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Managing the Chain

A BC panel operation expects to see increased profits as a result of implementing a supply chain management system.

Supply chain management has become a buzz term for 1990s manufacturers, with entire industry conferences dedicated to improving the supply chain. But what exactly is it? In specific terms, supply chain management involves taking every part of the supply, production, distribution and marketing processes and tweaking them, or even making wholesale changes, to make them work better and deliver more profit.

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Canfor’s Panel and Fibre operation manufactures a range of environmentally friendly products made from recycled and residual wood fibres. Since it produces a wide range of products, the operation faces a complex series of product planning decisions. To help in the decision-making process, Panel and Fibre has purchased and implemented a supply chain optimization system, Tri-Star 2000.
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Supply chain management is hardly a trendy management tool. It can deliver solid results. A case in point is Canfor’s Panel and Fibre Division in New Westminster, BC, which has taken a strong interest in supply chain management. It now anticipates a significant increase in profit as a result of its first year of using supply chain optimization computer software.

Several hundred thousand dollars of the increased profitability will come as the result of a decision to phase out the manufacture of a low margin product. Using "what if" scenarios, the company in the end decided to buy, rather than make, the product, freeing press time for higher value production.

The software used by the division, TriStar 2000 from Oregon-based Decision Dynamics Inc., enables the operation’s managers to evaluate a wide range of procurement, production and marketing alternatives that would not be feasible using conventional software. Management at Panel and Fibre expects a quick payback: the software is expected to pay for itself several times over in its first year of use.

Canfor’s Panel and Fibre Division manufactures a range of environmentally friendly products made from recycled and residual wood fibres. These products include Panelwood hardboard wall paneling, Ecofibre and EcoAgeis hydroseeding mulch, baled fibre and fibre mat. The company uses residual wood chips collected from wood product manufacturing mills in the Lower Mainland of BC and packaging materials, such as wood pallets, to turn out these products.

With such a wide range of products that are largely produced on the same production machinery, the operation faces a com-plex series of product planning decisions. In the past, accountants used spreadsheets to evaluate procurement, production and marketing alternatives. "One problem with the spreadsheet approach was the difficulty in developing scenarios that fully reflected the business environment in which the division was operating," explains Jim Marshall, former general manager of Panel and Fibre. "Another problem was the time involved in manipulating spreadsheet models. There was never enough time to look at more than a small fraction of the available choices." As a result, decision-makers were forced to settle for a reasonable looking alternative, rather than being able to seek an optimum decision.

In an effort to improve the quality of their decision process, Panel and Fibre investigated supply chain optimization technology. This technology involves the use of mathematical tools to consider the impact of procurement of raw materials, product mix and production efficiency in making decisions regarding operational scheduling, product pricing and market opportunities. It is particularly applicable to forest products companies because they have complex supply chains that extend from timber stands in the forest through to delivery of finished products. At every link along the way, numerous decisions are required that impact over-all costs, performance levels, customer service and profits.

Marshall and his management team selected the TriStar 2000 system in part because Decision Dynamics has developed standardized supply chain models for each of the major operations in the forest industry including sawmills, chip mills, plywood mills, panel mills and OSB mills. These models pre-define the relationships between processes, raw materials and finished products found in the forest products industry. They eliminate the need for developing and defining an industry model from scratch, as might be required with a generic supply chain optimization solution. This can great-ly reduce the investment and risk involved in implementing this technology. In addition, the TriStar software package is said to be quite easy to learn and use because its user interface and workspace resembles the Microsoft Windows applications that Panel and Fibre’s managers and accountants were already familiar with.

After Panel and Fibre made the purchasing decision, Decision Dynamics consult-ants assisted in customizing the industry model by developing a master model for the operation. This model describes the operations in considerable detail, including work centres in the operation, raw materials options and prices, finished product options and prices, labor rates, machine rates, other variables and fixed costs, as well as other factors that affect profitability. The master model was built through a project effort that involved team members from Panel and Fibre’s sales, production and procurement operations and a Decision Dynamics application consultant and application development engineer. Together, the team captured company data and built a master model that runs within the TriStar industry model.

With the model completed, managers and accountants were able to evaluate their options easily and accurately for the first time. They used the new system’s "scenario managers" to analyze various alternatives for scheduling products through the mill, as well as alternate supply options to better understand the effects on profitability. Once they were certain that the model accurately reflected their real-world scenarios, they directed it to optimize profit margins by adjusting the level of the low-margin product. The model used linear programming to determine the most profitable product mix based on the constraints that the managers had provided.

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The supply chain optimization system at Panel and Fibre revealed the operation could better optimize its equipment use by eliminating production of a lower-margin product, and instead purchasing it. This would free up a very expensive piece of equipment, an embossing press, for higher margin product.

One of the division’s products incorporated into the model is its popular Panelwoods paneling line that constitutes approximately 40 per cent of sales volume. This line provides an economic alternative to wood veneer paneling, adding realistic color and texture to homes, offices, retail store displays, store fixtures, film sets and props, stage sets, and trade show displays. Canfor makes 16 different embossed and print reproductions, including oak, pine, barnboard, stone, stucco and brick, to name just a few. Panelwoods are made in 48X96X 1 / 4 -inch sheets except for ceiling panels, which are 48X48X 1 / 4 -inch, and wainscot Panelwoods, which are 48X32X 1 / 4 -inch sheets.

In the manufacturing of Panelwoods, Panel and Fibre uses residual wood fibres extracted from post-consumer waste and forest industry byproducts, which is com- pressed into hardboard. Refined wood fibre is produced by a thermomechanical pulping process using Sunds Defibrator pressurized disc refiners. The wood fibres are cleanly separated, with minimal breakage across cell walls. The company’s refining process can be tailored to produce refined wood fibre that meets exacting customer specifications.

Panel and Fibre produces Panelwood on a custom 25-opening embossing press, a very expensive piece of machinery that runs 24 hours a day, 7 days a week, except when it is down for maintenance or changing plates. The press is capable of mixing different patterns on different press openings but all of the panels must be of the same thickness. In other words, thin and thick panels cannot be produced at the same time.

"Changing a single plate on the press can take up to four hours, so we want to maximize the length of production runs to minimize downtime," says Marshall. "At the same time, we also have to consider the needs of our customers, the retail outlets, that want to stock a broad range of products to give their customers a wide selection."

In the past, Panel and Fibre managers had doubts about one of the lower-margin products made on this press. They wondered whether it made sense to produce this product on a fully utilized press that was mainly occupied in producing embossed paneling that sold for higher prices. However, there were so many options to evaluate that accountants had never conclusively deter-mined that it made sense to drop production of this item. In addition, several customers made it clear that they needed the product to fill their lines. As a result, the company continued to produce it.

The most profitable scenario of the thou-sands evaluated by the software was to cease production of this low-margin product altogether and instead purchase it. Even if the only market available for the freed press capacity was thicker commodity brown-board, profits would increase by several hundred thousand dollars per year. As a result, rather than continuing to make this product, Panel and Fibre plans to buy an alternative product and use the additional press capacity to increase the production of embossed paneling. With this change, the firm’s monthly profits are expected to increase to the level predicted by the model.

All in all, Marshall and the Panel and Fibre team feel the new software provides a better way to determine profitability and they estimate that it could generate significant additional profits for the division in its first full year of use.

 


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