Changing Markets

Changing Markets

As plywood prices court multiyear lows, mills have renewed efforts to find the most profitable mix of products.  Managers often rely on linear programming or optimization software to determine that mix, but gut instinct is still important for staying profitable.

Optimization software helps managers maximize returns by examining more than just the fixed and variable costs of production.  Advanced LP models sometimes incorporate market data gleaned from in-house sales, while others use price information from a third-party information service. Some software uses price data from multiple sources.

Even small plywood mills can have thousands of variables to consider.  Large, multi-mill operations with broad product lines may track more than 10,000 variables.  “You reach a point where smart guys using spreadsheets just isn’t enough” one software provider said. “It’s beyond human ability to juggle this many variables.”

Good communication between the sales and production departments can be the best way to avoid the pitfalls of following a computer-driven sales plan too closely.  “We’re in constant communication with the mill, because a lot of times the mill can shift production to meet our needs better if we just let them know,” one sales manager said.  “On the other hand, the best product mix is not always obvious, and that’s where the optimization software is important.”

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