The 8th International Conference on Production Research – Americas 2016
Challenge in supply chains management in Argentina: The case of forestry-industrial sector Broz, Diegoa*;Rossit, Danielb,c; Rossit, Diegoc,d; Cavallin, Antonellac,d a
UNaM CONICET Forestry Sciences Faculty, Bertoni 124, Eldorado (N3382GDD), Misiones, Argentina. b c
INMABB UNS CONICET, Av. Alem 1253, Bahía Blanca (B8000CPB), Argentina
Department of Engineering UNS, Av. Alem 1253, Bahía Blanca (B8000CPB), Argentina d
IIESS CONICET-UNS, San Andrés 800, Bahía Blanca (8000), Argentina
Abstract
The rise in the worldwide demand of forest products of the last decades predicts an expansion of the forest harvesting industry. In this context, the Argentinian northeastern region (NEA) is considered a promising land since the local forest harvesting industry has one of the largest growing rates in the world. Despite its potential, this region faces some challenging obstacles: budget shortage, trade barriers and poor logistic infrastructure. For instance, traditionally the forest products are delivered by truck, which is from three to five times more expensive than other means of transport, like maritime or river transport. This is why in this paper we present a thorough description of the current state of this productive region and the main challenges that it suffers and how we think they can be overcome. Keywords: Argentinian Northeast; competitiveness; forestry-industrial sector; supply chain
1.
Introduction
The forest sector contributes with approximately 2-3% of the world gross product, constituting a business that manages U$160,000 million per year. The main producers and exporters countries are the United States of America (USA), Russia, India, China, Brazil, Canada, Sweden, Malaysia and Indonesia. In 2014 the global production of roundwood was calculated in 1,837 million m 3 [1]; where more than 90% of this amount has been taken from native forests. On one hand, this situation, in addition to the fact that global consumption is larger than global production, has attracted the strong criticism of environmental organizations. However, on the other hand, this represents an excellent opportunity to enhance forest industry in countries that have high growing rated of countries planted forest; for instance, Latin-American countries, such as Argentina, and others like New Zealand. 1.1 Argentinian Forest sector Despite not been considered an important forest producer, Argentina has about 33 million and 1.2 hectares of native and planted forest respectively; with a growing rate of 40,000 hectares per year for this last type of forestation. Furthermore, it is considered that the Argentinian potential surface for planted forest can be extended up to 40,000 million hectares. For some particular tree species, the production rate is highly competitive; in the case of Pinus spp y Eucalyptus spp this value is about 35 and 45 m3 per hectare per year respectively, which is a rate from six to ten times higher than those that can be obtained in North-America or Europe [2]. This is due to favorable climatic and soil conditions. Figure 1, illustrates this information.
* Corresponding author e-mail address:
[email protected]
Canada (East) Sweden USA (Norteast) USA (South) Chile New Zealand Argentine
coniferous eucaliptus
0
10
20
30
40
50
m3 per year per hectare
Figure 1. Comparison between the growing rates for different wood-producer countries. Source: [3].
About 85% of the Argentinian production is concentrated in the northeast of the country (NEA) according to the Argentinian Ministry of Agribusiness. From the 300,927 new hectares that have been planted in Argentina in the last decade, 67% were settled in Corrientes and Misiones, which are two provinces from the NEA region. This augmentation in planted area led to an increment of planted wood production, as is shown in Figure 2 for the case of roundwood. The forest sector has more than 1,000 industrial factories, with more than 98% of this number been composed by small and medium enterprises (SME). This also explain the large number of direct and indirect jobs produced by the forest sector. According to a recent report [3] the forest industry employs about 194,000 people directly, 54,000 in related commercial and distribution activities and 113,700 in other indirect activities, e.g. professional consultancy and machinery or chemicals industrial production.
10.000.000 8.000.000 6.000.000 4.000.000 2.000.000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Figure 1 Argentinian roundwood production from planted forest per year (in miles of tons).
Although all this favorable aspects, the lack of investments, either in industrial production or in management technologies, and the extremely high logistic cost are huge drawbacks in the NEA’s forest sector competiveness. 2.
Logistic problems in Argentina
According to González et al. (2008) [4] the logistic cost, that is composed mainly by transport and stock expenses, in Argentina represents about 27% of the Gross Domestic Product (GDP), in Brazil 26%, in Colombia 23%, in Chile 18%, in USA 9.5% and in the Organization for Economic Co-operation and Development (OECD) 9%. Similarly, the calculates logistic cost in Argentina represents 30% of the Free on Board’s value (FOB), 17% in Uruguay, 9% in Brazil and 7% in Chile; i.e. exporting a container of wood from Misiones (Argentina) is about three or four times more expensive than exporting it from Chile or Brazil respectively [5]. Considering this information is not surprising that Argentina holds the 104th position, out of a total of 144 countries, in the competitiveness global ranking 2014-2015 [6]. Schwab (2014) [6] specifies that this low-ranking position can be explained by the poor transport infrastructure. Consequently, one of the most common mean of transport in Argentina is the truck. This mean of transport ships about 84% of the total economic production. Moreover, Cañete (2011) [7] states that eight out of ten products of any economic activity use the lorry at least two times throughout their value chain. According to Martinez et al. (2014) [8] the freight cost of lorries is three or five times higher in comparison with the one of the
train or ship respectively. For instance, the transport cost of shipping a container of 20ft. and 10t to Buenos Aires from Singapur or Shangai is cheaper (U$1800), more than 15.000 km, than transporting it from the Argentinian northwestern city of Salta (U$2200), around 1.700km [7]. Schwab (2014) [6] recognizes the influence of efficient logistic infrastructure in the arrival of new investments and the general economic development of a country. In relation to this Canitrot and García (2012) [9], indicate that in Argentina the productive logistic cost is dependent on the economic sector and the enterprise size. For example, in primary economic activities, such as agriculture, livestock or forestry, the logistic cost represents about 12% of the added value; whereas in other sectors, such as building, the transport expenses are in the order of 20% of the added value. The incurred logistic cost, expressed in percentage of the turnover, is inverse to the enterprise size: the higher the scale of turnover, the lower the impact of freight cost in the company’s revenues. In Figure 3, the values are expressed in thousands of American dollars per year, it can be seen that in enterprises that have turnovers of more than 5 million dollars, the logistic cost represents only 18% of the incomes, whereas for small enterprises, that earn less than 50,000 dollars, nearly half of the turnover is destined to cover logistic costs.
Inventory management
Transport
Total
42% 29% 13%
t < 50 USD/year
18%
18% 11%
6%
50 < t < 500 USD
11%
7%
500 < t < 5000 USD
18% 7%
11%
t > 5000 USD
Figure 3. Average logistic costs, as component of total turnovers, expressed in thousands of American dollars. Source: [9].
Other aspect that illustrates Figure 3, is that as the turnover level increases, the Inventory management component decreases, from 29% for small enterprises to 7% for big enterprises. This difference is quite representative in the forestry sector, since the management capabilities are not usually included in the organization’s investment portfolio or among the organizational objectives. In the case of big forestry enterprises, this should be a must since it is extremely difficult to administer the entire organization without a proper management system. However, the implementation of adequate Decision Support Systems (DSS) is not customary for the Argentinean forestry industrial sector, and this becomes a limitation in order to improve competitiveness. Currently, the decision-making process is, in general, guided only by practical experience. And, although leaders’ expertise is an invaluable asset for any company, sometimes experience by itself it is not enough for performing good business strategy in such a competitive and uncertain environment as the current forest sector. 3.
Opportunities for improving forestry logistic performance
If we consider that, usually, the wood production in Argentina has to travel on average around 1,200 km to the consumption or export centers inside the country, and that the majority of the transport in Argentina is done by lorries, which has a relative high cost per shipped unit compare to ships or trains, it is not difficult to realize that the Argentinian forest sector’s capacity to compete with other wood producers is highly restricted. Therefore, it is urgent to consider the development of other means of transport that produces a reduction in the logistic costs. One alternative is to explode the advantages of the river basin “Cuenca del Plata”, that is the third biggest in the world. Mainly based on the Paraná, Uruguay and Paraguay rivers, it extends through the territories of Brazil, Bolivia, Paraguay, Argentina and Uruguay, reaching a longitude of 3,442km. The Argentinian use of this aquatic network, despite a promising impulse in the 1990s with the creation of numerous ports along the rivers encouraged by special government policies [10], has been affected in the last years by regulation disagreements between the countries that share this river basin and the difficulties in sailing conditions (that need important investments in order to be overcome).
Figure 4. Proposed logistic network for Argentinean North East (NEA) forest sector.
The railway system is another auspicious mean of transport. However, the poor current conditions of the Argentinean railway network are far from the ones that used to have at its zenith at the beginning of the twentieth century, where was considered one of the largest in the world. The railway “General Urquiza” that connects the NEA with Buenos Aires, now out of service due to poor maintenance, it is an another feasible alternative for improving Argentinean competitiveness [11]. The geographic distribution of these recommended logistic network is illustrated in Figure 4. 3.1. Decision Support Systems DSS can have a big synergic impact on the Argentinean forestry industrial sector. Many authors recommend the implementation of mathematical models and others Operations research tools for dealing with forestry decision making ([2], [12], [13]) since DSS can help to take decision considering the supply chain in a more holistic perspective, taking into account of scale economies and industrial factors that nowadays are ignored. Moreover, with the inclusion of these management techniques, it would be possible to add more resilience to the forestry sector, enhancing its capability to deal with uncertainty, battling against unfavorable situations and capitalizing favorable circumstances. 4.
Conclusion
In spite of its rarely favorable geographic and climatic characteristics, Argentina faces huge challenges in order to take full advantage of its special natural conditions for forest production. Logistic infrastructure is a crucial aspect that needs urgent attention. Integral and effective public policies are necessary requirements in order to promote private investments for recovering part of the competiveness that Argentina has lost in comparison with neighboring countries. Other aspect that is strategic for the sake of the sector is the incorporation of Decision Supports Systems by the decision-makers of the forest industry since this would allow the upgrade of the current management capabilities of the sector. References [1] Food and Agriculture Organization of the United Nations (2014). Forest products statistic. In: http://www.fao.org/forestry/44134-01f63334f207ac6e086bfe48fe7c7e986.pdf [2] Broz, D. R. (2015). Diseño y desarrollo de un sistema holístico a través de técnicas de simulación y optimización integradas aplicado a la planificación táctica de operaciones forestales. Editorial de la Universidad Nacional del Sur (Ediuns). Bahía Blanca, Argentina. [3] Instituto de Estudios sobre la Realidad Argentina y Latinoamericana (IERAL) of Fundación Mediterránea (2011). Una Argentina Competitiva, Productiva y Federal: Cadena foresto industrial. Technical Report Year 17 – Edition N° 95 [4] Gonzalez, J. A., Guasch, J. L., & Serebrisky, T. (2008). Improving logistics costs for transportation and trade facilitation. World Bank Policy Research Working Paper Series, Vol. [5] Asociación Forestal Argentina AFOA (2015). Propuesta de políticas públicas quinquenio 2015/2020. Available in: http://www.afoa.org.ar/novedades_detalle.php?p=103 [Date consulted: July 26th, 2016].
[6] Schwab, K. (2014). The Global Competitiveness Report 2014–2015. World Economic Forum. Available in In http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2014-15.pdf [Date consulted: July 26th, 2016]. [7] Cañete, G. (2011). Impacto en las economías regionales por el aumento en los costos de transporte. Technical Report of the Informe de la “Unión Industrial Argentina”. Argentina. [8] Martinez, F.; De Cristófaro, G.; Sánchez, L.; Hantke, B.; Diaz, A., 2014. El sistema de transporte en argentina: Análisis de situación, problemáticas y propuestas para el Sistema de Transporte en Argentina. Technical report of the “Centro Estratégico para el Crecimiento y Desarrollo Argentino”, 79 pp. Argentina. Available in: http://www.cecreda.org.ar/archivos/nNiKb.pdf, [Date consulted: July 26th, 2016]. [9] Canitrot, L.; García, N., 2012. La logística como herramienta para la competitividad: El rol estratégico de la infraestructura. 1st Edition. “Cámara Argentina de la Construcción”. Argentina. [10] Schweitzer, M. (2013). Grandes inversiones y conflictos socio-territoriales. Efectos de la localización de terminales portuarias en dos localidades de la Hidrovía Paraná Paraguay. In Proceedings of the XXIX Congreso de la Asociación Latinoamericana de Sociología. Santiago de Chile, Chile. [11] Capello, M.; Arazi, M.; Sartor, J.; et al (2016) Evaluación de costos y factibilidad de transporte de mercancías exportables producidas en Córdoba a través de la Hidrovía Paraná-Paraguay. Instituto de Estudios sobre la Realidad Argentina y Latinoamericana (IERAL), 22 (151). 26 pp. Available in: http://www.ieral.org/images_db/noticias_archivos/3321Documento%20de%20Trabajo.pdf [Date consulted: July 26th, 2016].
