The Problem

A California-based manufacturing operation hired Optware Solutions to help them optimize their business and improve profitability.  The cut-stock business involves purchasing lumber veneers and sawing them into small blocks of specific sizes and grades for particular end uses.  There are literally thousands of potential conversion options in the procurement and processing of veneers.  In this case the client desired to include a representation of company-owned sawmills to allow company-wide optimization of resources.  The basic questions to answer were:  “What logs should I buy?”, “What lumber should I saw”, “What lumber should I buy from outside sources?”, ”How should the lumber be remanufactured?”, “What products are most profitable?”.

The Solution

The application of optimization technology included the following model contents:

  • Lumber manufacturing from logs to lumber including all revenues and costs
  • Cut-stock operations from lumber through finished product (blocks) including all revenues and costs
  • Multiple raw material suppliers and costs
  • Multiple breakdown (sawing) options considered
  • Multiple processing machines and lines
  • Numerous potential shift configuration options:  A given shift configuration will typically have different hours available for the various machine centers, as well as different semi-fixed costs.  ‘Departmental’ fixed costs also vary by shift configuration.  All the equipment functionally linked to the same department must run the same shift configuration option.
  • The capacity of some machines can be dynamically scaled, even within a given shift configuration.  Integer bounds can be placed on the minimum and maximum number of machines that can be run.  The model must choose within the range.  Integer controls allow multiple feed-speeds to be made available, with the restriction that only one feed-speed can be chosen for a given machine.  Incremental labor costs are assigned based on feed-speeds.
  • An extensive array of production and sales limits allow control over the product mix at any desired level of detail or grouping.

The Results

The optimization model has become an integral part of this client’s business culture.  Use of the system has the strong support of top management. The model is used in tandem with the company’s annual business planning/budgeting to keep the plan “alive and working” during the year as significant changes in the business environment take place.  Much of the information developed for the budget, including hourly sawmill costs, operating hours, product volumes by major category, log volumes and prices, and product outsourcing volumes and prices are used as initial inputs to the model and for comparisons to model runs as the year unfolds. 

The client has experienced a number of benefits from the use of optimization including:  improved fiber utilization, improved machine utilization, improved product mix, reduced inventories, reduced manufacturing costs, improved coordination between business units and personnel, and significantly improved profits.