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. 0
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
0
15, 490
497
11, 236
626
5 46
2, 458
Carter
20, 817
0
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
0
20, 748
47 4
12, 801
528
1,699
4, 004
Clinton
8, 886
0
8, 886
191
5, 977
645
528
1, 043
Ellicott
6, 330
0
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
0
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
0
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
0
12, 134
425
12, 332
915
552
1, 492
Lee
7, 420
0
7, 420
210
6, 436
852
552
1, 682
Leslie
10, 941
0
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
0
13, 115
484
8. 309
657
585
1, 648
McCreary
12, 463
0
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
0
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
0
10, 201
231
$ 3, 863
$ 314
278
$ 688
Morgan
11, 056
0
11, 056
369
9, 846
1,071
634
1, 816
Owsley
5, 369
0
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
0
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
0
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
0
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
0
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. 0
2
3
48. 0
2
3
50.0
2
3
Birmingham, Ala.
68.0
2
5
25.0
2
3
72. 0
3
4
48.0
2
3
Chicago, 111.
41.0
2
44. 0
3
24.0
2
2
44.0
2
3
Cincinnati, O.
16.0
2
20. 0
1
24.0
1
2
21. 5
1
2
Cleveland, O.
43. 5
2
58.0
2
48. 0
2
2
47. 0
2
3
Detroit, Mich.
45.0
3
62. 5
3
48. 0
2
2
43. 5
2
3
Knoxville, Tenn.
30.0
2
26. 5
2
48. 0
2
3
27. 5
1
3
Louisville, Ky.
33.0
2
6.5
1
24. 0
1
2
21. 5
1
1
Nashville, Tenn.
45. 5
2
18. 0
2
24. 0
2
2
41. 5
2
2
New York, N. Y.
88. 5
2
4
73. 0
3
4
72. 0
3
4
72. 5
3
4
Pittsburgh, Pa.
51.5
NA
NA
60.0
2
3
24. 0
2
3
48. 5
2.5
3
St. Louis, Mo.
55.5
2
4
29.5
1
2
72. 0
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 . \\
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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
3S
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. 0
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. 0
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. 0
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
0
2
2
6
3
0
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
0
0
4
1
0
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
DIAGRAM 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 wood2 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
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SAW LOGS -
(mbf log scale)
421
113
815
310
872
282
169
54
2,075
I, 383
1, 294
84
7, 875
24. 0
LUMBER -'
(mbf lumber scale)
468
125
906
344
969
312
188
63
2, 306
1, 537
1, 438
93
8, 750
24. 0
CORDWOOD
(cords)
2, 500
1,000
1, 500
1, 250
27, 900
34, 150
52. 0
-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. 0
100. 0
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
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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
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SAW LOGS
LOG COLLECTION AND SORTING YARD
SAW LOG INVENTORY 1.5 to 2.0 MILLION BOARD FEET
CORDWOOD INVENTORY 5,700 CORDS
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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-
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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. 0
mulch
reject logs
6. 0
chips
Sawmill
sawdust
9. 7
fuel
solid green wood
19. 0
chips
Remanufacturing
hogged solid wood
14. 0
fuel
machining residue
7. 0
fuel
shavings
9. 0
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
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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
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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 (3A»" 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-
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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.
0
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. 0
4.6
9.6
10. 0
8. 8
18. 8
155. 0
136.0
291. 0
863. 1
14. 8
311. 1
1.5
312. 6
572.5
55. 9
450. 0
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. 0
11.0
101. 0
290. 1
106. 9
1, 150. 0
74. 0
1, 224. 0
135. 0
801. 3
2,041. 8
420. 3
525. 0
20. 0
26. 0
229. 0
3, 868. 8
551. 0
249. 0
7, 288. 6
292. 7
1, 042. 3
833. 2
27. 6
607. 7
351. 3
19. 3
274. 3
13. 8
121. 0
54. 6
175. 6
700. 2
87.4
46.0
26.2
160. 0
64. 3
224. 3
808. 7
111. 5
57. 7
25. 3
89. 0
17. 0
106. 0
458. 5
49. 4
29. 1
27.5
122. 5
27. 5
150. 0
269. 7
28. 3
19.6
13. 1
65. 0
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/cu. ft 24,000
255,750 bales of shavings (60 pounds
per bale) at 90^/per bale 230,175
Selling Cost:
At selling discount of 5/5/5/2 51,283
Net Sales $269,692
Direct Costs:
Labor and supervision $57,250
Electric power 6,480
Fuel for dryer 9,000
Fuel for carriers 3,000
Bags for packaging 19,500
Chemical additive 3,600
Supplies and maintenance... 12,500
Value of raw materials 76,250 187,580
Gross Margin $82,112
Indirect Costs:
Administration $24,000
Rent 5,300
Depreciation 12,250
Taxes and insurance 3,675
Interest on plant invest-
ment 7,350
Interest on inventories 1,250 53,825
Net Profit $28,287
Less — Allowance for Taxes:
Federal tax $7,190
Kentucky tax 1,480 8,670
Net Profit After Taxes $19,617
C. Determination of Working Capital:
30 days of processed inventory $28,500
10 days of operating supplies $1,400
Total Working Capital $29,900
D. Cost Factors:
Labor $2.23/hour.
Supervision $3.00/hour.
Payroll overhead 15 percent.
Electric power 1.62^/kw.-hr.
Fuel oil 9.5^/gallon.
Bark $1.25/ton.
Shavings $1.25/ton.
Cordwood $14.00/cord.
Preservative Treated Products
Economic Performance Data
Daily Activities — Process 5 cords of cord-
wood and 5000 board feet of lumber and
squares into treated products.
A. Daily Operating Costs:
8-hour operating day, 250 day operating
year.
Value of cordwood $70.00
Value of sawn products 425.00
Electric power (700 kw.-hr.) 11.34
Chemical preservative 124.00
Fuel for carriers 6.00
Oil for steam generator 7.68
Supplies and maintenance 20.00
Labor (+15% overhead) 82.00
Supervision (+ 15% overhead) 27.60
Depreciation 26.00
Rent 10.00
Administration 26.00
Taxes (Not income) 5.20
Insurance 2.60
Interest on plant investment 15.60
Total Daily Cost $905.02
Cost of Treating Per Thousand Square
Feet $41.00
B. Projected Annual Operating Statement:
Annual Sales:
25,000 treated and machined fence-
posts at $1.20 each, and 600 thousand
board feet of treated fence rails at
$168/M b.f $130,800
750 thousand board feet of treated
lumber and square posts at $168/
M b.f 126,000
312 thousand board feet of treated
poles at $143/M b.f* 44,616
Selling Cost:
At selling discount of 5/5/5/2 48,029
Net Sales $252,587
Direct Costs:
Labor and supervision $29,900
Electric power 2,835
Chemical preservative 31,000
Oil for steam 1,920
Fuel for carriers 1,500
Supplies and maintenance... 5,000
Value of wood 123,750 195,905
Gross Margin $56,682
Indirect Costs:
Administration $18,000
Rent 2,500
Depreciation 6,500
Taxes and insurance 1,950
OPERATIONAL AND ECONOMIC PERFORMANCE
Interest on investment and
inventories $6,200 $35,150
Net Profit $21,532
Less — Allowance for Taxes:
Federal tax $5,114
Kentucky tax 1,077 6,191
Net Profit After Taxes $15,341
*$12 for average 8" diameter pole 20 feet in length.
C. Determination of Working Capital:
30 days of processed inventory $27,150
10 days of operating supplies 2,250
Total Working Capital" $29,400
D. Cost Factors:
Labor..': $2.23/hour
Supervision $3.00/hour
Payroll overhead 15 percent
Electric power 1.62^/kw.-hr.
Preservative 34^/pound
Fuel oil 16^/gallon
Cordwood $14.00
Lumber and squares $85.00
The Marketing Corporation
All products manufactured by the principal
corporation and satellite units of the complex
and destined for external sale will be sold
by the subsidiary marketing corporation.
Concurrently with the discharge of the prin-
cipal assignment, the corporation will, on
behalf of the complex, perform customer
services, sponsor limited product develop-
ment, assist the production units in meeting
customer requirements, and conduct adver-
tising and public relations activities.
In fulfilling its principal assignment, the
corporation will maintain a sales office at a
central location apart from the processing
activities of the complex. Lexington is
highly favored as a location both because of
its proximity to eastern Kentucky and be-
cause its well developed transportation and
communications facilities make it accessible
from major market centers. Convenient
transportation to and from the sales office is
important to customers as well as to the sales
force and other organizations that may par-
ticipate in the sale of products manufactured
by the complex. In view of expected visits
by principal customers, the office should be
combined with an attractively appointed
product display room. As explained in the
discussion of the principal corporation, the
sales office should be located adjacent to the
quarters occupied by the administrative
office of the complex, in the interest of
achieving the maximum effective liaison be-
tween marketing and processing activities.
97
Organization and Activity
The marketing corporation should be
staffed with clerical personnel and a force of
field sales representatives under the direc-
tion of a sales manager. The clerical staff
will process orders and sales, maintain rec-
ords, prepare correspondence, and otherwise
perform routine duties involved in the con-
duct of business. The sales representatives
will procure orders and provide technical
assistance to customers. They should be
salaried employees of the corporation, not
entitled to a commission on sales. Consider-
tion should, however, be given to augmenting
the salary of each representative with an
incentive bonus based upon sales achieve-
ment. They should be provided with leased
automobiles by the corporation to be used in
field sales work. The combined selling
efforts of the sales manager and his force of
sales representatives will be augmented by
sales through distributors.
The field service representatives, as the
name implies, should be permanently located
in the field at key points about the sales ter-
ritory. The projection of the economic activ-
ity of this corporation has allowed for five
representatives. A logical division of the
sales territory to be served by the complex
would justify location of one man in western
North Carolina, one in western Virginia, one
in northeastern Ohio, and one in southeast-
ern Illinois. The fourth man should work
from the sales office and provide sales cov-
erage within Kentucky.
It is expected that up to one-third of the
total sales volume will be moved through
wholesale distributors. Efforts should be
made to keep this volume at a minimum.
The channeling of some products through
distributors could well exceed the one-third
level; this situation would be balanced by
the movement of the total output of other
products direct to customers. Most dis-
tributors will operate on a discount schedule
of 5%-3%-2% cash, provided they are not
required to maintain warehouse inventories
of products or to extend credit. They will,
in effect, be order takers able to develop
business to the advantage of the complex.
Their utility to the sales corporation will lie
in their ability to augment the field sales
force, without fixed expenditures for salaries
and overhead.
The major portion of the sale of products
will develop through the activities of the
field representatives. The location of these
representatives, at strategic points about
the sales territory, as suggested above, will
98
facilitate their ability to maintain close con-
tact with customers. The additional service
of technical assistance is a means of culti-
vating customer relations, as well as a means
of assuring proper adaption of the products,
production capacity, and skills of the com-
plex to the needs of the customer. The
"personal element" evolved through the
extension of field service is effective and is
the equivalent of a great deal of costly ad-
vertising. The service extended to any one
customer should be tempered by the volume
of business, actual or potential, that is
involved.
The field representatives will be able to
detect needs for product changes and to
suggest new products that might be manu-
factured to advantage by the complex. In
these instances, the representatives will
communicate recommendations to the proc-
essing activity. In this same vein, there
will be opportunities for the sales represent-
atives to work with some customers in
matters of new product development. While
each situation involving product develop-
ment must be judged upon its own merits,
the attitude of the sales representative
should be to encourage or perhaps partici-
pate in programs of which he has knowledge.
The primary mission of the field representa-
tives will be to consummate the sale of prod-
ucts. The extent of participation in any
supplemental activity should, therefore,
be judged accordingly.
The diverse nature of the planned product
line of the complex will require selling to
a rather broad spectrum of industrial and
consumer markets. Solid wood core stock,
flakeboard, and dimension will move pri-
marily to the furniture industry. Solid
wood paneling will sell to wholesale and
retail lumber yards and contractors. Pallets
will be sold wherever there is transfer and
storage of quantities of materials — both
in warehousing and in manufacturing.
Furniture frames will be directed only to
manufacturers of upholstered furniture.
Unassembled furniture will sell to large
merchandising establishments and chain
retailers. Litter and mulch will sell to ware-
house distributors, with considerable move-
ment of products direct to volume consumers.
Preservative treated products will sell to
industrial consumers, retailers, and individ-
ual volume users, such as stock farms.
The marketing corporation should function
as a factory representative, with an f.o.b.
plant pricing policy. Shipments will origi-
nate at the producing facility; the sales office
will maintain no inventories of products
SECTION IV
and will perform no retail sales function.
Products rejected as a result of errors in
machining or manufacture are suitable for
sale, provided they are clearly identified as
being seconds — by stamping or other marking
on each piece. On the other hand, products
evidencing technical defects, such as faulty
glue lines in laminated stock or inferior
physical properties in flakeboard, should
be destroyed. The marketing corporation
should monitor the processing activities to
insure that policies of the complex relating
to the disposal of reject material are followed.
It should act as the conscience of the entire
organization, insisting that all its markets
be supplied with nothing but quality products.
Sales personnel should be made thoroughly
familiar with the methods of manufacture
and properties of the products that they are
responsible for selling. Each man added to
the sales force should be subjected to a
period of formal familiarization — including,
among other things, several days of on-site
observation and training at the production
facility.
Pricing
Prices for products will be established by
the manufacturing sources: either the prin-
cipal corporation or the satellite units. In
serving as the selling agent, the marketing
corporation should apply a 5%/5%/5%/2%
cash discount against the established price.
This discount will be the total source of
revenue for the marketing corporation.
If prices are found to offer a competitive
disadvantage, the need for changes will be
negotiated between the source and selling
agent — i.e., the marketing corporation. As
a matter of policy to be practiced by the
entire complex, prices should not be permitted
to deviate to any appreciable extent from
those charged by competitive sources of
identical products. The use of below market
prices or unusual discounting from published
price lists as a competitive weapon should be
avoided; instead, preference should be given
to developing a reputation for quality and
service.
In the event that closing of a large order is
contingent upon accepting a price below list,
final acceptance of the order (and the price)
should lie with the product source. This
procedure is particularly important with
regard to the sale of products for satellite
units. Although acceptance of an unusually
low price should not involve any change in
the marketing corporation's discount sched-
ule, it will result in reduced revenue because
OPERATIONAL AND ECONOMIC PERFORMANCE
the discount will apply to a lower selling
price.
Promotional Activities
Advertising and other means of placing
the product line in front of the potential
customer will be the sole responsibility of
the marketing corporation. A sufficient
selling discount has been recommended to
permit an effective advertising and publicity
effort. Extensive use should be made of
trade magazine advertising and promotional
literature designed for direct mailing and
hand distribution by sales representatives
and distributors.
In the event of unusual or specifically
directed advertising efforts undertaken for
the benefit of a particular satellite or proc-
essing facility, the beneficiary should assist
the marketing corporation in meeting costs.
Whenever practicable, products should be
packaged for shipment to customers. In
all instances the packaging should be de-
signed to assist the overall effort to ad-
vertise; it should also serve to identify the
product with the complex. Advertising ap-
plied to packaging should be designed with
the assistance of the marketing corporation;
and the cost of such advertising should be
charged as a production expense, not as a
sales expense, and should be borne by the
production unit.
The display room to be maintained in con-
junction with the sales office should be inter-
esting and impressive so that it can serve as
a practical aid to selling. The presence of a
complex of the type advocated, will, over a
period of time, attract many visitors. A
properly designed display room will leave
these visitors, many presumably potential
customers, with a lasting favorable impres-
sion that will contribute enormously to
easing follow-up selling effort. Some ex-
penses of the display room should be borne
by the processing units, to the extent that
they will donate materials for display. Most
other expenses will rightfully be the respon-
sibility of the marketing corporation.
Incentive to Satellite Units
In recognition of the contribution of the
satellite units to the saleability of their
products, the marketing corporation could
to its own advantage make available an
incentive bonus to any satellite whose prod-
ucts sell in excess of a certain dollar volume
over a period of time. An equitable means
of giving a bonus would be by reducing the
99
established discount schedule. An alter-
native method would be to make a lump sum
payment, based on a percentage of gross
profit of the marketing corporation. The
percentage rate would be established in
accord with a schedule based on the rela-
tionship of unit price to volume. This alter-
native would be Jess desirable than a
reduction in the discount schedule because it
would serve to acquaint others too intimately
with details of the conduct of business by the
marketing organization.
The Sales Manager
The proper discharge of the multiple func-
tions of the marketing corporation will be
the responsibility of a sales manager. The
individual selected for this position should
be eminently qualified, with a background
that combines selling and management ex-
perience. As in the case of the production
manager, a thorough familiarity with the
sale of wood products is desirable but not
mandatory. The manager will depend upon
his staff of technically qualified sales repre-
sentatives when dealing with technical
problems related to the nature or application
of individual products. His major objective
will be to develop sales volume to an extent
that will permit operation of the various
processing units of the complex at their
optimum capacities. In accomplishing this
objective, he well be heavily involved in
tasks of planning, rendering policy decisions,
cultivating distributor outlets, maintaining
customer relations at the decision level, and
coordinating marketing requirements with
activities of the processing facilities of the
complex.
It is fully expected that the sales manager
will also engage in direct selling, particularly
with regard to the development of major new
accounts. Ordinarily, his contacts with
customers will be preceded by ground-work
by his staff of field representatives. He
should also be available to his representatives
to assist in closing unusual, difficult, or highly
important sales.
In addition to his selling tasks, the sales
manager will establish clerical procedures,
respond to customer demands, and adminis-
ter the extension of credit and other routine
business involvements.
The sales manager will be a key member
of the management echelon of the entire
complex. As such, he will be included on
the board of directors of the principal corpo-
ration. This recommendation is in keeping
with the importance that should be accorded
100
to the influence of the sales organization
upon the conduct of product manufacture by
the complex. An individual of the caliber
required to perform the described job in a
proper manner will command a compara-
tively high salary and will probably expect
to receive a performance award. Accord-
ingly, it is recommended that an incentive
payment should be made available — possibly
of the nature of 1.25 percent of net profit
of the marketing corporation.
Economic Performance
The economics applying to the function
described above are projected on the follow-
ing four pages. Gross sales revenue is
projected at $6.5 million, with net sales at
$1,042 million. Annual operating costs will
be $421 thousand.
Marketing Corporation
Economic Performance Data
Daily Activities — Perform all external sales
of products manufactured by the complex
and its satellite processing operations.
Conduct advertising, customer service and
public relations activities on behalf of the
complex.
Maintain a sales display room.
A. Annual Operating Costs:
Salaries:
Sales manager
Sales representatives (5)
Sales clerks (2)
Secretaries (2)
Payroll overhead 15 percent
Expenses:
Discounts to distributors
Manager's travel
Sales representatives' travel
Advertising budget
Sales aids
Telephone
Supplies
Insurance
Rent
Legal, audit, and credit
Equipment:
Leased automobiles (5)
Office equipment (Depreciation)
$15,000
50,000
12,000
9,000
12,900
211,194
12,000
30,000
40,000
5,000
6,000
1,500
1,700
3,600
3,000
6,000
2,000
Total Cost $420,894
B. Annual Sales Activity:
Annual Sales Revenue:
Product
Solid wood
core stock.
Dimension
products.
Solid wood
paneling-
Quantity
2,000,000
sq. ft.
1,500,000
b.f.
1,000,000
sq. ft.
Unit Price
$260/M
sq. ft.
$255/M
b.f.
$250/M
sq. ft.
Cost
$520,000
382,500
350,000
SECTION IV
Flakeboard 19,250,000 $120/M $2,310,000
(3/4"-40#). sq. ft. sq. ft.
Pallets 416,666 $2/pallet... 833,332
pallets.
Unassem- 125,000 $7.70/ 962,500
bled furni- pieces. piece,
ture.
Upholstered 112,500 $4.85/ 545,625
furniture frames. frame,
frames.
Treated 25,000 $1.12/ 27,500
products. posts. post.
600 M b.f. $168/M 100,800
fence b.f.
rails.
750 M b.f. $168/M 126,000
lumber b.f.
& posts.
312 M b.f. $143/M 44,616
poles. b.f.
Litter 255,750 90 /bale... 230,175
bales
shav-
ings.
96,000 25tf/ 24,000
cu. ft. cu. ft.
parti-
cles.
Bark mulch. 167,000 40tf/ 66,800
cu. ft. cu. ft.
Gross Sales Revenue $6,523,848
Selling Commission:
At selling commission of 5/5/5/2 $1,042,315
C. Projected Annual Operating Statement:
Annual Sales:
Gross revenue from schedule "C"... $6,523,848
Selling Cost:
Cost of products sold 5,481,533
Net Sales $1,042,315
Direct Costs:
Salaries $98,900
Expenses 313,994
Equipment 8,000 420,894
Gross Margin $621,421
Indirect Costs:
Interest on working capi-
tal $13,740 13,740
Net Profit $607,681
Less:
'Sales manager's bonus
Federal tax 284,230
Kentucky tax 41,506 333,333
Net Profit After Taxes $274,348
D. Discounts to Distributors:
Assume 33 percent of total sales are per-
formed through wholesale distributors
at a discount of 5/3/2 on a gross sales
revenue of $6,602,515 $211,194
E. Determination of Working Capital:
30 days accounts receivable for prod-
ucts derived from satellite units $213,000
Operating cash 16,000
Total Working Capital $229,000
Section V
Site Analyses
Requirements of the
Complex
The selection of a suitable site for the
processing activities of the complex will
heavily influence the success of the proposed
venture. Many of the factors that influence
site selection have been discussed in some
detail in this report (see especially Section I)
and in the earlier Phase II Report produced
during the same study program. These
general criteria have been applied to the
analysis of three areas in eastern Kentucky
that appear to be suitable locations for the
complex. In accordance with the terms of
reference of the study program, however,
no attempt has been made to render a final
decision on any of these areas — or the indus-
trial sites situated within each area — as the
best location for the complex. Such a deci-
sion can only be made, in the final analysis, by
the group responsible for initiating the
venture.
Map V-I shows the three areas discussed
in this section. Each area is defined by a cir-
cular procurement area with a radius of 50
miles. Within the three areas, ten possible
industrial sites have been identified. The
salient features of each area and site are
described below; the location and configura-
tion of each potential site are shown by
topographic maps.
possible, however, that it can be developed
as a limited source of quality saw logs and
veneer bolts. The area is particularly fav-
ored because of its access by rail transporta-
tion to Chillicothe, Ohio — an advantage in
the sale of pulp chips.
Area Facilities
The area is served by the Eastern Ken-
tucky Division of the Louisville and Nash-
ville Railway. A major marshalling yard is
located at Irvine. Rail transit times from
Irvine-Ravenna are 6V2 hours to Louisville,
20 hours to Cincinnati, and 26V2 hours to
Knoxville.
State Highway Routes 52, 89, and 499 serve
Irvine-Ravenna; State Routes 52 and 11
serve Beattyville. Irvine is 15 miles from
the East Kentucky Turnpike, one section of
which is scheduled to be completed in 1962,
and about 20 miles from the route of 1-75
(Knoxville-Lexington-Cincinnati), scheduled
for 1964-70. Beattyville is 27 miles from
the turnpike. Highway distances from
Irvine and Beattyville, respectively, are:
129 and 151 miles to Cincinnati, 117 and 154
miles to Louisville, and 189 and 217 miles
to Knoxville.
Electric power is supplied by the Kentucky
Utilities Company. Natural gas is supplied
to Irvine and Ravenna by Columbia Gas of
Kentucky; it is not available to Beattyville.
Area 1 — Kentucky River Valley
This area, centering at Irvine, occupies
5450 square miles within the confines of
eastern Kentucky and contains 2,477,000
acres of forest land. The total forest re-
sources in the area comprise 6.1 billion board
feet of sawtimber and 10.3 million cords of
cordwood. The wood raw material avail-
able annually for use by new industry is:
Saw timber 176,276 thousand board feet.
Cordwood 910,000 cords.
That portion of the procurement radius
which extends outside of eastern Kentucky
and into the Bluegrass region has been dis-
regarded as a source of raw material. It is
Available Sites
Three sites have been selected within this
area:
Site #i— Located two miles north (down-
stream) of Irvine, this site contains about 82
acres of rolling land which could be graded
to make a suitable site. It is within 300 feet
of the L. & N. Railroad. Access to the site
at present is by IV4 miles of unimproved road
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 # J — This site, located four miles north
of Irvine between the L. & N. Railroad and
102
SECTION V
v\Msefr>an
J l; ■, McKinney
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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 3Aj 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
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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
.
,Ht^
f\U-
Voi^
«uc^
CAp
, 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. 0
105. 0
49. 7
Tennessee
2
2*
8. 0
9. 8
2. 5
North Carolina
14
10@
118. 0
111.8
57. 4
Indiana
1
1
5. 0
10. 0
N. A.
Illinois
1
22
1
19
18.0
186. 3
30. 0
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. 0
103. 2
127. 2
268. 4
30. 7
124.0
164. 6
319. 3
3 8. 1
148. 8
199. 5
386. 4
60. 0
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. 0 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,
Otif6 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^sslisTppl
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. 0
14, 400.0
14, 874. 0
Ohio
240. 3
9, 800.0
10,040. 3
W. Virginia
199. 5
600.0
799.5
Virginia
435. 5
4, 000. 0
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. 0
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. 0
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. 0
15,957.5
Iowa
375.0
39, 200. 0
39, 375. 0
Missouri
483. 8
16, 400. 0
16, 883. 8
Arkansas
1, 813. 8
3, 600. 0
5, 413. 8
Louisiana
241. 5
4,000.0
4, 241. 5
Wisconsin
264. 3
12, 400. 0
12, 664. 3
Michigan
105. 5
5, 000. 0
5, 105. 5
Illinois
177. 8
23, 200. 0
23, 377. 8
Tennessee
317. 8
6, 600. 0
6, 917. 8
Mississippi
1, 112. 8
5, 200. 0
6, 312. 8
Indiana
474.0
14, 400.0
14, 874. 0
Kentucky-
211. 3
7, 200. 0
7, 411. 3
Alabama
1, 605. 8
5, 200. 0
6, 805. 8
Ohio
240. 3
9, 800. 0
10, 040. 3
Georgia
1, 783. 3
6, 000. 0
7, 783. 3
New York
159.5
4, 600. 0
4, 759. 5
Pennsylvania
496. 5
5, 000.0
5, 496. 5
Virginia
435. 5
4,000. 0
4, 435. 5
West Virginia
199.5
600. 0
799.5
North Carolina
1, 086. 3
4, 400. 0
5, 486. 3
South Carolina
250. 5
2, 000. 0
2, 250. 5
Florida
154. 8
4,000. 0
4, 154. 8
New Jersey
130. 8
400. 0
530. 8
Delaware
683.0
184. 0
867. 0
Maryland
821.8
700. 0
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.
Prices for chips vary from plant to plant,
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144
but one mill near eastern Kentucky has been
paying $7.50 to $8 a ton (green weight) deliv-
ered. 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