Improving the decision-making process by considering supply uncertainty – a case study in the forest value chain

Abstract

ABSTRACT Planning decisions are generally subject to some level of uncertainty. In forestry, data describing the resources available have a major impact on operations performance and productivity. This paper aims to present a method to improve decision-making in the forest supply chain by taking supply uncertainty into account using the results of data quality assessments. The case study describes the operations planning process of a Canadian forest products company dealing with an uncertain volume of wood supply. Three approaches to constructing probability distributions based on data quality are tested. Each approach offers a different level of precision: (1) a frequency distribution of accuracy, (2) a normal distribution based on average accuracy, and (3) a normal distribution based on data quality classification. Using stochastic programming to plan transport and production shows that lower costs can be achieved with a general characterisation of the data accuracy. Not considering uncertainty when planning operations leads to a significant replanning transportation cost. Using classes of data quality to include uncertainty in operations planning contributes to reducing the transportation cost from $15.90/m3 down to $15.32/m3 representing 3.6%.