Optimal Decisions for Forest Operation Managers

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Optimal Decisions for Forest Operation Managers
The best way to predict the future is to create
it!
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• Briefly describe the kinds of problems that
  OperMAX has been designed to solve
• Describe how OperMAX was used to produce plans
  and conduct analyses in a realistic forest
  operation management situation
• Present the results of the planning and analyses
• Propose a first-user OperMAX project

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• Helping managers make better decisions, helping
  companies save millions and gain a competitive
  advantage
• Focus on providing integrated solutions for the
  management of operations and support for
  strategic decision-making
• Expertise in forest operations management,
  optimization and IT
• 20 years of experience in projects on three
  continents

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Decision Criteria - harvest cost - site
constraints - stem constraints - product
compatibility - safety
System 1
Forest Block
System 2
System 3
Choosing the right system for a harvest block
must be based on several criteria
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Mill 1
Block 1
Hdwd Pulp
System 1
Block 2
Mill 2
Sfwd Pulp
System 2
Block 3
Mill 3
Studs
Block 4
.. ..
System 3
But, of course, in a large forest operation, the
decision problem is much more complex than that
what products should go to which mill, what
products should be sold and purchased
.. ..
.. ..
Mill n
OSB
Block n
System n


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Studmill

Block 1
System 1
Block 2
Sawmill
System 2
Block 3
Veneer
Block4
.. ..
System 3
And, in many cases, the products that can be
produced in blocks are discretionary and the
entire supply chain should be analyzed for any
planning period
.. ..
.. ..
Pulpmill
Block n
System n


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Studmill

Block 1
Studmill

Block 1
System 1
Studmill
Block 1
System 1
System 1
Block 2
Block 2
Block 2
Sawmill
Sawmill
Sawmill
System 2
System 2
Block 3
System 2
Block 3
Block 3
Veneer
Veneer
Veneer
Block4
Block4
Block4
System 3
System 3
.. ..
But that is far from all the complexity, because
decisions in any one season or year affect those
in other time periods, while other factors, such
as those related to markets, roads and
silviculture must be considered
System 3
.. ..
Pulpmill
.. ..
Pulpmill
Pulpmill
Block n
Block n
Block n
System n
System n


System n




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• HOW and WHEN to harvest cut-blocks
• WHAT harvest blocks to cut
• WHAT harvest system to use in each block
• WHAT year and season to harvest each block
• WHAT products to produce in each block
• WHEN (year and season) to transport products from
  WHICH block to WHICH mill or sort-yard
  (supply-chain management)

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• WHERE and WHEN should Access Tertiary roads be
  built
• WHERE, WHEN and WHAT silviculture (regenerative
  treatments) to be done
• WHEN,WHAT and HOW MUCH wood to purchase
• What mill-yard inventory levels to maintain

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• Which mills or sort-yards should be built, shut
  down or re-engineered?
• What kinds of new market opportunities would be
  profitable?
• What kinds of forest lands should be purchased or
  included in a new blocking schedule?
• What main roads and bridges should be built?

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• Given a well-designed multi-year operating plan
• how do you schedule operations to meet mill
  requirements over shorter time frames (such as
  monthly) within the up-coming operating year?
• and given actuals-to-date and/or new market or
  operating information, what are the best
  harvesting and transportation decisions for the
  remainder of the year, or for the remainder of
  the multi-year period?

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• Produces optimal (MIP-based) multi-year plans
  that specify
• Where, what and how to harvest (by season and
  year)
• What forest products to produce send to which
  mills by season and year
• What roads and other infrastructure need to be
  built to carry out the harvesting and transport
  plans
• Purchase wood mill-yard inventory levels

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• The optimal plans are used by
• Operating managers to plan and organize
  operations
• Senior management to support strategic analyses
  and decision-making
• Facilitates strategic (supply chain and business)
  planning
• Analyze and plan your supply chain
• Help make good investment decisions
• Analyze forest operation and mill policies

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• Facilitates annual planning and re-planning
• Disaggregate the first year of the multi-year
  plan (into months or sub-season periods) to best
  meet mill requirements (and check implementation
  details)
• Re-plan (the current year or subsequent years)
  based upon actual production, new market
  information or operating information as the
  operating year unfolds

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MIP Optimized multi-year planning analysis
for entire woodlands
-harvesting -transportation -road construction
silviculture -product bucking supply
chain -wood product sales purchases -millyard
inventory management
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MIP Optimized multi-year planning analysis
for entire woodlands
-harvesting -transportation -road construction
silviculture -product bucking supply
chain -wood product sales purchases -millyard
inventory management
Strategic Analysis -land acquisition
blocking -fleet management -product woodflow
analysis -sorting yards -capital budgeting
projects
Shadow
Prices
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MIP Optimized multi-year planning analysis
for entire woodlands
-harvesting -transportation -road construction
silviculture -product bucking supply
chain -wood product sales purchases -millyard
inventory management
Strategic Analysis -land acquisition
blocking -fleet management -product woodflow
analysis -sorting yards -capital budgeting
projects
Shadow
Exports for
Exports for
Prices
Optimized plan for years 2
Optimized Annual Plan Budget
by months, seasons or user-defined periods
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MIP Optimized multi-year planning analysis
for entire woodlands
-harvesting -transportation -road construction
silviculture -product bucking supply
chain -wood product sales purchases -millyard
inventory management
Strategic Analysis -land acquisition
blocking -fleet management -product woodflow
analysis -sorting yards -capital budgeting
projects
Shadow
Exports for
Exports for
Prices
Optimized plan for years 2
Optimized Annual Plan Budget
by months, seasons or user-defined periods
Tracking
Regular (weekly or bi-weekly) optimized
re-planning
Longer-term
based on monitoring of actual operations
-block product volume deviations -wood product
price changes -fire and/or insect
outbreak -equipment breakdown
e.g.
Actuals
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• Connects to existing corporate GIS database. In
  OperMAX, PORTeL is used to
• undertake spatial analyses (like block to mill
  distances)
• produce maps of solutions to check for
  implementability
• facilitate the development of better scenarios
  using spatial constraints
• allow for the importing, building, or imputing
  road networks
• import block and block volume data from GIS

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• A large number of scenarios were developed, run
  and analyzed based on an operational situation in
  eastern Canada
• Used data from the last three years of blocking
  (with four operating seasons per year) from the
  2002-2007 forest management plan for a large
  forest product company
• Mill prices and cost factors were modified to
  maintain confidentiality, used FERIC (Forest
  Engineering Research Institute of Canada) machine
  productivity equations
• Results should be taken as indicative
• Objective was to study the potential value of
  OperMAX in a realistic situation

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Current Heuristics Compared to an Optimized Plan
The Case for Optimization
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• From the GIS info the following designations had
  been made in the 2002-07 plan
• Block-system allocation what system in what
  block
• Block-season allocation what season for each
  block
• Products were shipped to closest mills
• Heuristic to reduce transport cost
• These designations were replicated in OperMAX
• Used companys existing decisions to allocate
  system-to-block, block-to-season
• Transport was always to closest mill accepting
  that product
• Block-year decisions were all kept open, thus
  plan was still partly optimized

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Note that the data supplied to us did not include
market information for several species and
products, therefore some products were harvested
but not trucked
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• Then an optimization run was done
• All operating information (productivities, costs,
  prices, mill consumptions, volumes etc.) were
  kept the same as in the simulation run
• Site-based operability constraints were kept for
  block-season and block-system decisions
• Otherwise everything else (which systems in which
  blocks to produce which products for which mills
  in what seasons and years) was optimized

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Why should this happen? It can only be because
the OperMAX system found ways to increase revenue
through careful delivery timing (product prices
are higher in some seasons), while keeping
harvesting and trucking costs low
A huge increase in profit margin occurred in
the optimization despite the negligible
differences in harvest trucking cost!

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More Reasons for Using Optimization in Multi-Year
Analysis and Planning
The Case for Optimization
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• Further Analyses were conducted
• Analysis of modeling with mill product groups
• Analysis of harvest system policy
• Supply chain modeling
• Shadow price analysis on
• Harvest system configuration
• Mill inventory levels
• Each resulted in a NPV increase of 0.5 to 3 M

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• Some products can be substituted by others
• Different bucking specifications
• E.g. Some timber can make small sawlogs or large
  stud logs, depending upon the location of the
  block and the mill requirements at the time the
  block is harvested it is best not handled as a
  deterministic decision
• Varying Product mixes
• E.g. A pulpmill that can accept several hardwood
  species for its volume consumption

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Lower trucking costs are part of the reason for
these significant profit margin improvements, but
the rest comes from better timing and getting the
best price possible from external markets
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• Sometimes Operational Policies are maintained
  without analyzing the cost of the policy
• E.g. Certain contractors are not used in certain
  districts
• Company policy said that MHS-SW MFT-HW systems
  were only allowed in some districts, but not in
  the largest district
• This was modified to allow all systems in all
  districts (although block-specific constraints
  were maintained)

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Taking away policy-based block constraints saved
1.5 million, primarily due to significantly
lower harvesting costs so the managers need to
ask themselves if the other benefits of the
policy are worth ½ million per year

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• Often in a multi-mill context, some mills produce
  by-product that can feed other mills
• E.g. Sawmill chips sent to a pulpmill
• Incorporating this reality will make the model
  more accurate as this wood flow will impact
  block-mill deliveries and the harvest

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Improving the supply chain can increase revenues
and may decrease costs but note that, in this
case, all improvements came from better revenue

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MIP Optimized multi-year planning analysis
for entire woodlands
-harvesting -transportation -road construction
silviculture -product bucking supply
chain -wood product sales purchases -millyard
inventory management
Strategic Analysis -land acquisition
blocking -fleet management -product woodflow
analysis -sorting yards -capital budgeting
projects
Shadow
Prices
Now we will see how OperMAX can be used for
strategic analysis, in particular through the use
of shadow prices
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• OperMAX provides managers with shadow prices
  for
• Blocks ? blocking and land acquisition decisions
• Machines ? fleet capacity investment issues
• Mill-yard inventories ? inventory management
• Wood purchase levels ? purchase sales contracts
• Mill production levels ? short, medium and long
  term planning of mill expansion, re-engineering,
  planning shifts per day, shut-downs

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Using shadow prices is a good way of figuring out
how to best allocate your resources. In this
case, the shadow prices suggest to us that the
feller-buncher capacity should be shifted from
the MFT-HW to the MFT-CHIP system types
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In this case, the small change of equipment from
one system type to another resulted in
significant improvements to Profit Margin,
primarily through better allocation of resources
to maximize revenue

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By again studying shadow prices it was possible
to identify that the maximum mill inventory
constraint at the studmill was costing money

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A second scenario was run with the max mill
inventory bumped up to produce these results,
primarily due to higher revenues

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Note that simple optimization produced increased
NPV by 12 million, profit margin by 7 million
dollars
More detailed analyses produced another 8 million
of NPV and 10 million dollars of increased profit
margin
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• Integer roads constrained by roads budget
• Build a new plant (OSB)
• Allow roadside inventories to span periods
• Mill production levels and product mixes with
  shadow prices

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Optimizing the Annual Plan
The Case for Optimization
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MIP Optimized multi-year planning analysis
for entire woodlands
-harvesting -transportation -road construction
silviculture -product bucking supply
chain -wood product sales purchases -millyard
inventory management
Strategic Analysis -land acquisition
blocking -fleet management -product woodflow
analysis -sorting yards -capital budgeting
projects
Shadow
Exports for
Exports for
Prices
Optimized plan for years 2
Optimized Annual Plan Budget
by months, seasons or user-defined periods
The latest version of OperMAX has the capability
to produce a higher-resolution optimized annual
plan based upon the optimal multi-year plan
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• Template given whereby seasons are further
  sub-divided into mini-seasons
• E.g. Months or 4 week periods
• 1st year of the MYOP is exported to a new project
• The block-season, block-system availabilities are
  given by the harvest report in the source MYOP
• E.g. If a block was to be harvested in summer in
  the MYOP, then only the summer mini-seasons would
  be available in the Annual plan setup
• The annual plan is optimized
• Result is a higher resolution optimized annual
  plan

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An annual plan, directly based upon the optimal
MYOP but at a finer time resolution (e.g.
monthly) can be easily created After running the
one-year optimization, OperMAX presents all
results. For example, this reports monthly
information about delivered volume, consumed
volume, revenue and so on, for each mill
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Re-Optimizing the Annual Plan
The Case for Optimization
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MIP Optimized multi-year planning analysis
for entire woodlands
-harvesting -transportation -road construction
silviculture -product bucking supply
chain -wood product sales purchases -millyard
inventory management
Strategic Analysis -land acquisition
blocking -fleet management -product woodflow
analysis -sorting yards -capital budgeting
projects
After an optimum annual plan is produced, it can
be re-optimized based upon new production,
inventory or market information
Shadow
Exports for
Exports for
Prices
Optimized plan for years 2
Optimized Annual Plan Budget
by months, seasons or user-defined periods
Tracking
Regular (weekly or bi-weekly) optimized
re-planning
Longer-term
based on monitoring of actual operations
-block product volume deviations -wood product
price changes -fire and/or insect
outbreak -equipment breakdown
e.g.
Actuals
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• As operations commence, deviations from the plan
  will occur
• Equipment issues
• Fire
• Market changes
• Block volume deviations
• The actuals and deviations and downloaded from
  existing management information systems
• Optimized annual re-plan based on as-is
  situation can be easily done on a regular basis
  to show how to proceed for remainder of year
  given the new realities

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By downloading harvest and transport actuals and
entering any other new information, a new plan
can be created taking into account the updated
information The new reports will distinguish
between information from actuals and the revised
plan
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• Will enable optimized integration between mills,
  harvest, roads, transport
• Enterprise-wide wood-flow modeling
• Supports strategic analysis capabilities
• Can be used for annual and routine operational
  re-planning
• Therefore has potential to transform the
  operational planning flow, touching all core
  aspects of woodlands
• And in the process make a difference on the
  bottom line in the millions of dollars per year

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• Potentially can anticipate 5-20 increase through
  operations efficiencies analyses
• Improved strategic analysis capabilities
• Quicker and simpler way to develop plans
• However, an optimization approach has not yet
  been implemented (for forest operations) in the
  industry
• Empirically unproven
• Risk

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• We are confident in OperMAX and our ability to
  get you to the point where you can use it to
  increase your efficiencies significantly
• Propose Try now.. Buy after trial approach
• Charge consulting time to get you up and using it
• 6 months 1 year set-up and trial period
• Use the risk to advantage by making this a
  large-scale RD project with tax credits
• Our consulting costs are effectively reduced by
  35
• Payback for your employee salaries at 57
• Your costs (travel, computers etc) reduced by 35

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• Detailed needs analysis (duration of one month)
• Customization depends upon needs analysis,
  estimate that one month is needed to make OperMAX
  useful, three to six months for full integration
  into current information systems and planning
  methods
• Consulting and training to use OperMAX for the
  next operating year should begin after first
  phase of customization
• Consulting and training to use OperMAX to produce
  a new, optimized five-year plan can begin at the
  same time

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• Benefits
• You will have an optimized multi-year and annual
  operating plan
• You will have competitive advantage experience in
  developing implementing plans produced by
  optimization
• You will have been able to undertake strategic
  analyses for capital budgeting purposes
• After the try use period (6 mo 1 year) you
  will have option to buy OperMAX

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• This technology is not a question of if but
  when it will be adopted
• Computer power is sufficient, potential benefits
  are huge
• Being on the front-end allows you to develop
  the in-house expertise to retain competitive
  advantage
• Being on the front-end may allow you to
  leverage the risk with RD tax credits
• Given the huge upside potential, its a low risk

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We are now scheduling onsite and online
demonstrations of OperMAX. Contact us to arrange
yours
Phone [phone] Fax [phone] E-mail
ewr_at_fra.nb.ca URL www.fra.nb.ca
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