Benefits and Requirements of Mathematical Optimization in the Allocation of Wood to a Network of Forest Product Mills

Abstract

Supply planning is a challenge for the forest industry in the context of natural forests characterized by heterogeneity among raw materials. Several mathematical models have been proposed in the literature to support forest planning, though few have been used by companies. The complexity of the natural environment and the expertise required to use these models limit their application. Nevertheless, these tools can significantly improve profitability. Three main elements were analyzed to assess benefits fostered by computer-optimized planning: (i) assessing the potential of implementing mathematical optimization in companies, particularly by pinpointing the additional resources necessary; (ii) determining the benefits of mathematical optimization to support planning decisions in an industrial context; and (iii) analyzing the impact of variation in information precision. LogiLab, an optimization software was used to find the optimal allocation of raw materials to an industrial network of five mills. The plan produced using optimization was compared to the plan generated by company personnel. The optimized plan generated a nearly 20% greater net profit than the current planning method. This difference was in part due to the more efficient allocation of raw materials to mills. It also highlighted numerous benefits, including a 50% reduction in the time required to produce plans. Furthermore, if attributed volume can be distributed among sawmills, it would be possible to save CAD 3.21/m3 using optimized plans, greatly exceeding initial costs related to system implementation.

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“…The research directly supports the notion that managerial competence is crucial for economic prosperity, as evidenced by the way in which it directly affects the financial performance of small and medium-sized Hungarian enterprises [36][37][38].…”

“…It is noteworthy that contented customers, who receive their orders with alacrity, are more inclined to disseminate positive endorsements, thereby exerting a direct and favorable influence on the financial performance of the company. Nevertheless, it is incumbent upon the manager to be equipped not only with knowledge and skills but also with the requisite panoply of capabilities to achieve optimal inventory management characterized by the harmonization of cost minimization and revenue maximization [36][37][38].…”