An optimization model for selecting wood supply contracts

Abstract

Procurement for forest companies with pulp and paper mills aims to ensure that a sufficient volume of wood supply enters the production process. Numerous suppliers and contract types are available; however, their selection is a complex decision for procurement managers. In addition, managers typically dedicate a portion of their wood fiber demand to each group of suppliers, which is referred to as a portfolio strategy. Despite the available literature in contract selection, the consideration of contract types and their characteristics have not been addressed for the complex procurement process. In this study, a mixed-integer optimization model is proposed to best select contracts for pulp and paper procurement. The challenge was to plan deliveries in each time period to satisfy the demand of raw material at the mills. The potential of this model is demonstrated with a case study based on characteristics from a forest company in Quebec, Canada. A comparison between traditional fixed and flexible contracts is presented. Different portfolio strategies are also evaluated for groups of suppliers to investigate potential improvements.