor Heikki Karjaluoto. Especially, I remember with gratitude
several inspiring discussions about business relationships and sawmill enterprises with
M.Sc. Jari Salo while he was preparing his own thesis. Several people from the faculty
have helped me with practical matters related to the dissertation process. My warmest
gratitude goes to all of them, especially Dr. Seppo Eriksson, M.Sc. Sauli Sohlo, Ms.
Sirkku Horsma and Ms. Emma Lord.
I also express my gratitude to the official dissertation examiners – Docent Mats B.
Klint from Uppsala University and Docent Juha S. Niemelä from the University of
Helsinki.
I would also like to thank all the sawmill companies, associates and experts that have
participated in this research. I would like to express my sincere gratitude to all those I
have had the honour of interviewing for the empirical part of the thesis. In particular, I
wish to thank Dir. Ari Ronkainen and Dir. Pertti Lattu.
I am grateful for the financial support received for this study from Tekes, the National
Technology Agency of Finland and the Ministry of Trade and Industry, Puumiesten
Ammattikasvatussäätiö, Jenny and Antti Wihuri Foundation, Tauno Tönningin säätiö,
Niemen rahasto and the Liike Research Programme funded by the Academy of Finland.
Finally, I wish to thank my friends, my family, and all my relatives. Especially, I am
grateful to Martti and his family for providing me accommodation in Oulu.
I want to dedicate this book to my wife Kaisa and my daughter Päivi. Your support has
been irreplaceable. Without you this book would never have been completed.
Oulu, March 2006 Heikki Holma
List of figures
Fig. 1. Annual deviations in production in the Finnish sawmill industry 1971-2000 ...18
Fig. 2. The structure and content of the thesis...............................................................31
Fig. 3. The phases of business cycles............................................................................34
Fig. 4. Analysis of the total picture of cyclicality in the sawmill industry....................54
Fig. 5. Increasing distortion in demand and cyclicality in the supply chain..................58
Fig. 6. The amplification effect, the major contributing factors and company’s
internal vulnerability .........................................................................................59
Fig. 7. Additional amplification stemming from the weakness of supply chain
management ......................................................................................................59
Fig. 8. Shortage gaming ................................................................................................60
Fig. 9. The overlapping concepts of marketing channel and supply chains...................63
Fig. 10. Basic supply chain management model .............................................................67
Fig. 11. Supply chain ......................................................................................................69
Fig. 12. The framework for analysing supply chains and SCM for the purposes of the
thesis ..................................................................................................................73
Fig. 13. The most common marketing channels of independent and integrated
sawmills in Finland ...........................................................................................79
Fig. 14. Supply chain as a network and the focus of the thesis........................................82
Fig. 15. The basic factors affecting the efficiency of the marketing channel .................87
Fig. 16. Four major objectives ........................................................................................99
Fig. 17. Integrated and non-integrated supply chain .....................................................103
Fig. 18. Conceptual model of integration and economic fluctuation ............................108
Fig. 19. The conceptual framework for analysing industry-specific cyclicality from a
behavioural perspective....................................................................................112
Fig. 20. The softwood supply chain ..............................................................................126
Fig. 21. Apparent consumption of softwood in the current European Union member
states (15) from 1971 to 2000 ..........................................................................128
Fig. 22. Annual fluctuation of the apparent consumption of softwood in current
European Union member states (EUR-15) from 1971 to 2000 .......................129
Fig. 23. Softwood export volumes of the Finnish and Swedish sawmill industries ......131
Fig. 24. Annual fluctuation of Finnish and Swedish softwood export volumes ...........132
Fig. 25. Sawn wood production in the current European Union member states from
1971 to 2000 ....................................................................................................135
Fig. 26. Sawn wood production in the EU (EUR-12), and in Finland ..........................136
Fig. 27. The relative values of sawn goods productions in EUR-12 countries and
Finland .............................................................................................................137
Fig. 28. Annual relative changes of production in Finland and EUR-12 countries
from 1971 to 2000 ...........................................................................................138
Fig. 29. The production rate of Finnish industrial sawmills from 1980 to 1999 ...........139
Fig. 30. The annual relative changes of Finnish sawn wood production, export
volumes and average unit prices ......................................................................140
Fig. 31. The annual changes in Finnish production and the annual changes of apparent
consumption in its key market .........................................................................141
Fig. 32. Development of the monthly average export unit prices of Finnish softwood
from January, 1980 to June, 1999 ....................................................................142
Fig. 33. Annual changes of the average export unit price of the Finnish sawn wood
from 1971 to 2000 ...........................................................................................144
Fig. 34. Stocks in the supply chain of the Finnish sawmill industry .............................145
Fig. 35. Development of production capacity in Swedish sawmills .............................151
Fig. 36. Interrelation between stocks and export unit prices .........................................153
Fig. 37. The vicious cycle of the sawmill industry – an actor perspective to cyclicality
in the sawmill industry ....................................................................................155
Fig. 38. Finnish production, export and apparent consumption in the European Union156
Fig. 39. Main marketing channel alternatives for the Finnish sawmills........................164
Fig. 40. Distribution changes in the Finnish sawmill industry.......................................165
Fig. 41. Changing marketing channel in Germany .......................................................166
Fig. 42. A model of a distribution channel seen from the perspective of the producer .171
Fig. 43. Forest ownership in Finland ............................................................................174
Fig. 44. The sub-cases complete the general perspective of smoothing-out strategies..185
Fig. 45. Monthly average export prices ........................................................................191
Fig. 46. Monthly average unit prices of redwood export deliveries from the sawmill . 193
Fig. 47. Monthly changes of export unit prices ............................................................194
Fig. 48. Average export and domestic unit prices of the company ...............................195
Fig. 49. The export to certain important export markets ..............................................199
Fig. 50. Production and export deliveries .....................................................................201
Fig. 51. Deliveries of the case company by different terms of delivery .......................206
Fig. 52. The export of the sawmill to the good quality redwood countries, and the
share of the major Danish importer .................................................................209
Fig. 53. The supply chain and the case companies .......................................................221
Fig. 54. The price paid in the business relationship compared to the average export
price .................................................................................................................225
Fig. 55. The nature of relationships ..............................................................................247
Fig. 56. Vicious loop created by short-term relationships.............................................248
Fig. 57. The positive loop of long-term relationships....................................................249
Fig. 58. Management thinking preferring collective behaviour and long-term business
relationships as sources of preferred strategies.................................................255