Enhancing the profitability of a vertically integrated wood products production system. Part 2. A case study

This paper presents the results of a case study to demonstrate the efficacy of linear programming in solving a complex set of production-inventory pro blems frequently faced by integrated wood products manufacturing operations . The specific operation in this case was a vertically integrated hardwood lumber-cabinet manufacturing operation in the South. The objective of the a nalysis was to determine the optimal sawlog and lumber production-inventory program for the study mill over a specified planning horizon. The producti on-inventory problem in this case was to determine the best combination, in terms of types and quantity, of log input and lumber output and the minimu m inventory level for each that maximizes monthly profit. Results indicate that mill profit could be maximized by adopting a log procurement policy th at ensures the delivery of about 1,224 cunits of logs for producing about 5 00,000 board feet of lumber per month, on average, while maintaining at lea st a 2-week log inventory. Such a policy could result in profit improvement of up to 156 percent over that resulting from the minimum 1-month log inve ntory policy at the time of the study. Parametric analysis also showed that mill profitability is very sensitive to changes in kiln-dried lumber price s, sawmill conversion efficiency, and lumber drying degrade; moderately sen sitive to changes in log supply and prices, processing costs, and inventory costs; and insensitive to changes in the supply of short logs.