The Effect of Customer–Contractor Alignment in Forest Harvesting Services on Contractor Profitability and the Risk for Relationship Breakdown

Abstract

Abstract:In forest operations, the interface between forest companies and harvesting contractors is of special importance, considering that it is the first link in the forest industry's supply chains. Supply operations account for a significant share of the final costs of wood products (up to 50%). This study investigates the effect of customer-contractor alignment on contractors' profit margins and on the risk for business relationship breakdown. Alignment is empirically measured for a Swedish forest company and 74 of its harvesting contractors, who were monitored during a four-year period. Two measures of alignment are employed: (1) the customer-perceived value of the contractors' services; and (2) the contractors' perceived alignment with the forest company expectations. Results indicate that the two measures of alignment are largely independent from each other, and that customer-perceived value affects both contractor profitability and the risk of relationship breakdown. Conflict between the two parties and lack of trust for the customer were found to be common complaints among contractors who ceased working for the studied forest company. Consequently, customer-contractor alignment should be considered a key objective by contractors who strive for business success, and also by forest companies who wish to improve their supply chain performance.

Logging Contractors’ Growth in the Southern Cone: An Analysis of Contractor Business Strategies, Innovation, and Mechanization

“…The framework employed in this study was in part previously described in Mac Donagh et al [9] and was based on personal interviews with logging contractors working in timber plantations in three countries of the Southern Cone: Argentina (Misiones and Corrientes Provinces), Brazil (Parana, Santa Catarina and Rio Grande do Sul States), and Uruguay. Personal interviews were a common method previously employed [2,6,8]. Authors like Okey and Visser [17] and Conrad et al [10] have used information from large surveys involving government and loggers' associations.…”

“…Timber harvesting is one of the primary costs of supplying raw material to forest products firms, often exceeding the cost to grow the trees themselves. The timber harvesting (including transport) in forest plantations is considered as one of the main activities in the determination of the costs of the raw material for industries [1][2][3]. In the Southern Cone of South America, forest harvesting activities are carried out through logging contractors that have emerged through the phenomenon known as outsourcing.…”

“…This is the most common approach for a company that owns forest plantations. In forest products timber harvesting, relations are determined by asymmetric situations, where contract negotiations take place at multiple levels, and involving contract price, working conditions, financial support, professionalization, and processes of certification [2,[4][5][6][7]. Logging firms occupy a unique to improving the safety standards, which implies discarding old machines and replacing them with newer and improved models.…”

“…Logging firms occupy a unique to improving the safety standards, which implies discarding old machines and replacing them with newer and improved models. Lastly, the environmental considerations impacts, which affected the cost of the operation, were considered [2,5,6,8,10].…”

“…However, this question could be at odds with the outsourcing, in some cases, where the contracting firm has a large measure of control over contractors. Too much corporate control negates the advantages of independent contractors, giving them very little ability to innovate, and its growth would be strongly linked to the designs of the contracting company [2,6,8]. In fact, integrated forest products firms had their own logging crews in the U.S. South in the 1950s and 1960s, but those crews were less productive and required greater fringe benefits for social insurance payments than small independent crews.…”