Wood in motion and factoring as a liquidity guarantee
The Olwo Group's roots may be in its sawmill and planing shop, but the lion's share of its revenue now comes from sales of wood-based products. Whether it's an open-air auction, global trade, or the online shop – Managing Director Markus Lädrach is at home in any sales setting.
Mr. Lädrach, your grandfather founded Olwo AG back in 1926. What do you think would impress and surprise him most if he were to see the company today?
He would still recognize and feel at home in the sawmill, even if everything is much bigger and computer-operated – and everything happens at a much faster pace. He would be surprised to see that so many people work in offices nowadays and we have far fewer workers on the shop floor. And he would be impressed by our business volume – we generate CHF 70 million in revenue each year – and by our logistics.
You mentioned the fact that Olwo is far more than a sawmill now. You also trade in wood products. Can you give us a rough outline of what your company does?
In very general terms, our operations break down into three areas: In the sawmill and planing shop, we manufacture products from softwoods. Our main customers for these products are industrial firms, carpentry shops, and the construction industry. In the area of solid wood, our main customers are joiners. And finally, we also sell products that we do not produce ourselves: wood-based products, wood flooring, skylights, and decking materials. We have around 3,000 products in our catalog.
Is most of your business local? You probably don't export logs to China, do you?
No. But China's not as far-fetched as you might think. Wood that's traded comes from all over the world – and China is right up there at the top. The Chinese have state-of-the-art equipment, cheap labor, and shipping is also quite inexpensive. That makes for a crazy situation: European wood gets shipped to China for processing and then the products are shipped back to Europe. For example, more and more wood flooring materials are coming from China.
As a layperson, I imagined wood trading to be done in a much more traditional way.
Sales of logs and high-grade wood are still very much done the old-fashioned way. We hold auctions directly in a field at the edge of the forest. The logs are laid out there for buyers – sawyers or timber merchants – to inspect. Some logs go for record prices.
Do the Swiss prefer to buy Swiss wood?
There is a definite trend towards Swiss wood. The public sector in Bern has made a clear commitment to buying Swiss wood and sustainability certainly plays a role. For us as well. I won't send our trucks through the Baregg tunnel. That just doesn't make sense. There's a very clear market area for our trade products, covering central and western Switzerland. But we buy our trade products on the global market: 60 to 70 percent of them come from Central Europe.
So, you import but don't export?
Not quite. We export some of the wood from our mills to neighboring countries, primarily Italy, which is a wood-importing country. Italy has a large number of companies in the packaging industry that need lower-quality wood. That business section has practically disappeared in Switzerland. So, we don't have a market here for the offcuts from the milling process. Wood is a bit like meat: It isn't all filet mignon.
What role does your bank play in your business abroad?
Our production factors are calculated in Swiss francs, as are raw materials. For sawn timber, there is a global market price in euros per cubic meter. If the franc is too strong or moves outside a certain range, we have a problem. So we are in regular contact with Credit Suisse, to hedge currency risks. Our exports to Italy also present a unique situation. There is a high risk of payment default and some customers take 90 days or more to pay. Thus, in collaboration with our client advisor at the bank, we decided to use factoring to manage those risks.
Isn't factoring a sort of liquidity guarantee?
Exactly. Factoring is actually designed for young, fast-growing companies that may not be in a position to pay their suppliers' invoices as fast as they generate them. But it works perfectly for our situation. It allows us to protect ourselves against the risk of default.
That sounds like an unconventional solution. Is that typical of Credit Suisse?
I don't know if it's typical but I can say that our client advisor is very interested in understanding our business and finding the best solutions for us. The thing I appreciate most about our house bank is the great continuity. There has been very little change in our advisors in the last 20 years. That allows strong, long-standing relationships to develop. I like that.
How does Olwo rank in terms of the competition on the Swiss wood market?
We are among the top five sawmills in Switzerland. And we are one of the biggest wood merchants operating at a single site. We're also not at any great risk of having our business being chipped away by global traders since shipping by mail or drone just isn't practical for many of our products.
A trading operation probably requires a large warehouse, is that correct?
Yes. It's imperative. Our warehouse has grown as the company has grown. Meanwhile, our customers' warehouses are shrinking. But we have to have the product on hand. Globalization is a real factor for us and we have to be able to deliver quickly. If customers order something today and I can't deliver it tomorrow, they'll go to another supplier. We have a lot of capital tied up in our warehouse but it's worth it. We regularly check inventory turnover and streamline our logistics.
What options does automation open up for your business?
Automation is already quite far advanced in our production and logistics. We recently launched online ordering for our products. Our online shop is our way of positioning a traditional company in a modern marketplace.
Do you see the most growth potential there?
I firmly believe that there is enormous potential for growth in areas that we have not even imagined yet.
What direction do you think it could take?
Wood is a fascinating material. It's already possible to isolate individual substances that can be used in the food industry or in the chemical industry, for instance in composites or adhesives.
Is there not a problem with availability? Wood is not an infinite resource.
There are many types of wood out there that are hardly being used today. For example, beech is still mostly used for fuel. We have to put more thought into these areas. In terms of really new territory, we are watching developments at the Swiss Federal Laboratories for Materials Science and Technology (EMPA) and at the University of Applied Sciences in Biel. As I see it, it's up to us to keep our eyes open for new uses.
Does your company have any specific traditions that you're particularly attached to?
You have to let go of some traditions to make way for new ones. At our site in Worb, we will soon be tearing down the house our grandparents lived in. But there are also traditions we will continue. Our company gives every employee a package of Kambly cookies and a five franc coin on their birthday – a tradition my grandmother started. Even if the five franc piece isn't worth as much today as it once was, it's a lovely tradition and we'll stick to it.
You have been handling Olwo's account as their client advisor for four years now. What is your experience with the company?
Olwo uses a great number of our products and services – for instance, leasing, factoring, mortgages, and currency hedging. That makes our work together intense and challenging. But it also gives me the opportunity to draw from a very wide range of options. The corporate structure is also interesting, since it consists of three companies. They may all be in the same general industry but each one is organized a bit differently.
Are you familiar with each of their business lines, down to the finest details?
No. I would be lying if I said I were. The important thing is to understand the client's business model and know the challenges and risks they face as well as the opportunities. That is what makes it possible to give truly competent advice. I might involve a specialist depending on the matter to be discussed. As a large bank, we have huge potential there. For example, I brought a tax expert along for our last meeting to discuss the 2017 tax submission and 1e pension plans.
How do you cultivate your relationship with a client like Olwo?
By trying to deliver the best, most competent, solution-based service I can. I want to understand what makes my clients tick and what can get them to where they want to go. As the Bank for Entrepreneurs, we don't want to just offer banking products; we want to provide the companies and their owners with holistic advice. Markus Lädrach, like many other successful businesspeople, is part of our Entrepreneurs Community, a platform that provides entrepreneurs with exciting, engaging networking opportunities.