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Tools to optimize material sourcing and schedulingWILLAMETTE
INDUSTRIES was an
independent multi-billion dollar manufacturer
of paper and forest products that was recently acquired by the Weyerhaeuser
Company. The company operated over 40
corrugated box plants which were supplied with materials from Willamette’s
four brown paper mills as well as multiple external suppliers. The
primary components of a corrugated container, which some people refer to as a
“cardboard box”, are linerboard and corrugating medium. The outer layers of
a carton are constructed from liner board whereas corrugating medium comprises
the fluted inner layers. Corrugated containers are used to package a huge
variety of manufactured goods from foodstuffs to bicycles to computers. Willamette management faced a
complex decision environment in the sourcing of materials for manufacturing.
Their box plants demanded substantially more paper than the Willamette
manufacturing operations could supply and production planners were faced with
the task of continuously balancing paper supply with box plant demand. Planners
attempted to consider profit-sensitive questions related to manufacturing
efficiencies and costs, outsourcing options, and transportation costs.
Literally
thousands of variables were in play within this business environment. Willamette Industries sought a comprehensive modeling tool to help the company make better decisions. Management decided that Optware Solutions offered exactly the type of decision framework that they were seeking along with the desired professional expertise and experience. Once the project was initiated, Optware Solutions was able to analyze the business and deliver a working system tailored to Willamette’s needs within a few months. The System was designed to integrate with existing information systems for much of the required modeling data. The
scope of the Optware System on the supply side included paper
manufacturing production rates and costs as well as machine “trim”. The term
trim refers to machine width utilization. Paper is produced in a number of
grades and roll widths. These widths must be combined in such as way as to fit a
paper machine and maximize machine utilization. Paper machines range from some
100” to over 300” in width. Roll widths are narrower and may range from
20” to 100”. Depending on the capability of the machine a given set may
include four or five roll sizes. Trim must be considered in order to determine
the best possible paper procurement strategy. The
scope of the System on the supply side also included paper purchase
options and “trades.” Trades involve a special arrangement with an external
supplier of paper whereby Company X agrees to sell Company Y a given volume of
specified products. In exchange, Company X agrees to purchase a similar volume
of specified products from Company Y. The terms of a trade can be complicated
and usually involve a specification as to types of products and sizes as well as
valid delivery points or sourcing points. The purpose of a trade is to guarantee
a more cost effective sourcing option (lower transportation cost) or to
guarantee a supply of product that a company does not manufacture internally.
This type of arrangement is usually only applied to commodity markets. The
scope of the System on the demand side largely involved box plant paper
demand by grade and size and, to a lesser extent, potential open-market
opportunities. The box plants forecast their demand by reviewing the needs of
the end-customer for boxes and backing into paper demand based on components
from the bill-of-materials (BOM). The
Optware System was designed to maximize financial return subject to the business
constraints, process flows, revenues and costs. The central technology that
drives the system was a powerful linear-programming-based optimizer. Production planners traditionally determined sourcing strategies by evaluating various combinations of activity based on experience, instinct and calculations. Decision-makers were forced by necessity to settle for a reasonable alternative rather than seeking an optimum decision. In such a decision
environment, there were often interactions between decisions that generated
complicated and multifaceted impacts. For example, if a paper company
manufactures a low margin product (grade D), they may elect to buy grade D from
supplier 1 and manufacture a higher margin product in its place. However, such a
move may violate a pre-established trade agreement and hurt the trim
efficiencies that are gained from the related mix of paper sizes. Prior to installation of the Optware System it was very difficult to manage the “fine points” of sourcing and scheduling strategies. Fortunately linear-programming thrives on complexity. A fractional percentage improvement in machine efficiency or transportation cost can easily translate into hundreds of thousands of dollars in cost savings. Profit Optimization technology allowed Willamette Industries to treat dispersed operations as a single entity and to capture synergies across the business unit. The result was an improved planning process and higher profits! |
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