Zone Jumping – Business as Usual?
Two conversations related to zone jumping raised some alarming questions for me and if these beliefs are widespread the forest industry has a very large problem. These conversations were with a consulting forester and a procurement forester, both with over 20 years of experience. And to be clear, these were separate conversations. One conversation involved whether or not zone jumping is actually theft and fraud in the first place.
The speaker contended it was normal for wood procurement foresters to maximize their profits this way. To him, they should even get kudos for work well done in improving profitability for their company (or themselves). His rationale? The mill foresters occasionally tell the procurement foresters to “just submit the higher zone card” or use the established contract delivery cards and don’t worry about the mileage differences. Additionally, if the mill foresters don’t monitor where the wood comes from, then it must be OK to fudge the distance the tract is from the mill (or the zone).
The other disturbing conversation to me was with a forester who commented on the apparent proclivity of kickbacks within the procurement world. The gist of his argument hinged on personal observation that very few mills have active anti-zone jumping programs in the first place. For him, that lack of attention meant they didn’t want to look into the matter because the mill procurement personnel were getting rich from the kickbacks they received from the contractors zone jumping.
What do you think? Is zone jumping theft and fraud, or is it business as usual? Do kickbacks prevent the mill procurement personnel from highlighting zone jumping as a crime? Does the forest industry devote enough time and resources to addressing this issue? Does widespread zone jumping raise the wood costs at your mill? What is your opinion? I’d like to hear your opinions, please.
And, I offer my apologies to all procurement personnel now if I have insulted you with this article. As a former procurement forester myself, I think I know how an article like this makes you feel. However, I do want to explore the extent of these ideas and perspectives. It’s my hope that in having this conversation, together, we can educate the forest industry as a whole about the dangers of following ineffective practices and/or inadvertently encouraging theft by ignoring the problem.
As always,
Aaron
The Problem of Zone Jumping
First, let’s make sure everyone understands the concepts of zones, zone pricing, special pricing and how that can lead to zone jumping or “cheating on the miles to the mill”. .
Some mills, which have a sufficient source and supply of wood for their needs, tend to offer just one market price for all wood purchased regardless of supplier or distance to the mill. In this case, there is little cause for fraud since all wood is delivered at the same price. Few have this situation, however. As the wood inventory in the mill declines or the demand for wood increases, the use of “special prices” increases as all mills compete for adequate supplies.
When competition for wood suppliers increases, mills take on a variety of strategies to ensure inventory levels are met. Since all the wood hauled into a mill must be trucked from various distances, the mill will often agree to pay a higher price for that which is farther away. A zone is established when a purchaser prices wood based on distance, for example, one rate for 1-20 miles from the mill, another rate for 21-50 miles, and so on. In the old days, mills would take a map and draw concentric circles around their location and call them zones. Prices would be set by these zones. Underlying all pricing decisions is the mileage to the mill, whether or not zones are used.
Furthermore, in many cases, mill procurement personnel will negotiate special prices (above the normal distance zones) with some suppliers to ensure a steady supply of wood into the mill. This is typical in situations where wood inventories are low or production requirements are demanding enough to require purchases from various locations and suppliers. At times procurement personnel are under enormous pressure to get raw materials to the mill at almost any cost. As the pressure mounts and the complexity of the process increases, the ability to monitor fraud can be compromised.
To subvert this system, supplier’s misrepresent where the wood actually originated at the point of delivery. Subverting the system can take the form of lying about the source of the wood, turning a blind eye to mileage discrepancies, or simple inability or unwillingness to monitor the sources of the wood being delivered. For whatever reason.
Zone jumping is further impacted by the following:
Company Policy is not being implemented. Some mills and companies establish a zone pricing policy but don’t really monitor or enforce their rules or contract
stipulations. They have the right processes in place but choose not to follow them.
A wide ranging price differential. There is a greater risk of fraud and loss if the price differential is large (say, $7 – $10) compared to a difference as low as $1 – $3. However, today’s higher fuel costs have added to the financial strain to all within the supply chain and an extra 50 cents per ton is a help.
Time constraints impact the ability of companies to police zone jumping. Most companies have fewer staff, procuring the same amount of wood, and certification programs (Forest Stewardship Certification and Sustainable Forestry Initiative) have added additional responsibilities. Certifications mean a greater responsibility to track where wood originates. Most companies will require GPS coordinates before they price a tract, which has led many companies to price tracts on a tract-by-tract basis. If the mill buys a significant amount of wood, that translates to a lot of office work and increases the number of special prices within the system.
Mill Procurement foresters trust their suppliers and it’s easy to ignore the possibility of zone jumping altogether. If a problem arises, many foresters are quick to claim it was probably an error or simple mistake by the trucker, even if it seems unbelievable that they can’t remember the location they just hauled wood from.
Mill Procurement foresters calculate that the risk of cheating and loss is minimal. They simply don’t realize how much they can lose by this crime. One forester I know recently worked a zone jumping case that had losses exceeding $100,000 per year. How many years can your company afford the higher wood costs?
Some prosecutors are reluctant to take this criminally. This is especially true if they don’t see the company making an effort to monitor or enforce zone jumping. This makes them lean towards civil remedies.
Prevention Methods for Zone Jumping
Require all contractors provide location maps, descriptions and/or GPS coordinates for all tracts delivered to the mill.
Require all contractors notify mill personnel when moving to new tracts. Then require new contracts for every price change or new tract. And have a system in place to collect old or expired delivery cards.
Conduct regular, unannounced audits on tract locations. Follow the empty truck back from the mill to verify the tract location. Visit the tract based on the contract data provided. Utilize GPS as a tool to verify tract locations. Possible use of Google Maps to verify tract locations using GPS coordinates. Conduct zone jumping audits utilizing an independent third party.
Check weekly scale tickets or delivery information from each supplier to become aware of any locations that don’t seem to make sense or that don’t match wood procurement’s expectations. Obtain truck ID’s and monitor truck turn-around times.
Aggressively pursue any cases of zone jumping and terminate business agreements. If the violation appears willful and/or ongoing, gather evidence while the security breach continues, in preparation for legal action.
