An integrated strategic and tactical optimization model for forest supply chain planning

Abstract

Opportunities exist for forestry companies to vertically integrate operations to include both forest estate management and timber processing. However, forest supply chains have traditionally functioned in a decoupled manner where forest operations and timber processing are uncoordinated in their planning and operation, leading to sub-optimal supply chain configuration and outcomes. To maximize the benefits of vertically integrated forest supply chains, the planning method needs to include both strategic and tactical decisions simultaneously. This paper demonstrates a mixed integer linear programming integrated forest planning model that integrates strategic level forest management on a long 40-year planning horizon with sawmill operations in the tactical level decision over multiple shorter horizons with the 40 year overall planning period to cover the decisions related to forest and the wood processing plant. The results show that when compared to uncoordinated forestry and processing model outcomes, the incorporation of forestry and processing operations in an integrated optimization model can increase the NPV of the combined enterprise over 20%. The results are tested to a range of sensitivities, including discount rate, harvest cost and harvest volume. The revenue from selling processed wood products made possible when a forest management firm owns its own timber mill accounts for the integrated model profitability increase, which is not available in the strategic model representing a forest firm without timber processing capacity. The results emphasize that the integrated planning method could bring more economic returns and support forest managers' decision-making.