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Hard Turnaround

Timber Crisis (2015)

#Manufacturing
ProHub Comment

This is a pressure-test case designed to test candidate resilience in ambiguous situations rather than analytical problem-solving. The real challenge is recognizing that as the lowest-cost player in a commodity market already operating at peak efficiency, there are no operational improvements available—the only viable path is either weathering the downturn or securing external capital.

Estimated Time 15 minutes
Difficulty Hard
Source Columbia
50 / 100
Our client is a Canadian-based Timber Company in 2009. It primarily makes 2x4s, and the U.S. Residential construction market is, by far, the largest consumer of these products. It also sells sawdust, which is a derivative of 2x4 production. The housing crash has just happened, and demand has dropped precipitously. The client is in dire financial straights and bleeding cash. Current internal projections state that we can run the company for only 6 months longer at the current rate of cash loss. What can we do to turn it around?

Clarifying Information

  1. Privately owned business, family has cash to spend if it makes sense
  2. 2 step production process – trees cut down, sent to saw mill, sent on trucks to transportation warehouse
  3. All our equipment is brand new, our employees are optimized, running at full capacity, trucks are new and fuel efficient (we bought them during boom times). Candidate should take away that we are the leanest, most-efficient operation in the business
  4. We have 1/3 Market share, rest of industry is small, fragmented and much higher on the cost curve
  5. We lease land for trees from Canadian government, cost of that lease is negligible – we pay government for each tree cut down
  6. Our 2x4s are sent by truck to the closest warehouse in Chicago, and then whoever needs them buys from there. Commodity market all products the same
  7. Candidate should try to look at various other potential revenue streams – we can’t utilize them because our firm isn’t set up to and doing so would be prohibitively expensive (shoot these down individually)