Operations Research Paper

A Study of Supply chain optimization in Forest Industry

Submitted by

S.Y.BSc. Finance
S. NO. NAME ROLL NO. SAP ID
1 Hitesh Baheti B016 74051016020
2 Hiteshi Gupta B017 74051016079
3 Jashkumar Jain B019 74051016092
4 Jenil Shah B020 74051016185

Submitted to Submitted on
Ms. Tahreem Bardi October 4, 2017

Signature Marks
____________ ___________
 Table of Contents

Sr. No. Topic Page No.

1. Acknowledgement 2
2. Abstract 3
3. Objectives 3
4. Supply Chain Network 4
5. Supply Chain Network Models 5
6. Methodologies 6
7. The Indian Scenario 8
8. Conclusion 10
9. References 11

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Acknowledgement

Although this research paper has been prepared by us 4 students, there have been
contributions by many others. First of all, we thank our OR professor Mrs. Tahreem Bardi
Khan for the giving us the freedom to select a topic of our choice. Without this freedom, we
would never study a topic like ours which, in spite of the many research papers that have
been written on this topic, remains a largely unapplied topic. Another person who has helped
us study this topic is Ms. Sangeeta Kher. She gives our professors and the students to explore
and study the most ignored areas.

The existing research papers and case study on the given topic made it possible for us the
procure data to build our paper on. We are grateful to those universities and authors of such
research papers (names and details mentioned in the bibliography/webliography).

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Abstract

Operational research is widely used in forest product industry and public forestry
organizations. Its applications include dealing with short- term operational problems to
long- term strategic problems related to the forest products industry. The type of model used
is supply chain model where it helps in the flow of wood fiber from the forest to the customer.
However, there are certain problems faced like supply chain optimization model can find the
best utilization strategies however the demand and supply of forest products are uncertain.
To maximize the net profits in this forest industry, we have developed an integrated
production planning and inventory management models which solves the problem of
uncertainty.

The forest products industry sector has been facing a downfall due to various economic
changes and challenges. Diversification of the sector may help to tackle the demand and
supply uncertainty, which is possible through a supply chain network. The indefinable uses of
a mature tree can be relished only through an efficient supply chain network along with a
reliable production- inventory model. The flourishing wood supply chains need to improve
the flow of information from the harvest stage to transport to production till the consumer
stage and vice-versa. The various supply chain models need to be incorporated with the
inventory management system through operational research. This is essential because
centralized or decentralized supply chain models are failing to produce ease, profits or
protection from the uncertainty of demand and supply. Development of a simulation- based
optimization model can transform the non- profit making forest production into a profit
making one, as it will nourish the performance of merchandizing yard, pulp mills, Thus the
production, distribution of forest products can be geared up by an integrated supply chain
management process.

Objectives

The paper has been written by the four of us with to accomplish the following objectives:
1. Detect the causes of losses in forest industry and how can optimization in forest
industry’s supply chain prevent losses.
2. Find out the most appropriate method of supply chain method applicable in forest
industry.
3. Found out the relevancy of this paper in Indian forest industry.

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Supply Chain Network (Forest Industry)

Although diversification of forest resource-based business presents several opportunities

within the emerging bio-economy, these opportunities are dependent on coordinated
involvement of the whole supply chain network.

Supply chain networks are a system of distributed facilities/organizations, where material and
data flow in several directions within and across organizational boundaries through complex
business networks of suppliers, manufacturers and distributors, to the ultimate customers.
The forest product supply chain is similar to other industries, in the sense that the forest-
based bio-mass material flows from forests (usually collected by forest contractors), to
primary production facilities (lumber and pulp industry), to secondary facilities (value-added
forest industry), and at last through a network of distributors to individual customers.
However, the forest merchandise supply chain network is characterized by dis-assembly of
the raw-material (tree), in contrast to the conventional supply chains that have a convergent
product structure of assembly of various materials. Different components of the tree are
utilized for creating several products along the production process in the forest industry. it's
been discovered that from a mature tree, 17 % of the tree material is used for production of
saw logs for lumber and specialty products, 74 % of the tree material is employed for
production of pulpwood, which includes 14 % for production of engineered products and
60% for production of pulp and paper products, and the remaining 9-11 % of the tree is
logging residue that can be used for the production of bioenergy[1]. Moreover, the properties
of wood are highly varied within a tree and between trees of the same species, that make the
entire production planning and management process very cumbersome. Given below is an
illustration of the supply chain network in the forest industry:

Figure 1. Forest products industries supply chain network.

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Supply Chain Network Models

Supply chains are the networks which help us to connect raw material to final product
customers through production activities and different distribution paths [2].

Depending on the operational level of the decision/problem, supply chain models are
countermined into strategic, tactical or operational hierarchies. Strategic planning is at the top
level and the supply chain models at this level are involved with broad-scale decisions over
long periods of time that provides a firm competitive advantage over its competitors. The
strategic planning supply chain models determine the types of actions that require to be taken;
however, don't plan the implementation steps for those actions. an example of a strategic
planning decision would be deciding the location of a production facility in a production-
distribution network. On the other hand of the spectrum is operational planning, concerned
with regular operations of the supply chains, with time spans starting from a day to a few
weeks. An example for tactical decision making would be scheduling truck routes for
transporting logs from specific harvest sites to specific destinations. These models make sure
that the strategic goals are feasible at the operational level.

Supply chain models have also been classified into centralized and decentralized [3] models
based on how decisions are taken. In centralized supply chain models, all procurance,
production and distribution decisions are taken by a central unit, considering the state of the
complete system. This ensures a higher level of control and collaboration among all supply
chain members and a globally optimum decision making. However, some-times it's not realistic
to assume that every one of the decisions can be controlled centrally, particularly if the supply
chain members don't belong to the same organization. each firm might aim to maximize its
advantages without considering the impact on the entire system. Moreover, different
companies may not be willing to share their value and price info with others. In such cases,
decentralized models are more applicable. decentralized supply chain models enable individual
supply chain members to make decisions based on their own goals, while still operating within
the same environment that inevitably affects all members. However, what usually happens that
the forest industry companies don't follow a specific model, in fact they use a mixture of all
these models, which can be seen in the above supply chain network figure.

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Methodologies
The various Operations and Research methods that find their application in Forest Industry
Supply chain are discussed below.

Linear Programming (LP)

LP technique was developed by George Dantzig during World War 2, and soon applications
were developed in the field of forest management. The scope of application of LP is great and
covers harvest scheduling [4] and stand management to transport planning and planning of
production in pulp and saw mills.
In order to apply LP in this field, four conditions need to be satisfied, proportionality,
additivity, continuity and non-negativity. One must note that these constraints do not restrict
the use of the procedure and LP is the widely used method of all OR techniques. The basic
model consists of an objective function and the constraints. The objective function can either
be maximization (profits, stumpage volumes, timber volumes, etc) or minimization (cost,
capital, deliver time, etc). The limitations of resources are expressed by the constraints. The
resources include labour, capital and machinery. Additional constraints can be included. They
may vary from the restriction of machine operation on certain terrain type to equal annual cut
volumes.
Computers have made it possible to construct LP models at very large scales with great
precision. Another important feature of LP is that other than the optimal solution, it gives a
wide range of sensitive information analysis. More often than not, this information is more
useful than the solution itself.

Computer Simulation

Simulation is frequently described as the process of duplicating the essence of a system

without attaining the reality of that system [5]. The construction of a simulation model can
take 3 forms: physical, symbolic, and mathematical. It deals with a mathematical model
describing the system in terms of mathematical equations.
The main disadvantage of simulation is that unlike the other OR techniques, it doesn't offer
optimal solutions directly. Simulation uses a trial-and-error (heuristic) approach to solve the
problem. it's an appropriate analytical approach where it is not possible to experiment with
the actual system, or when the complexity of the system prevents the utilization of other
analytical techniques. Infeasibility will arise because of costs, risk of disrupting the system,
unavailability of the system for experimentation, or non-existence of such a system. examples
of the utilization of simulation in forestry (biological science) include: forest machinery and
systems design, harvesting and transportation systems analysis, sawmill design and layout,
and policy analysis. The use of simulation incorporates a variety of additional advantages.
The detailed observation of the system required to construct the model can lead to improved
understanding of the system, and would possibly even remove the requirement for a
simulation model. also the use of simulation is a teaching device for developing skills in
analysis and making effective decisions.

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Goal Programming

Many decision problems in natural resource management have multiple objectives. Most
public forests, for example are managed for multiple uses, such as timber production,
wildlife, and outdoor recreation. A restriction of LP models is the condition that only one
objective function is allowed. If the multiple objectives are in conflict with each other, one
objective function cannot be formulated. In that case, GP might be the answer. GP minimizes
the deviations from multiple goals, subject to constraints. This requires that both objectives
and desired goal levels can be quantified, and in addition, the decision maker has to be able to
rank the objectives in order of their preference. These requirements have limited the use of
GP. A t the same time, many applications have been developed in forest management,
especially in multiple-use contexts. Examples are management of small private woodlands,
land use planning, Christmas tree production [6] and outdoor recreation planning. The
increasing demands of society on the use of forests for purposes other than timber production
and the question of afforestation of large areas in sensitive landscapes make GP a technique
which will become more attractive in the future.

Dynamic Planning (DP)

In the course of planning optimal supply chain, certain situations may arise whereby the
management has to make a sequence of inter-related decision in such a way that the overall
effectiveness is maximised. Such problems can often be solved using LP, but the resulting
models can be very complex. This is where the use of Dynamic Planning comes in, it
simplifies the model significantly. There is no one standard mathematical formula to use DP,
therefore this method does not find itself being used widely. However, it does have few good
applications in forestry. The area of stand management, pest management [7], forest road
location and forest fire detection see the usage of this method.

For all of the techniques discussed above, the use of computers is essential. Small problems
can be solved by hand, but the application of OR procedures to real-world problems requires
large amounts of computational capacity. During the last two decades a large collection of
OR routines has been developed, both for mainframe and micro computers. This includes
specialized packages for natural resource management and forestry, such as Timber RAM35
and LOGPLAN36. But for many applications general OR packages such as LIND050 and
SAS/ORlO for mainframe, and QSB7 for micro, are more than adequate.

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THE INDIAN SCENARIO

Until now, we discussed the methodologies and supply chains appropriate and useful for the
forest industry, but obviously, their application would raise a different topic of discussion
because for each nation, biosphere and region, the demand and supply of forest products is
different, which leads to different application of the methodologies.

Table 1. India’s consumption of forest products in 2014 [8]

Now, talking in India’s context, in 2014, 89.46% of India’s consumption of forest products
was internally fulfilled and the rest is fulfilled by the way of imports. In the given table, the
demand and supply is given along with the bifurcation of varieties.

Wood processing is largely in the small-scale or “unorganized” sector, where the majority of
wooden furniture, joinery, and other household products are made to order by small
workshops or individual craftsmen so it is very difficult to put a unitary method of supply
chain management or analyze it in India because almost everyone in the unorganized sector
uses a different method of distribution, procurement, etc.

Also, India’s current tree cover is 23.41% in contrast with the aimed tree cover of 33%.

That means, the country will possibly be altering either the consumption or the source of
forest products or both to fulfil its long term goal of higher tree cover along with its
reforestation policies.

Given below is an example of organising efforts made by a corporate for the unorganised
sector for the benefit of both.

Growth and Income from Farm Forestry in Andhra Pradesh [9]

The International Tobacco Company (ITC) which has a paper and pulp mill in Andhra
Pradesh (Bhadrachalam, district Khamam) has promoted a partnership with farmers to grow
clonal eucalyptus plantations in farmers’ fields. Results have shown that the MAI of a clonal
plantation of eucalyptus species ranges between 20 and 58 m3 /ha/year and the farmers are
able to earn a net profit of INR. 50,000 to 150,000 per ha, depending on site quality and
management inputs, in the first cutting, 3 years after planting. Profits increase in the
subsequent cuttings, since the cost involved in maintaining a coppice crop is lower. Further,
since the tree farms are raised under a system of agroforestry, additional income will be
earned from the harvest of the agricultural crop. The forest research unit of the company
carries out trials on the genetic improvement of the planting stock and

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silvicultural/agroforestry practices (e.g. spacing of planting rows, type of inter-crop) to be
adopted. The company supplies clonal seedlings for planting to the farmers along with
continuing extension services. Further, the company guarantees to buy the pulpwood
produced by the farmers at a fixed floor price which is revised periodically. Currently the tree
farms within economic distance from the mill are able to supply only about 40% of the
pulpwood required by the mill. It is estimated that the company will be able to source its
entire pulpwood requirement from the clonal tree farms in the selected districts of Andhra
Pradesh.

So, Operations Research in Forestry is not as relevant as in any other country because as the
sector is largely unorganised in India, studying it and regulating it makes it very difficult,
also, given that the country’s demand and supply for the industry is subject to heavy changes
every year with a usual growth in demand, the use of Operations Research is not completely
ruled out.

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Conclusion

The paper has presented a brief view of the supply of wood fibre and pulp in the forest
industry from forest to the customers. The challenges faced in integrating the supply chain in
this industry have been discussed briefly in the abstract. In spite of the exhaustive
information available in this field, the numerous papers written and the number of researches
conducted in optimizing the supply chain in the forest industry the challenges still remain.

The paper gives a non-exhaustive study of how the supply chain of forest industry can be
optimized. Operational Research has played an important role in supporting forest products
industry managers and public officials in their planning decisions.

Also, the paper gives a brief insight of the research methods’ applicability in India. It is
difficult but because of increasing industrialisation efforts by the govt. as well as corporates
is making the picture better.

Shortcomings in the paper:

1. The data used to write the paper is secondary. No primary research, interview or
survey has been conducted.
2. Very little to no data was available in Indian context.
3. We tried to work on the topic of ‘Supply Chain in Forest Maintenance’ but little to no
data was available online or offline.

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References

[1]
D. C. Chatfield, T. P. Harrison and J. C. Hayya, “SISCO: An Object-Oriented Supply
Chain Simulation System,” Decision Support Systems, Vol. 42, No. 1, 2006, pp. 422- 434.
http://dx.doi.org/10.1016/j.dss.2005.02.002

T. Santoso, S. Ahmed, M. Goetschalckx and A. Shapiro, “A Stochastic Programming

[2]

Approach for Supply Chain Network Design under Uncertainty,” European Journal of
Operational Research, Vol. 167, No. 1, 2005, pp. 96-
115.http://dx.doi.org/10.1016/j.ejor.2004.01.046
[3]
H. Stadtler, “Supply Chain Management and Advanced Planning—Basics, Overview and
Challenges,” European Journal of Operational Research, Vol. 163, No. 3, 2005, pp. 575-588.
http://dx.doi.org/10.1016/j.ejor.2004.03.001
[4]
FORNSTAD,B.F. 1971.TheLinearProgrammingPlanningSystemoftheSwedishForest
Service. Forestry Commission Bulletin 44: Operations Research and the Managerial
Economics of Forestry. pp124-130.
[5]
GARNER, G. J. 1978. Simulation: A Decision Making Aid for Managers. Forest
Engineering Research Institute of Canada Technical Report TR-30.
[6]
HANSEN, B. G. 1977. Goal Programming: A New Tool for the Christmas Tree Industry.
USDA Forest Service Research Paper NE-378.
[7]
NORTON, G. A. and HOLLING, C. S. 1976. Pest Management. Pergamon Press.

 Oxford.
[8]
South Carolina Forestry Commission, February 2016. India : Market profile
https://www.state.sc.us/forest/pubs/india.pdf
[9]
India forestry outlook study by Ministry of Environment and Forests Government of India
http://www.fao.org/docrep/014/am251e/am251e00.pdf

Research papers referred:

1. https://file.scirp.org/pdf/AJIBM_2013112911184943.pdf

2. https://www.cogentoa.com/article/10.1080/23311975.2017.1370765.pdf
3. http://repositorio.uchile.cl/bitstream/handle/2250/125029/D%C3%A2Amours_Sophie
.pdf?sequence=1

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