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CASE: Harvest PlanningProfit optimization modeling is a powerful tool to optimize timber harvest and allocationTimberland is a natural annuity. Good stewardship can yield consistent fiber flows over a given time horizon. Fiber flows are converted to cash via business processes such as log sales or value-added manufacturing. Good stewardship can refer to a number of practices including business and silviculture. A timber manager’s objective from a financial perspective should be to maximize the net present value (NPV) of future cash flows associated with timber management expenses and revenues resulting from the conversion of fiber. The financial implications of these long term decisions (50 years or more) are enormous. For one of our major southern clients, the harvest planning process is extremely complex. At one level, foresters view the forest as a fiber-growing factory. Like farmers they can employ tools such as weed control and fertilizer to influence the growth of timber. Although much of the land is plantation forest, the age classes and stocking levels vary significantly. Some tracts are located in the river bottoms and are difficult to harvest in wet weather. Soil types and rainfall can vary from site to site within the forest. The company must honor environmental laws and policies. There are other considerations such as road access and available harvest equipment. Optware Solutions was selected as the vendor of choice to provide an optimization-based business planning system The planning process begins at the strategic level with the many considerations listed above. The forester’s goal is to balance forecasted fiber supply and forecasted fiber demand. The product of the strategic planning process is a list of stands representing over a year of harvest potential including company lands and various harvest contracts. In one region the client company operates sawmills and a veneer plant. The mills are geographically dispersed within a 50 mile radius. Timberlands are sometimes located more than 100 miles from a mill site. Each mill has different manufacturing capabilities that yield different values from the logs. One sawmill has curve sawing capabilities that allow it to better process certain log types than other sawmills in the area. Another facility is capable of merchandising logs to be used in the local large sawmill, small sawmill or veneer mill. The company faces a complex decision environment in the sourcing of logs for manufacturing. Planners must consider profit-sensitive questions related to manufacturing efficiencies and costs, outsourcing options, log inventory constraints and transportation costs. Literally thousands of variables are in play within this business environment. Progressive companies understand that a comprehensive modeling tool will allow a business to make much better decisions than simply cranking options through a spreadsheet. The Optware System is designed to maximize profit subject to the business constraints, process flows, revenues and costs. The central technology that drives the system is a powerful linear-programming-based optimizer. Once the project was initiated, Optware Solutions was able to analyze the business and deliver a working system tailored to the client’s needs within six months. The System was designed to integrate with existing information systems for much of the required modeling data. The client uses the system for both strategic and tactical uses. Strategic runs are often made early in the year to assess “big-picture” issues. Tactical runs are made on a weekly routine. Many people are involved in the process. In some cases, intranet interfaces have been employed to facilitate data passage to the Optware System. Individual foresters are responsible for communicating harvest availability by timber tract. It is their insights that play a key role in the quality of the solution implementation. The optimized solution is not driven from the top down, rather, it is driven from the bottom up. Ultimately, the solution is presented in an easy-to-understand format that can be given directly to logging contractors. The solution tells the logger where to haul the different logs derived from the timber tract. Profit Optimization technology allows companies to treat dispersed operations as a single entity and to capture synergies across the business unit. The tool provides our clients with much greater insight about their businesses and the impact of product mix and log sourcing on operations. The results lead to an improved planning process and higher profits!
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