VCO NSERC Strategic Network Project Proposal 2010

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1 Project Title : Modeling the Market Driven Real-Time Production Planning and Management of Forest Products Industries in Canada Project Start Date : Month/Year Estimated Completion Date: Month/Year January 2011 Name of Principal Investigator : Chander Shahi Names of Co-Investigators : Reino Pulkki Network Theme : Theme 4 HQP (Ph.D., Master s, PDF, Internship) : (1 PhD, 1 MSc) December 2014 Institution : Lakehead University Institution : Lakehead University Student name : Bidyanath Bhattarai (M.Sc. Student) Ph.D. (TBD) Background The one-way market push model of forest products industries in Canada has failed to maximize profits from per unit wood fibre use as it does not incorporate market demand signals. However, the two-way modeling of a series of value generating activities, both upstream (market mill tree) and downstream (tree mill market), with the available cost, quality and value data on each value chain level, can provide with an improved decision support system and capitalize on the comparative advantages of the Canadian forest products industries. The information flows start from markets/demand, and traces back up the supply chain through all distribution channels manufacturing, processing raw material procurement and inventory control, and vice versa. A real-time operational decision support system based on two-way material and information flow is required to deal with order promising and demand fulfilment for a given production facility. Real-time planning and management of two-way flows of materials and information related to quality, yields and costs of inputs/outputs will help in improving the competitiveness of the forest products industries in the global market. The real-time production planning for order promising and demand fulfilment is governed by product prices, delivery time, and operations management efficiency of each component of the value chain. Further, there are potential constraints related to supply chain management, such as inbound logistics (warehousing of raw materials and their sequencing for manufacturing), operations management, outbound logistics (warehousing and distribution of finished goods, marketing and sales), and post sale service. Therefore, an operational decision support tool that uses dynamic optimization of three major activities: harvesting, transportation and production control is required. This will help the forest products industries to change their input/output activities according to the market signals. The industries can thereby maximize their profit margin for a given level of market demand by changing their feasible production plan and optimally overseeing the reactivity and contingency involved. 1

2 Lack of quality data is one of the biggest limitations for operational modeling of supply chain systems at different stages of the value chain. The supply chain systems can only work efficiently if quality data are available, which enhance the forecasting capability of the company activities. Coordination among stakeholders would be the most efficient way to collect reliable data. Moreover, the supply chain management data must be continuously re-evaluated and refined to match the reality. Similarly, absorption of technology, like the use of sophisticated software, is another pivotal factor for efficient supply chain control in value chain systems of the forest products industries. The technology can deal with a wide range of problems ranging from long-term strategic forest management problems to very short-term operational problems. The focus here is short-term operational problems. In this context the production of wood pellets (WP) is an interesting example of real-time planning and control in the forest products industry. The wood fibre for WP production can either be supplied directly from under-utilized species (single output production system) or from forest harvest and sawmill residue, where demand for other forest products is known a priori (joint production system). This project deals with this complexity in reference to WP production in northwestern Ontario. WP industry is in the early stage of development in northwestern Ontario. All the proposed wood biomassbased bioenergy plants in this region could become potential wood pellets customers as they switch from fossil fuel to environmentally more acceptable wood pellets. Objectives The general purpose of the proposed project is to undertake a study to analyze two-way flows of information (market demand attributes, flexible manufacturing processes, and resource characteristics) for real-time planning and control, taking the WP industry as an example. The flow of information starts from market demand (order promising and demand fulfilment) and tracks back up the supply chain through all distribution channels including manufacturing, processing, raw material procurement and inventory control. The specific objectives are: (i) to conduct an exploratory study for order promising and demand fulfilment for a set of forest products (either single-wp or joint products-wp and lumber, pulp and paper, other value-added products) based on availability and capability to promise by forest products industries; (ii) to develop an analytical framework for modeling process planning and operations scheduling in forest products industries based on the exploratory study; and (iii) to develop an integrated production management decision support system based on the analytical framework, using dynamic optimization model, for production choice, process planning and inventory control. This model will further be extended to agent 2

3 based modeling approach for optimizing the production processes at different stages (agents). Proposed Approach The research methodology is divided in three phases. Phase-I aims to understand the demand driven real-time production planning and management system in the Canadian forest products industries. Phase-II aims to develop an analytical framework for real-time operations management in the forest product industries. Finally, Phase-III aims to develop agent based dynamic optimization models for production planning and contingency management. Phase-I: Review of real-time production planning and management systems used in the Canadian forest products industry Review of value chain models for system analysis of real-time planning and management of the Canadian forest products industries, with special reference to WP industry. Analyzing the strengths and weakness of demand driven real-time planning and management models for the WP industry. Phase-II: Developing an analytical framework for real-time operations management Developing analytical framework of possible combinations for order promising and demand fulfilment based on market demand attributes of WP and other forest products. Data collection related to the prices of forest products in different markets, cost associated with transportation of inputs materials and output, costs associated with the factors of production and other activities along the supply chain, Phase-III: Develop agent based dynamic optimization models for production planning and contingency management Develop prototype agent based dynamic optimization models to simulate different scenarios for harvest and log merchandizing, transportation, production planning, warehousing, and product delivery. Testing and validating the models to make these operational for WP industry. Interpreting results from the model and conducting sensitivity analyses. 3

4 Fit within Network Program This research project would fulfill the focus area of supply chain control at all levels of value chain as outlined in Section 1 of Theme 4 of VCO project. This project deals with modeling the control mechanisms to exploit the opportunity for high value products while controlling costs and productivity, which is the core objective of supply chain control across all levels of value chain. Supply chain management of backward linkages activities of an industry and efficient delivery mechanism have a major role to optimize the gross margin of the Canadian forest products industries. Anticipated results and application The anticipated results from the proposed research project are as outlined below: The agent based dynamic optimization model guided by the demand pull will help in improving the gross margins at all levels of the value chain in the Canadian forest products industries. The model will help in significantly improving the bottom line information that eventually overcomes the common constraints for supply chain management and regain control over the supply chain management implementation systems. Link to FPInnovations This project deals with modeling and supply chain control across all levels of the value chain, which is a thematic program area of FPInnovations. The relations with FPInnovations scientists will be developed in this area of research. Schedule Milestones and Deliverables (Describe the work schedule and provide milestones for completion of major project components and list deliverables). Year Milestones/Deliverable Review of real-time production planning and management systems used in the Canadian forest products industry Developing an analytical framework for real-time operations management Develop agent based dynamic optimization models for production planning and contingency management Expected Delivery Date 31 st Dec., st Dec., st Dec.,

5 Proposed Expenditures for Direct Costs of Research Salaries and benefits a) Students $18, $ $21,565 $21,565 b) Postoctoral fellows c) Technical/professional Assistants d) 2. Equipment or facility a) Purchase or rental b) Operation and maintenance costs c) User fees 3. Materials and supplies $250 $875 $625 $ Travel a) Conferences b) Field work $250 $875 $625 $625 c) Collaboration/consultation 5. Dissemination costs a) Publication costs b) Other activities 6. Other (specify) a) b) TOTAL PROPOSED EXPENDITURES $19, $42, $22,815 $22,815 This research proposal is based on developing analytical models through computers. The only equipment required for this research proposal is computer hardware and some software for graduate students. If need arises an application to the VCO Network for up to $3,000 for the purchase of a computer, a printer and some software may be made. The computer would be used by the graduate students. Most of the software required for the analysis is available with the applicants. However, updates may be required. If need arises an application for funding from the VCO Network would be made. It is expected that the graduate students would present research results at national/international conferences. As need arises application to cover travel expenses to a maximum of $2,000/yr for the master s student and $5,000/year for the PhD student would be made to the VCO Network. 5