European Journal of Operational Research 163 (2005) 589616

www.elsevier.com/locate/dsw

Supply chain management

in forestrycase
studies at
Sodra
Cell
AB
a
b,*
Dick Carlsson , Mikael Ronnqvist
a

Sodra Cell AB, SE-35189 Vaxjo,

Sweden
Division of Optimization, Institute of Technology, Linkoping University, SE-58183 Linkoping, Sweden
Available online 16 March 2004

Abstract
Theow
use of
supply
chain management
optimisation
is of increasing
importancebucking,
in the forest
industry.
The overall
woodstarts
with
trees
inand
forests
andplants,
continues
with harvesting,
transportation
to
terminals,
pulp standing
mills,
paper
mills
and
heating
conversion
intoand
products
such di
assorting,
pulp,
paper,
lumber, and
ends
at disawmills,
erent
customers.
Many
planning
problems
arise
along
theWe
chain
these cover
erent
time Swedish
horizons.
Coordinating
the
wood
ow
is
a
vital
concern
for
many
companies.
study
Sodra,
one
of
the
larger
forest
companies,
which
is
involved
in
all
stages
of
the
wood
ow.
We
focus
in
particular
on
Sodra
Cell
AB,
a
company
within
Sodra,
which
responsible
for pulp production.
We
the operations
atwhich
Sodra
Cellonand
the decision
support
tools
used
for is
supply
chain
planning.
We describe
vedescribe
major
projects
or cases
focus
improving
supply
chain
management
andusing
optimisation.
cases
include
the
of new
technologies
sales andtheir
orders,
new
distribution
structures
terminals, These
and the
development
of introduction
integrated optimisation
models andformethods.
2004 Elsevier B.V. All rights reserved.
Keywords: Forestry; Supply chain; Supply chain management; Practice of OR; Modelling; Transportation

1. Introduction
1.1. Forestry
The
forest
industryProblems
is of greatinnational
and cover
regional
importance
to countries
like Sweden,
Finland,
Chile
and
New
Zealand.
thispulp-,
area
a variety
of aspects
from
building,
harvesting,
transportation,
andforest
production
athas
saw-,
paper
mills
and
heating
plants.
Beingroad
heavily
dependent
on
the
export
market,
the
industry
to
ensure
that
its
costs
and
revenues
are
competitive.
This
means
that
has
had
tothe
increase
or maintain
the ecintegration
iency of allbetween
its operations.
A parts
general
opinion
the forest industry it
today
is that
potential
lies in improved
dierent
of the
supplyinchain
*

Corresponding author. Tel.: +46-13-285770; fax: +46-13-285756.

E-mail addresses: dick.carlsson@sodra.se (D. Carlsson), miron@mai.liu.se (M. Ro nnqvist).

0377-2217/$
- see front matter
doi:10.1016/j.ejor.2004.02.001

2004 Elsevier B.V. All rights reserved.

D.D.Carlsson,
Carlsson,M.
M.Ronnqvist
Ronnqvist/ European
/ EuropeanJournal
JournalofofOperational
OperationalResearch
Research163
163(2005)
(2005)589616
589616
59
59
0
0
(SC)
or
wood
ow
chain
and
the
use
of
sophisticated
techniques
to
increase
the
utilization
of
raw
materials
and
production
capacities.
Several
actors inarethisinvolved
thefrom
woodow. The
situation
can
vary situation.
from country
to
countryand
and
since
the
case
described
paperin
is in
taken
Sweden,
wedescribed
focus
on the
Swedish
The
situation
the
use
of
decision
support
systems
for
example
Chile
is
in
Epstein
et
al.
(1999).
The
main
actors
using
SC
planning
in Sweden
are industrial
forest-enterprises,
with largewhich
forest represent
assets as well
as
their
own
pulp
and
paper
industries
and
sawmills,
and
forest
owners
associations,
the
private
entities
and haveand
theircarrying
own pulpand
To forests
carry out
the operations
there
loggers and
transporters,
harvesting
the
woodsawmills.
from enterprise,
the
to the
mills. of
They
mayare
bealso
categorized
as
independent
entrepreneurs
working
for
a
single
forest
often
members
an
association
that
handles
price-negotiations
etc, or
as large transport-organizations owned by a large number of entrepreneurs carrying
wood for several forest
enterprises.
Customer
orientation
in focusshould
of thebe
forest
industry.
Thecustomer
idea of customer
orientation
is that
the right
right
kind
of
products
(or customer
raw ismaterial)
delivered
to the
in the right
quantity
and
atas
the
time.
In this
way, the
has
the opportunity
to improve
on hisorientation
utilization
of the
raw material
wellthe
as
obtaining
increased
e

cie
ncy
in
production
planning.
Customer
will
dramatically
increase
demand
put
on the and
logistics
and
production
system.
Theasrequirements
onrequest
all parts
oftimed
the overall
supply
chain
in
terms
of
quality

exib
ility
will
increase
as
well
the
need
and
for
deliveries.
This
gives
rise
to a and
demand
for The
increased
knowledge
about the
and for
methods
and tools
tools based
for better
planning
control.
furthergeneral
development
of practical
andSC
robust
decision
support
optimisation
and methods
are
anthe
important
prerequisite
for
producing
a general
view
and esupport
cieon
nt
resolution
in models
the
complex
situation
that
forest industry
isinfeasibilities
moving
towards.
By
robust
decision
tool,
we
mean
a
model
that
always
provides
a
solution
(where
are
easily
detected),
an
optimal
or
near-optimal
solution
which
is
provided
within
a
limited
solution
time,
and
that
the
method
is
insensitive
to
parameter
settings.
Operations
Research
(OR)
models
and
methods
arising
in
SC
are
described
in
Shapiro
(2001)
or systems
Tayur etand
al. (1999).
Compared
to other
sectors,
forestry has Moreover,
relatively fewthe
advanced
decision
support
has put
less funding
intoisindustrial
research
and in
development.
proportion
of
personnel
with professional
engineering
degrees
much
smaller
the forest
industryAingeneral
comparison
withofother
industrial
sectors.
Other
challenges
in
forestry
are
described
in
Martell
et
al.
(1998).
overview
OR
models and methods in forestry is given in Ronnqvist (2003).
SodraA Cell
AB is oneproportion
of the worlds
leading
manufacturers
of
market pulp paper
intended
for paper
production.
considerable
of allpulp
pulp
used
in European
non-integrated
industries
(writing
paper,
board,
tissue,
etc.)
originates
from
mills
owned
by
Sodra
Cell
AB.ofWith
ve
pulp
mills
inCell
use

(three
in
Sweden
and
two
in
Norway),
So
dra
Cell
produces
two
million
tonnes
pulp
per
year.
So
dra
AB
is a subsidiary
of Sodra,
an economic
association
owned
bycrucial
more than
34,000
forest that
owners
in customer
southern
Sweden.
The
competition
on
the
world
market
is
hard
and
it
is
to
have
products
meet
requirements.
The
production
of Decision
pulp mustsupport
be costsystems
eective
moretool
eto
cient
integration
of the
production and
logistic
planning.
arewhich
seen asrequires
a necessary
accomplish
this.

1.2. Pulp market

The world
market
for wood
amountstotoanother
approximately
42accounts
million tonnes
(in 2002)
pertheannum.
Market
pulp,
i.e.the
pulp
onpulp
the
market
about
25% of
total
turnover
ofsame
pulp,
rest sold
isSome
mainly
integrated
pulp,their
i.e. own
pulpcompany,
that is
produced
andfor
used
for paper
production
within
the
company.
paper
mills
with
pulp
production
may
in
addition
need
pulp
from
the
market
to
be
fully
supplied.
Other
paper
companies
have
no
pulp
production
at
all,
and
are
therefore
dependent on market pulp for their whole supply. In Western Europe, market pulp amounts to
14.5 million tonnes, which is 62% of the total pulp turnover in the region.

The pulp
market
is mainly
divided
by ofbre
Softwood
pulp is
made from and
diere
nt pine
and
spruce
species
growing
inbres
the
large
boreal
areas
thetype.
world
e.g. Canada,
Russia.
The
wood
has
comparably
long
and
the
pulp
is therefore
typically
usedBirch
forScandinavia
giving
strength
to
paper.
Hardwood
is
mainly
made
from
birch
and
eucalyptus,
and
has
short

bres.
is
growing
in
the
boreal
area,
whereas
eucalyptus
grows
in
the
temperate
areas
e.g.
Brazil,
the
Iberian
Peninsula,
Australia
etc.
In
order
to
give
printing paper an opaque appearance and good printing properties hardwood is used.
The tradition
in the port.
pulp The
business
has been (INternational
that the supplier
delivers the
pulp CIF
Insurance,
Freight)
to
a European
INCOTERM
COmmercial
CIF (Cost,
denotes
that the
the
supplier
covers
for handling,
insurance
freight
toto
the
port TERM)
of destination.
Thereafter,
buyer takes
full costs
responsibility
for the
pulp andand
covers
all up
costs
itsnamed
nal destination.
Also
according
to
tradition,
the
buyer
indicates
which
port
should
be
used
for
the
delivery.
The
result
of
this
is
that
supplierschain
oftenfrom
have to use
many
ports in order
to since
be competitive.
Thisinisvessel
negative
for the e
ciency
in
thecarrying
supply
mill
to destination
port
thetoemany
ciency
utilisation
benets
from
large
volumespulp
to
few
ports
rather
than
small
volumes
ports.
The existing
tradition
in
the
commercial
relationship
with
customers
has
thus
set
the
framework
for
the
logistics.
The
possibilities
modifying the business models and conguring the supply chain dierently have therefore been restricted. of
The main reasons behind the past strength in the CIF-model from the customers perspective are
probably the following:
Flexibility
sourcing The
of pulphaving the
control over
theatlogistics
theatport
makes
very easy
to
change in
suppliers.
maintained
both
portfrom
and
the onwards
paper mill
areituseful
for
negotiating
the prices
withtoinventories
dierent
suppliers.
The prices
larger are
thethe
stock
theFig.
greater
the pulp market
in order
try to buy
pulp when
low
(see
1). the freedom when acting on
purchasing
Purchasing logistics
power of
logistics
also the
inbound pulp to oer logistics providers when
services
mayserviceshaving
give a better position
in negotiations.
inbound
Integratedtransport
logistics of
systemsthe
logistical
system
for distributing nal products may be integrated with the
pulp (e.g. in
block train
haulage).
Return onmeasurement
capital employed
(ROCE)
has
an important
indicator
of the
einventories
ciency inofcompanies.
is veryIn
sensitive
to become
the
amount
of capitalhave
thattended
is tied
materialsThe
and nished products.
recent years,
companies
therefore
to in
focus
more and raw
SEK/tonne
7000

6000

5000

4000

3000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

Fig. 1. Real prices (SEK) of Nordic Bleached Softwood Kraft pulp (NBSK).

more
on reducing
their working
capital. These
eorts give companies
the incentive
to nd other
ways for
of
procuring
raw materials
and
distributing
products
on the new
objectives
accounts
growing
interest
in ideas
and
theories
relatedthe
to potentials
supply based
chain
management
(SCM).
Thus,which
there
is
also aration
clear
interest
among
pulp
customers
to
explore
of
supply
chain
management
in
collabowith suppliers.
1.3. Paper outline
An echain
cientconsists
SCM isofimportant
for manystages.
companies.
is in aparticular
true
where
the
the
supply
many
integrated
draThis
is such
as itfor
is companies
divided
into
several
subcompanies
responsible
for their
particular
partSoSo
of
wood
chain.company
In this paper
we
will
useto
Sodra
Cell

AB
and
its
relation
with
other
companies
within
dra
and
external
customers
as
an
example
illustrate
how
SCM and/or
supply
chainThe
optimisation
are used
ve case
to improve
overall
performance
of the
company.
outline
ofa(SCO)
the
is Cell.
as in
follows.
In studies
this
section
we Sodra
havethedescribed
forestry
and the
pulp
market
and
how
these

ectpaper
Sodra
In Section
2 we
describe
and
its
organisation,
its
supply
chain
and
its
current
supply
chain
modules.
In
Section
3
we
describe

ve
case
studies
whereofspeci
projects
c projects
have
been undertaken
in chain
order to
improve the
performance
of
the supply
chain.
Two
the
are
concerned
with
supply
management
and
three
with
supply
chain
optimisation.
Theapplied
main purpose
of this
paper
to showeach
how SCM
and ORinmodels
and
methods
are
in practice
for e.g.
aapplication-oriented
forest
company.
Weand
will methods
notisdescribe
projects
detail.
For
a more
technical
description
of
the OR
models
we refer of
tothe
technical
reports
or
published
articles.
2. Supply chain management at So
dra
2.1. The Company
Sodra
Cell
AB istonnes.
one of the
worlds
producers
of market
pulp, with
an annual
of
about
two
million
Almost
nineleading
million
cubicand
meters
of wood
is used
in1907.
theproduction
production.
Turnover
for
2002 Cell
was 7,728
MSEK
(approx.
840return
MEuro)
the number
of employees
Over
the last
ve
years
Sodra
has
reached
an
annual
on
capital
employed
of
17%
(ROCE)
on
average.
However,
since pulp and paper is a very cyclical sector there has been a large variation between the
years.
The
production
carried
out(Folla
at veand
mills,
three Sodra
in the southern
part ofmainly
Swedensoftwood
(Monster
as, Varo
and
Morrum)
and
twoisin
Norway
Tofte).
Cell market
produces
pulp
of
dierent
grades
and
ispulp
market
leader
in that
segment.
The
most
important
for
So dra
Cell
is Austria
Europe.
More
than
90%
of
the
is
sold
within
Europe
(see
Fig.
2).
Germany,
Sweden,
France,
Italy,
and
are
the
ve
most
important
countries
in terms
ofout
sales
volumes.
Overseas
relatestotodisales
in
Asia.
Distribution
to
customers
in
Europe
is
mainly
carried
through
shipment
by
vessels
erent
ports
on
the
continent.
Train
deliveries
are
an
option
to
some
customers,
mainly
located
in
the
interior
of
the
continent
like
Austria
and Hungary.
Sodra Cell
is owned
by Sodra
Skogsagarna
ekonomiska
forening
(Sodra),
which
isSo
a forest
owners
association.
Most
ofwood
the wood
used
by
Sodra
Cell
is provided
by the
members
ofSkog
Sodra.
dra
Skog
is the
organisation
buying
from
the members
for
deliveries
to
Sodra
Cell.
Sodra
is Sodra
Cells
permanent
wood
supplier.
Member
deliveries
account
for
approximately
60%
of
the
wood
supply
and
theonly
rest
is imported, mainly from the Baltic States and Russia.

Fig. 2. Sodra Cell sales per country, 2001.

2.2. Organization
total,
there
are about
people
involved
in the
direct planning half
and management of the supply chain at
Indra.
dra Cell
So
Half
of organisation
those
work100
within
thein
Sosupply
organisation
overview
of the
involved
chain
planning atand
Sodra.within Sodra Skog. Fig. 3 gives an
Theexcept
production
at the
pulp mills
the central planning
activity in the department
supply chain.
For the
all
mills,
Folla, planning
thisofisSo
done
centrally
atproduction
theis Productionand
Delivery-planning
within
dravery
Marketing
department
Cell.
The
at Folla
is
planned separately
atmore
the mill
due
to the
planning
conditions
there
being
di

erent
to
other
mills.
The
production
in
Folla
is
or
less
strictly
order
based
with very
little produced
to stock.
At the
mills this
is the
opposite.
The cost
for changing
between
products
is comparably
high and
therefore
the other
production
is run
in fairly
long runs
(campaigns).
The delivery planning is divided into three geographical regions:
Germany, Benelux, Switzerland, Austria and Italy (Mainland Europe);
Norway, France and the UK;
Sweden and Overseas.
The according
shipping departments
at the millsplanning.
are responsible
for planningthethe
loading
ofcustomers
vessels, wagonsand
lorries
to sales
the central
They also
pulp
to theor
from
their
respective
mill.
The
ocesdelivery
have
the direct
contact
withinvoice
the customers.
One
twoThe
people
receive
the
orders
from
the
customers
and
enter
this
information
into
the
business
system.
sales
o

ce
personnel often also operatively plan the actual deliveries to the customer, ordering wagons or lorries, etc.
In orderwho
to works
coordinate
thecollaboration
wood supply with
among
the
disupply
erent mills,
Sodra atCell
has
a wood
procurement
controller
in
close
the
wood
coordinator
the
Wood
Supply
dept
in
the
dra Skog
dra Skog
So
organisation.forThe
wood
coordinators
in Sweden
and one
in
Norway)
aretoresponsible
the So
overall
planning
andsupply
management
of the (one
deliveries
of dierent
wood
assortments
the
addition
there
are
separate
personnel responsible
for managing
the ow
of
imported wood,
andmills.
wood In
chips
from Swedish
sawmills.

Sdra
Sdra Skog

Sdra Cell

Wood supply dept

Economics dept

Wood supply coordination

Domestic pulpwood

Wood procurement controller

Marketing dept
Production planning

Imports

Delivery planning

Sawmill chips
Transport management areas (3)

Mainland Europe
Norway, UK, France

Regions (4)

Domestic, Overseas

Wood supply coordinator

Districts (32)

Sdra Shipping
Vessel

Wood supply coordinator

Train
Lorry
Mills (5)
Shipping dept
Ware-house
Sales offices (7)
Order- delivery handling

Fig. 3. Organisation involved in planning and managing the supply chain at Sodra.

Management
of geographical
pulpwood haulage
inThe
Sweden
is the responsibility
of the out
Wood
Supply
department.
Ithas
is
organised
in three
regions.
transportation
is mainly
carried
contractors.
Sodra
a
small
haulage
operation
with
six
round-wood
lorries and haulage,
six
lorriesand
dedicated
tobyhaulage
of sawmill
chips.
In
total,
about
150
lorries
are
used
for
the
round-wood
about
60
lorries
for
the
haulage
of
sawmill
chips.four
Theregions.
purchase
of region
pulpwood
from members
and
harvesting
services
ered to members
are
organised
Each
is divided
into eight
forest
districts.
At
bothoregional
andduction
district
level
woodin
supply
coordinators
are appointed
who
are according
responsible
managing
the pro(purchase
and
harvesting)
of dierent
wood assortments
to for
planned
and agreed
deliveries
to
the
pulp mills.
2.3. Factors aecting the Supply Chain at Sodra
An important
factor,
a supply
chainbleached
perspective,
the product range.
In the
eighties
SodraInCell
mainly
produced
three from
dierent
products:
andissemi-bleached
softwood
and
hardwood.
the
beginning
of thethe
nineties,
the
TCF-bleaching
(Total
Chlorine
Free)
process
was
introduced
which
immediately
doubled
number
of
products
in
the
Sodra
Cell
range.
At
the
same
time,
the
range
of
brightness
levels
started
to
increase
since
the
TCF-method
could
not
accomplish
a
fully
bleached
pulp
from
the
beginning.
As the
method
improved,
and TCF-pulp
of higher
brightness
was introduced,
old product
remained,
customers
stillcontributed
wanted
it. Therefore
the number
ofof
products
increased the
dramatically.
The
tailoring ofsince
pulpsome
for customers
also
to the growing
number
products.

Sales volume

An and
increased
knowledge
about wood
bre properties
the impact
they have
on the
of the
pulp
theand
nished
product
acquired
during
theand
eighties
and nineties.
Based
onproperties
that
knowledge,
Sodra
Cell
other
suppliers was
started
to design
special
pulpFrom
products
(with
special
wood
requirements/
recipes)
targeted
for
the
production
of
certain

nished
products.
the
very
beginning
this
development
was
truly
customer-oriented
in the
the customer.
sense that In
thesome
products
were
specicwith
customers,
many
timesand
in
direct
collaboration
with
cases
thistodeveloped
resulted
infor
products
ae.g.
limited
volume
very
speci

c
wood
requirements,
which
became
di

cu
lt
keep
consistent
over
time,
due
to
seasonal
variation.
There
could
even
be
problems
having
the
product
available
at
all
times.
The
increase
in
the
number
of
products
complicated theof
logistics
Large inventories
were necessary
to maintain
several
changeovers
which considerably.
product to produce)
in the production
caused
increasedservice
costs and
and
diculties
in running(change
the production.

In
recent
years
there
has
been
a
consolidation
among
the
products
in
So
dra
Cell,
to
alleviate
on
the
problems
that occurred.
generally
havevolumes
a larger have
volume
base,
but stillto
have
specithe
c properties
for changeovers
their intended
useprolong
in Now,
paperproducts
production.
Increased
made
it possible
frequency
of
and
the
production
runs, resulting
in higher
consistency
indecrease
product
quality
and
lower
production
costs.
It
has
also
made
it
possible
to
keep
lower
inventories
and
still
maintain
the
same
service
level as before. This has laid the foundation for further development together with cus- tomers of the
supply chain.
Another
factor
aect
ing the
supply
chainvariations
is due to in
thesales
characteristics
the4).
market
large
variation
in
the
price
Fig.
which
results
in large
volume
(seeofFig.
Highwith
capital
costs
together
with
large(see
costs
for1),stopping
and starting
productionrather
makehigh,
pulp
producers
very has
reluctant
down
the
production.
Because
of that stocks
are temporarily
until
the market
found toa close
new equilibrium
and
stocks are
reduced.
Stocks
vary a lotThe
alsonatural
in the or
wood
supply chain,
notfordue
to the market,
but in
duethe
to forests
the seasonality
of
forest
management.
traditional
periods
harvesting
in traditional
Sweden
are during
autumn,
winter
and
early
spring. the
This
is of
based
on themembers.
seasons
forthe
the
combined
forestand
agriculture
farm,
which
constitutes
core
the
Sodra
In
spring,
summer
and
early
autumn
all
available time is dedicated to agriculture. Once the nal crop has been harvested, and the ground

200107

200101

200007

200001

199907

199901

Fig. 4. hardwood).
Development of sales volume (relative values) from January 1999 until December 2001 (dark colour is softwood and bright
colour

1000 cubic meter

500

400

300

200

100

jan

feb

mar

apr

maj

jun

jul

aug

sep

okt

nov

dec

Fig. 5. Harvests, mill deliveries and stock of softwood pulpwood during year 2000 (m3 ).

preparations
have carried
been carried
out for
following
growth
season,
be dedicated
todra
forestry.
Harvesting is then
out during
the the
period
until early
spring,
whentime
the can
volume
is sold to So
Skog.
Even though
nowadays
onlyinathe
minor
part
of the
wood
originates
from
these
combined
farms,
this
seasonality
is
still
very
evident
overall
wood
ow.
This
results
in
a
high
supply
of
wood
during
the
spring
and
far
less
during
the
summer
as
is
shown
in
Fig.
5.
Since
deliveries
to
mills
have
fairly
stable
pro
lesisfrom
month
to month,
this
causes
the stock
of pulpwood
to The
varyproblem
a lot over
the year.
The enough
crucial
period
often
just
after
summer
when
the
supply
to
mills
is
planned.
is
often
to
have
wood
for period
deliveries
in August
and early
September, until the wood from harvesting operations starting after the
vacation
becomes
available
for delivery.
2.4. Supply chain at Sodra Cell
Thestorage
complete
supply
at Sodra
AB includes
harvesting,
transportation
logs, production
atand
the
mills,
mills,and
inchain
forests
at Cell
harbours),
terminals
by ship,ofstorage
at terminals
distribution
by(atlorry
train
to and
customers.
As itthe
isdistribution
di
cult toofto
satisfy
all production
restrictions,
and at
the
same
time
keep
the
total
supply
chain
cost
low
planning
the
supply
chain
is
a
complex
task.
Rapid
dra to
growth
in Soand
Cells
business
makesofit speci
increasingly
importantschedules.
to accurately
evaluate
how
decisions
aect
total
costs
estimate
the value
c production
The
manual such
scheduling
strategies
are
based
on solid
experience
incorporating
knowledge
of possible
unplanned
occurrences
as
stoppages
in
production
and
new
unexpected
orders.
However,
the
components
of
the
supply
chain
are
continually
changing
asthe
a result
of
new
products,
new demands
and
the to
development
of new
technologies.
Sodra
Cell has
identi

ed
need
for
a
new
decision
support
system
improve
the
quality
of
their
decision-making
with respect to planning time and costs and to provide an increased exibility in the planning.
The overall
picture of
the owned
supply chain
shown inofFig.
6.
TheSo
supply
chain begins
in the
dra.
dra aggregates
typically
in harvesting
areas
by theisofmembers
Soincludes
these
areasforests,
into
domestic
supply
forest
districts.
The supply
raw
material
harvests
of softmainly
and
hard
wood
from
these
forests,
together
with
limited
imports
of
raw
materials
from
other
countries,
Russia
and
the
Baltic
States.
It
is
possible
to
store
harvested
wood
at
a
forest
district
before
it
is
transported
to
the
production mills and there are costs associated with this storage. The by-product from sawmills in

Fig. 6. The supply chain of Sodra Cell.

the
form of wood
chips
is another
important
raw
material
used in
pulp
The
logsThe
are
transported
the
pulp
mills
by
lorries,
while
imported
logs
areproduction.
delivered
by domestic
cargo-ships.
production
ofto
pulp
products
from
logs
and
chips
at each
mill
takes
place according
to production
recipes.
There
are
limited
local
storage
areas
close
to
each
mill
for
both
manufactured
pulp
and
for
the
raw
materials.
Because
of this, it is important to nd good schedules that keep storage levels as stable as
possible during
production.
Although
the majority
of export
customers
are
located makes
in Western
Europe,ofdeliveries
are aalso
made
to
overseas
customers.
The because
wide
spread
customer
locations
the planning
di
cu
ltcu
but
important
task,
not
only
of
theoflong
travelwith
distances
and associated
costs,
butdistribution
alsopossibilities
because
it
isavailable.
di
lt
to
meet
all
the
demands
for
di

erent
products
the
limited
range
of
production
To
distribute
pulp, Sodra
uses three cargo-ships
that vessels,
are hiredand
onmake
long-term
contracts
(timechartered
(TC)

vessels).
In
addition,
they
occasionally
hire
additional
deliveries
by
train
or
lorry.
So
dra
rent
or own
a harbour
near
each mill
where
is possible
to store
Beside
export customers, there are
domestic
customers
whose
demands
need
to beitmet
using deliveries
bypulp.
lorry and
train.
2.5. Planning problems in the supply chain
Fig. 7 shows
planning
hierarchy in
thestages
SodrainSkog/Sodra
Cell been
supplyassigned
chain. The
planning
problems
at dithe
erent
planning
and
the chain
have
intoexisting
a supply
chain
planning
hierarchy
map.
This waylevels
ofetmapping
theFleischmann
planning
problems
of thealso
supply
chain
has
been used
by
many
authors,
see
e.g.
Fleischmann
al.
(2002).
et
al.
(2002)
give
general
descriptions
of
various
problems
arising
in
SCM
and
advanced
planning
tools.
Hameri
and
Lehtonen
(2001)
discuss
the
management of the Nordic pulp and paper industry.

Procurement :
Harvesting , Transport

Production :

Distribution:

Sales:

Pulp production

Haulage of pulp

Supplying the customer

- Time chartering of vessels

- Terminal structure

- Geographic regions
- Segments
- Strategic customers

Harvest calculation : (5yr)

- Forest policy implications
- Domestic/Import
- Transport capacity

Strategic planning : (5yr)

- Investments at mills

Wood supply balancing : (1yr)

- Volume Domestic /Import
- Harvest volume per Region
- Wood -exchange

Budgeting / Prognosis : (1yr)

- Production capacity per product

Customer demands per

product

Budgeting / Prognosis : (1yr)

- Contracts regular customers
- Estimation other customers

- Volumes per product per mill

Transport volumes (purchase)

Wood supply planning : (3m)

- Requirement per assortment
distributed per Region

Production planning : (3m)

- Campaigns per mill

Inventory planning (-policies ):

- Vessel routes/time tables

- Orders regular customers

- Estimation other customers
- SMI* -forecasts
medium term

Catchment areas: (1m)

- Region -> Mill per
assortment
- Back-haulage
- Chips-exchange

Change-overs : (1m)
- Fine tuning of change -overs
(day/time)
s.t. Customer orders, stocks
etc

Operative transport plan.:

(1m)
- Vessel routing
- Load-planning at mill
s.t. Sea/Train /Truck - volumes

- Call-offs regular customers

- Orders other customers
- SMI-forecasts short term

Operative transportation
- Vehicle routing (Daily)
- Combination of other
transports

Operative: (Daily)
- Order/ delivery process

Operative transportation
- Vehicle routing (Daily)
- Combination of other
transports

Fig. 7. Planning hierarchy in the supply chain. (SMISupplier Managed Inventory.)

2.5.1. Strategic planning

On the strategic level, major investments in the mills to increase production or to improve the product
quality are planned. These investments are made with respect to the market situation and availability of
wood, in Sweden and elsewhere. Decisions as to which terminal structure to use for the distribution as well
as the number of vessels to charter on the long term are also taken on a strategic level. Strategic planning
for the sales includes on a long term level which geographic regions to work on, and the volume relation
between dierent customer segments (tissue, ne paper etc.). Customers that are strategic for the future
might also be identied during this planning.
The Swedish government regularly revises the forest policy. To support the decision-making, the
Swedish National Board of Forestry (Skogsstyrelsen) publishes estimations of the future harvesting potential in dierent areas given dierent policy alternatives. These harvest calculations are an important
input to the strategic wood supply planning of Sodra Skog. The need for future wood import is strongly
dependent on the amount of wood it is possible to procure from member forest owners (and others) in
Sweden. In the case when wood consumption is assumed to increase, estimating the extra transport capacity
needed, would also be included in the strategic planning.
2.5.2. Tactical planning
The tactical planning is mainly based on the annual budgeting and quarterly revision (forecasting
periods used within Sodra Cell). The planning has a 12-month rolling horizon. The plan is revised whenever
necessary, but at least on a monthly basis. The monthly revisions focus on the following three months.

During
the spring-period
there
is,from
however,
always a need
to project
all planning
until
JulyAugust
because
is
the
crucial
period
to cope
with,
the perspective
of wood
supply.
revision
of the
tacticalonplan
startsthis
with
new
forecasts
for sales
of
di
sales
erent
products
to plan
customers.
Initially
thisA plan
is mainly
based
the and
input
from
key-account
managers
and
o

ces.
This
is
checked
against
production
possibilities,
wood
restrictions. Normally, there are a few iterations before the sales plan can be conrmed.
Based
on the is
con
rmed Examples
sales plan,of aproduction
productionrestrictions
schedule are
which
should account
for production
restrictions
derived.
maximum
or minimum
of and
days
awood
certain
product
can
be run and
the ideal
or
necessary
sequence
oftheproducts.
Wood
supply number
restrictions
are
mainly
related
to
the has
seasonal
variation
inSodra
supply
of di
erent
wood
assortments
as described
above. When
the
production
plan
been
con

rmed,
Skog
can
start
planning
the
wood
supply
accordingly.
The
total
requirement
of
di

erent
wood
assortments
is
distributed
among
the
di

erent
available
sources:
forest
regions in Sweden and imports. The regions then check the plan against the capacity within their
districts.
2.5.3. Operative planning
Operative planning in the supply chain is done on a monthly level. This planning directly aects the
operations in dierent parts of the supply chain. A central part of the operative planning is the monthly
ne-tuning of the production plan which is done in order to nd out exactly when to change from one
product to another. This depends on past production results as well as the current stock and order situation. Operative planning also includes routing of the time-chartered vessels. Normally a route-plan for 45
weeks is maintained and revised every week. When planning is done for the TC-vessels, the need for
additional shipping resources (spot-vessels) is identied. Deliveries to customers for the coming 23 weeks
are planned at the sales oces. If the sales term is such that Sodra Cell is responsible for arranging the
forwarding to the customer, the sales oce is responsible for planning the deliveries and instructing the
logistics provider.
Based on the revised production plan, Sodra Cell and Sodra Skog agree on the volume of dierent wood
assortments to be delivered to the dierent pulp mills during the month. An optimisation model is used to
assign optimal catchment areas of the wood to each mill, in order to satisfy the requirement of the dierent
mills at minimum transportation cost. One way of reducing the transport costs practised by Sodra Skog is
to exchange wood with suppliers procuring wood for other pulp- and paper mills. Sodra Skog sells wood
that is geographically located near to another suppliers mills and receives in exchange wood located near to
the Sodra Cell pulp mills. The optimisation model is used for optimising exchange of sawmill chips between
Sodra Skog and another company procuring wood for other pulp- and paper mills in the southern part of
Sweden. The allocation of the sawmill chips purchased by the two companies to the consuming mills is
collectively optimised in order to minimize the total transportation cost. In order to optimise the exchange
of sawmill chips an optimisation model is used every month. This model minimizes the transport cost
irrespectively of who is owning the chips and compares with the transport cost achieved if no
exchange
were allowed.
3. Supply chain management cases
In thisorsection
we
describe
ve examples
or cases,
where
thethedevelopment
of thethe
supply
chainaremanagement
supply
chain
optimisation
is included.
follow
woodwhen
projects
dedra Cell.
scribed.
Thethe
rst
is concerned
with
the
overall
breWe
ow within
Sodra
Skogaow
and
Sohomogeneous
Thequality
second
deals
with
sorting
of
pulp
logs
in
harvesting
districts
in
order
to
get
more
of
pulplogs
to
the
pulp
mills.
The
third
focus
on
the
core
production
planning
at
the
pulp
mills
and
coordination with transportation, storage and distribution. The fourth describes an ongoing project to decide

terminal
location
and
make distribution
by
integrated
andchain
ecient.
The last describes therelations
work to
improve
customer
relations.
The rst
andvessels
last more
deal
with supply
management/customer
whereas
the
othertools.
three
are each
instead
supply
chain
optimisation
projects,
aiming
to develop
more
specithe
c
decision
support
For
of
the
cases,
we
give
a
short
background,
a
description
of
the
problem,
project
and
its
development
and some
general
results
and/or
conclusions.
Asprovide
mentioned
earlier, we
do not
describe
the
models
and
methods
in
detail
as
the
purpose
of
the
paper
is
to
an
overview
of
supply
chain
Cell. Wemodel.
do however include a mathematical model for the second case. The
reasondevelopment
is that this isat
theSodra
most compact
3.1. Project 1: Pulp project bre-ow
3.1.1. Background
In the past forestry in Sweden (and elsewhere) has continuously held very large stocks of pulpwood.
During the 1960s and 1970s when a large amount of the annual wood supply was transported on the rivers
during the spring ooding, this was inevitable. The large stocks, and with them long lead-times have remained very long until lately. However, the problem with storing pulpwood for a long time is that it becomes dry, and the bark sticks harder to the wood. This results in small parts of the bark remaining after
de-barking (and some of the wood lost to the bark pile). If the wood is dry, the boiling (or cooking)
chemicals used in the production process do not penetrate the wood as well as with fresh wood. Because of
this, the consumption of chemicals is increased in the boiling, and/or bres are lost because they have not
been separated during the boiling. Dried wood also tends to result in a less white pulp, which therefore has
to be treated more heavy in the bleaching process. Previously, when bleaching was based on the use of
chlorine gas, which is very powerful, this was not a very big problem. It was comparably cheap to just add
some more chlorine to bleach the remainders of the bark and dark raw-pulp. However, when other
chemicals replaced the chlorine bleaching at the beginning of the nineties (due to environmental reasons),
this became a big problem. The chemicals that were used instead (mainly oxygen) were not as powerful as
chlorine. It has since become crucial to have access to fresh wood for pulp production.
3.1.2. Problem
Even though stocks had been greatly reduced since Sodra introduced TCF-bleaching, stocks and leadtimes were still rather high at the beginning of 1997, when the project was initiated. For Sodra Cell it was
also a desire to reduce them further. There was also a feeling that the collaboration between the two
companies (Sodra Cell and Sodra Skog) could be improved.
3.1.3. Project
The project started with a pre-study where the whole supply chain was mapped and the performance in
terms of stock levels and lead-times was measured. The pre-study showed that the total average lead-time
from forest to pulp mill was 79 days. Furthermore, only during a fraction of that time, were operations
carried out to cut down, haul or handle the wood. For most of the time, the wood was just lying in stock.
Based on the pre-study it was decided that the long-term goal for the wood supply would be to reduce the
total lead-time by half, from 79 to 40 days. It was also decided to expand the scope of the project to include
the distribution of pulp to customers and a study of tools for decision support in the whole chain. It was
recognised that having a better understanding and control over the distribution of pulp could contribute to
the reduction of the lead-times in the wood supply.
The task of achieving the goals of the project was given to six dierent working groups:
Domestic round-wood;
Sawmill chips;

Imports;
Product quality;
Distribution;
Decision support.

The quality
rst threegroup
groups
had
immediate
responsibility
of ndingin ways
to reduce lead-times
the
product
had
thethe
task
of these
estimating
thetocosts
incurred
due tothey
thewhereas
use of unfresh
wood. The
other
groups
used
results
evaluate
the prothe
int production
of groups
any actions
considered.
Representatives
from
both
Sodra
Skog
and
Sodra
Cell
worked
together
the
in
order
to
cover
both
the customer and supplier perspective when studying the problems and nding the solutions.
3.1.4. Results
The project ended at the end of 1999, after almost two years of work. At that time the lead-time had
already been reduced by approximately 25 to 50 days. The work has continued after the project was closed.
The lead-time during year 2000 was still 50 days although there was a major wind-throw at the end of 1999
that resulted in a very large supply of wood during the Spring of 2000, and therefore large stocks (see Fig.
5). During 2001 there were also large wind-throws, but the lead-time could be maintained at approximately
50 days.
The decision support group clearly identied the need for better decision support in the supply chain.
The main argument was that substantial savings could be achieved. In addition decision support tools were
found to have the ability to oer greater transparency in the chain. A common system or model, where the
total supply chain is optimised, would give a better common understanding (between organisations) of
which factors are important in order to achieve improved eciency along the entire chain. Several commercial packages such as i2, Manugistics, SAP APO and Oracle APS were studied, but unfortunately none
of them were found to handle the Sodra Cell production-planning problem acceptably (learn more about
that problem in Section 3.3). The main reason was the problem of accurately modeling the possible production plans at the tactical planning level (312 months).
The work within the distribution group resulted in a concept for the ideal distribution structure
in
order to reduce pulp stocks and lead-times to customers. This meant that fewer terminals would be used
and that Sodra Cell would strive for delivering the pulp directly to customers, rather than at the terminals
(learn more about that problem in Section 3.4), as is the tradition in the pulp business (refer to Section 1.2).
3.1.5. Further work
The long-term target for the project in terms of reducing the lead-time was a tough one, and work is still
going on to reach it. The organisation of regions and districts has recently been modied to make it more
wood-ow oriented, which is expected to contribute to the attempt of enhancing the chain between forest
and pulp mills. Another outcome was the start of a collaboration with Linkoping University to develop and
test decision support tools based on OR. When trying to implement the new concept for the pulp distribution
it became evident that many customers had diculties in seeing the mutual benet of the changes. On the
contrary, customers tended to view the changes as negative. These experiences (among many others) contributed to the understanding that it was necessary to try another approach to communicate what Sodra Cell
wanted to achieve. This resulted in the customer added value concept that will be described in Section 3.5.
3.2. Project 2: Wood supply planning
3.2.1. Background
As pulp and paper manufacturers place increasingly higher demands on the quality of the pulp, the pulp
industry has begun to investigate the sorting of the raw materials in order to obtain a greater homogeneity

in
the pulplogs
delivered.
Logs
sawmill
chips
makegeneral
up the
raw
materials
for species
the pulp
industry
in
Sweden.
Today, the
criteria
for
theand
sorting
ofthat
logs
are very
and
it is
usually
of tree,
as well
as
thecaoccurrence
of
rot
and
freshness
are
considered.
Experience
andthe
studies toshow
that
this
classi
tion
is
not
su

c
ient
for
a
contents
declaration
of
the
wood
pulp
with
respect

bre
quality.
Transportation
cost is a large
proportion
the total
cost, which
means that
the distance
between harvest
areas
and
industry
is important.
Other
costs
areof
those
associated
with buying,
harvesting
forwarding.
There
tools
based
on
optimisation
that
support
transportation
planners
to nd
e
cientand
backhaulage
tours
forexist
the
lorries,
see
e.g.
Carlsson
and
Ronnqvist
(1998).
If
sorting
is
increased,
the
average
transportation
distance
will
increase.
project was set up to develop a decision tool that supports the planners in integrating sorting
decisions
withAtransportation.
3.2.2. Problem
Geographical location is a main consideration for the distribution of pulplogs. If an industry demands pulplogs with a special quality, the traditional catchment area will be altered, partly for the
company that imposed the demand, but other industries will be aected too. A catchment area is the
geographical area which supplies a given industry with a given assortment. This change in quality
requirements results in increased transportation costs if the pulpwood is not available in the present
catchment area. Further classifying of the logs means that more sorting must take place at the time of
harvesting.
The sorting of the pulplogs can be done in many dierent ways. Dierent sites, classes of tree and parts
of the tree are examples of the basis for sorting which are discussed. One reason why pulplogs have not been
sorted into several assortments is the sorting costs, which are high in relation to the value of the wood. The
costs are due to several factors. The main one is that more assortments lead to more complicated bucking
and therefore higher felling costs. Many dierent types can lead to a lack of storage places and increased
costs for preparing these. More assortments also result in increased administrative costs. In general, it can
be said that the more types within one harvest area, the greater the sorting costs will be.
Support for transportation planning and investigating what potential there is for return ow (or
backhaulage tours) exists, see e.g. Carlsson and Ronnqvist (1998). Fig. 8 illustrates a typical backhaulage
tour. In Heby there is a sawmill requiring saw logs and in Hallstavik there is a pulp mill. One simple
approach to nd feasible solutions is to use direct ows, which is to take pulp logs in the area Vaster as
and deliver to Hallstavik, and then go back and forward. A similar solution is for the saw logs in the area
Norra to be transported to Heby. With this approach the loaded proportion of the distance driven is only
50%. A backhaulage tour is to take pulp logs in Vaster as and deliver to Hallstavik, then travel to Norra
and pick up the saw logs for Heby. The tour is then completed when pulp logs are again picked up in
Vaster as. This tour is more ecient (less unloaded driving but the same loaded) than just going back and
forward.
3.2.3. Project
This project covers the modules under Procurement in Fig. 7 as this system can be used in
strategic
analysis as well as operative planning. From Fig. 3 we see that it is the Wood supply department
that
would use the planning tool. We will describe the mathematical model. The problem is that given a
number of dierent possible sorting alternatives, expressed in quantities of dierent assortments, to nd a
combination of these possibilities as good as possible for each harvest area. Only one alternative can be
chosen per harvest area. Moreover, given the sorting alternatives, the best return ow or backhaulage
ow should be decided. Normally, these two problems are solved separately. The model becomes an
integer model as logical variables, 0/1 variables, must be used to represent the logical decisions connected
to the decision whether to use a certain sorting or not. In the mathematical model the following variables

Fig. 8. An example of a backhaulage tour made up by two direct ows.

and
cients are used. In the model we restrict ourselves to return ows consisting of at most two
directcoe
ows
xis 1 if sorting alternative s is used in area i
0; otherwise:
yijk ow of assortment k from area i to area j.
pqr
zijk ow of assortment k from area i to area j followed by a ow of assortment r from area p to area q.
Data
aisk :
djk :
cis :
eijk :
pqr
fijk :

amount of assortment k available in area i for sorting alternative s.

demand of assortment k at industry j.
cost to use sorting alternative s in area i.
unit transportation cost for assortment k from area i to industry j.
unit transportation cost for assortment k from area i to industry j followed by transportation of
assortment r from area p to industry q.

In order
toset
simplify
the notation
in theinmodel
introduce
the following
index
sets.ofLet
Iassortments.
be the set of
areas,
Si
the
all sorting
i,we
J the
set
industries,
K
thedemand.
set
allTo
In
order
to introduced
satisfy
theofdemands
ofalternatives
a mill,
severalarea
assortments
canofbe
used for and
the same
model this,
we have
sorting groups
constituted
of several assortments.

X X X
min
X
i2I

subject to
X

j2J

X X X X X X

i2i

k2K

j2J

k2K

p2I

q2J

f
ijk

pqr pqr
zijk

r2K

i2I

cis xis

s2Si

xis 1 8i 2 I ;

s2Si

eijk yijk

yijk

X X X X

pqr
z 6
ijk

aisk xis 8i 2 I ;

k2 K;

2
j2J

X
i2I
pqr

j2J

p2I

q2J

r2K

s2Si

X X X X d
jk
yijk i2I p2I q2J r2K ijk

8j 2 J ;

k2 K;

3
xis 2 f0; 1g

8i 2 I ;

4 yijk P 0 8i 2 I ;
z

pqr

5 ijk P 0 8i; p 2 I ;

j 2 J;

j; q 2 J ;

s 2 Si;
k2 K;
k; r 2 K :
6

Thegives
rst two
in the
function
give the transport
costs
forevery
all thearea
directshall
and backhaulage
ows.
last
term
the terms
sorting
costs.
Constraints
(1) out
means
that
have
exactly
one The
sorting
alternative.
Constraints
(2)
means
thatdithe
ow
ofalternatives.
district
i ofConstraints
assortment
k(3)
cannot
be more
than
the
supply
of
the
assortment
given
the
erent
sorting
says
that
the

ow
into
industry
j0/1
of assortment
k shall be the
same
as
the
demand.
Constraints
(4) statesInthat
the to
variables
are
limited
to
being
variables.
Constraints
(5)
and
(6)
are
non-negativity
constraints.
order
obtain
a
feasible
integer
solution, where
we use
arelaxed
branch-and-bound
technique
is basedbranching
on solving
Linear see
Programming
(LP)-relaxations
binary variables
are return
xedwhich
using
strategies,
e.g.
Barnhart
et
(1998). There
areaathe
very
large number
of possible
ows special
andused,
these which
cannot dynamically
be
represented
directly
in
theal.model.
technique
based More
on
column
generation
generates
the
return
ows Instead,
during the
solution process.
information
can beisfound
in Carlgren
et al. (2000).
3.2.4. Results
The model was tested in three eld studies. In the rst study, we have a case that is based on four pulp
producers: Hylte, Morrum, Nymolla and Varo. This study also includes companies outside Sodra. In this
case, the spruce pulpwood should be sent to Hylte while Varo should have at least 50% of the total volume
from the thinning process or from the tops after the nal felling. In Fig. 9 we illustrate the sorting decisions
without and with backhaulage possibilities. The names represent dierent assortments illustrating the
sorting decisions used. In this case, there were six dierent alternatives and three were used. One is to sort
the pulp logs in species Spruce and Pine, and thinning logs. In Fig. 10 we illustrate how the catchment area
for one of the mills, Hylte, is aected. In both cases we can clearly see that by using backhaulage tours we
can include more sorting and that the catchment area is larger.
In a second study, the model is tested against data from Sodra only. The data concerns Sodra Skogs
commitment towards both its own and external plants during the period of one month. The majority of the
pulpwood is delivered to its own production plants. It is from these plants that demands arise for sorting
the raw materials with respect to thinned wood and nal felled wood. The model is used to study the
consequences of this demand. In a third eld study we added ow of timber to sawmills into the model to
see how this aects the sizes of catchment areas and the sorting strategy. This had a positive eect as the
total transportation cost could be reduced. The system provides an important tool in order to investigate
the cost benets of requiring a better quality of the raw material. This increased cost is then to be balanced
against the cost savings in the pulp and paper production.

Fig. 9. Sorting decisions in case 1 where backhaulage is not accounted for (left) and where it is (right).

Fig.(right).
10. Optimal catchment areas for the paper mill Hylte (located in the shaded area) if backhaulage tours are not included (left) and if they
are

The size
of the
model2001000,
diers forthethe
studies.
The number
of constraints
is 200020,000.
in the range The
5003000,
the
number
of backhaulage
0/1
variables
starting
number
of continuous
potential
number
of
toursmembers
is in theinmillions.
The
model
issuch,
mainly
a variables
tool
for be
strategic
decisions
on 5which
assortments
to
purchase
from
di

erent
regions.
As
it
will
mainly
used
in
the
strategic
year
planning and the annual budgeting process.

3.3. Project 3: Production- and distribution planning

3.3.1. Background
Production planning for a group of pulp mills is normally done on a rolling horizon of three-months.
This means that a plan is made for the next three months but that a new plan (for three months) is made, in
our case, after one month. This is because of unknown events that have occurred and it is better to devise a
new plan before the end of the planning period. For a given period, products are produced in dierent sized
batches over a period of one day to three weeks. Depending on which product is produced, dierent
quantities of assortments are used. Between two batches there is always a xed set-up cost due to e.g. a
lower production rate or a less qualitative mix of pulp during a changeover period. Together with the batch
planning, there is also a need to decide transportation, catchment areas, storage levels and deliveries to
international terminals and/or customers. There are large uctuations in the storage of pulpwood in forests
and production usage of pulpwood at the mills. Fig. 11 illustrates the variations over six months in 2000.
The daily variations for one assortment are shown. This includes deliveries, storage and consumption of
pulp logs in the production. A project was set up to study the possibilities of developing a decision support
system for the overall planning. An important aspect was transparency when weighing production productivity (i.e. long campaigns) against logistical productivity (i.e. shorter campaigns, short transport distances, low stocks) and service aspects (i.e. shorter campaigns, many calls by vessels).
3.3.2. Problem
The production plans are created on dierent planning levels. First a planning period of one year is
considered, whereby rough schedules are produced. These are made mainly using forecasts of demand for
the upcoming year. Second, a more detailed schedule covering three months for each pulp mill which shows
what is produced on a daily basis is developed. These schedules are supposed to meet determined deliveries
and to provide a balanced production according to the supply of raw materials. Only one product (pulp
type) can be produced at each pulp mill at a time. Production is done in campaigns, which are sequences of
days producing the same pulp type. There are many factors aecting the production, both obvious ones

Fig. 11. Daily variation of deliveries, storage and consumption in the production of one assortment.

such
asdeveloping
limited capacities
for storage
and
but also less
obvious factors
based
on experience.
When
production
it istransportation,
important
toboth
consider
production
changes
between
successive
products
andrecipes
the lengths
of
theplans,
campaigns.
These
have
minimum
and maximum
length
restrictions.
Fig.
12
shows
the
and
a
possible
production
plan.
A
marked
square
is
interpreted
as
the
production
choice
for each time period.
A production
plan has
two dier
important
cost factors:
daily
production
costs and
andatchangeover
between
campaigns.
Both main
types
of cost
depending
on what
product
produced
which
pulpcosts
mill
it runs.
There
are four
assortments
of wood
used
inunit
theisof
production.
Through
several
processes,
a
recipe
transforms
diaerent
shares
of(classes)
assortments
to
form
one
pulp. The
outcome
when
using
a lately
given
recipe
is
dened
as
speci

c
pulp
product.
The
number
of
recipes
changes
from
time
to
time,
but
has
been
decreasing
following
a
drive
by
Sodra
Cell
to
decrease
their
number
of
products.
Most
recipes
give
only
one product
as outcome.
some recipes
give an intermediate
product
that
is strained
(separated)
to produce
several diHowever,
erent products.
An illustration
of the structure
behind
recipes
is shown in
Fig. 13.
In
addition
to
the
production
plans
there
are
limited
resources
of
logs
in
forest
districts
and pulp
it is
important
to decide the catchment
areas
i.e. areas
where
a district
particular
assortment
taken tohave
supply
a single
mill. The transportation
capacity
is
limited
within
and
thereasisthe
aisneed
steady
ow
throughout
each
workingthe
day
of the
week. This
isve
aeach
complicating
factor
pulpofto
mill
runsa24
hours in
seven
days
per
week
whereas
logging
lorries
work
days
a
week.
There
is
a
mix
domestic
customers
in
Sweden
The international
a weeklyand
basisinternational
whereas the customers.
domestic demand
is given perdemand
day. is normally aggregated into each harbour on
3.3.3. Project
In 2001 this project was awarded the EURO Excellence in Practice Award. For a more
detailed
description we refer to Bredstrom et al. (2004). The project covers the modules Wood supply
planning,
Production planning and Inventory planning in Fig. 7, and the Marketing
department, Economics
department, Mills and Wood supply department in Fig. 3. In the project we have
developed two
SBZ
S90Z
S85Z
S85Z/TZ
S90Z/TZ

1 1

2 2

2 2

2 2

1 1
1

1 1 1 1 1 1 1
1 1

3
3

1 1 1

1 1

1
1 1 1

2 2

1 1 1

2 2

1 1 1

Fig. 12. An example of a production plan. Here products are shown on the vertical axis and time periods (daily) on the horizontal axis.

Soft
wood
=
Long
fiber

Scots pine

S90Z (std, TCF)

Norway spruce

S90TZ (strong, TCF)

Saw mill chips

Process

4-5 to 1
Birch
Hard
wood
=
Short
fiber

Mixed
Eucalyptus

S85Z (std,TCF)
S85TZ (strong,TCF)
S85SZ (tear, TCF)

S
of
t
w
o

S85S (tear, ECF)

etc...

SBZ (Birch) SEUC

(Eucalyptus)

Fig. 13. Structure behind the recepies. A number of assortments are mixed in the process to produce, in general, one single product.

models
for the
production-planning
problem mills
(Model
A andallB).three
The months.
rst model,
Model
A, usesapproach,
variables
representing
production
plans
individual
covering
A generate
natural
solution
which
we have
adopted for
this for
model,
is column
generation.
Theminimum
subproblem,
to
new
columns,
used
to
generate
production
plans
includes
restrictions
on
the
and
maximum
lengths
of
each
campaign,
and
takes
into consideration
the changeover
costs
of switching
between
products.
This
subproblem
can
be
formulated
as
a
shortest
path
problem.
The
column
generation
is
integrated
with
a
limited
branch-and-bound
search etusing
constraint
branching
to Model
nd integer
solutions.
This
technique
is used the
in
Ryan
(1997)
and
Barnhart
al.
(1998).
In
the
second
model,
B,
we
use
binary
variables
representing
explicit
decisions
of
which product
to lengths
produceofoncampaigns
each day. The
limitations
oflower
this simpli
of
ed detail
approach
are
that
it
does
not
include
maximum
and
provides
a
level
in
the
production plan compared to the column generation approach.
Beside these binary variables we use a set of continuous ones listed below:

Flow
variables to decide the amount of logs transported from each district in each time period to each
pulp mill.
Flow variables to decide the amount of products transported from terminals to domestic customers.
Variables to decide the amount of each log type stored at each pulp mill in each time period.
Variables to decide the amount of each pulp product stored at each pulp mill in each time period.

The locations
constraintsin used
in both and
models
are as follows.
First
thereofare
owinconservation
constraintsit at
storage
forest
domestic
harbours.
Because
factors
the
is
not
realisticwetouse
allow
thedistricts
inow
to at
vary
more than
approximately
10%
from
aconstraints
transport
xed level.planning,
With
these
restrictions
constraints
setting
a
maximum
in

ow
level
for
each
mill
and
that
give
the
feasible
interval
of
daily
in

ow
changes.
We
have
capacity
constraints
for
the
out

ow
from
each
forest
district
and constraints
to meet
demand
from domestic
wellminimum
as exportstorage
customers.
practice
itthis,
is possible
to
delay
in certain
and
thereby
go since
belowas
the
limits.In
We
allow
but at the
cost
ofdistribution
a daily
fee.
This
givesthat
acases
more
robust
model,
the
production
andthe
demand
volumes
almost
always
are
of
about
equal
size.
Note
any
decit
in
one
time
period
increases
demand
in
the
following
time
period.under
It is also
possibleminimum
to relax the
storage
limits
with
an associated
penalty constraints
cost, estimated
from thefor
risk
of
being
the
limits.
There
are
also
each
pulp
mill and
the stated
locally stored pulp.
In Model
A we
alsoow
haveconservation
convexity constraints
toconstructed
choose exactly
one
production
plan.
The objective
function
includes
all costs
of
storage and
the production
plan
The
number
of constraints
highly
dependent
on dening
thetransportation,
length
of the
planning
horizon
the
length
of costs.
each
period.
For
example,
tois schedule
production
every
time
period to
be oneand
day
for
a period
of
90time
days
gives
a
model
with
more
than
28,000
constraints
and
90,000
continuous
variables.
In
addition,
we
have
the
binary variables
for each
plan.InTo
beway
ablewe
to can
solvelower
the problems,
weofuse
a exible approach where
arbitrary
time periods
canproduction
be aggregated.
this
the number
constraints.
3.3.4. Results
The test case we have used covers a period of three months. In this case besides export there are six
domestic customer districts and besides import, ten domestic harvest areas and it involves Sodra Cells three
Swedish pulp mills. In the model, the demand for products is given as known and forecasted demand for the
period is also known. The solution time for the methods used for model A is about 30 minutes on a 1.7 GHz
PC. For a comparison with Sodras manually generated schedule, we have optimised ow and storage using
their schedule for the planning period used in this case. In all our solution methods we achieved better
(lower) objective function values compared to the values when we optimised ow and storage given their
manually generated schedule. Comparing the results obtained from the model and the manual planning we

can see a potential saving of between 5% and 10%. The total cost for a three-month period is approximately
12 million Euros. All our methods generated solutions with more changeover of products (shifts between
recipies), and some solutions even include much more expensive changes, that do not appear to be the most
protable planning. However, when considering the complete supply chain it shows that the costs for the
production plans only represent a minor part of the overall supply chain cost.
The model will be used in the annual budgeting process as well as in the quarterly revisions. It will also
be used monthly in the operative planning when the production plans are ne tuned with respect to the
current order situation etc.
3.4. Project 4: Terminal structure and distribution
3.4.1. Background
In 2000 Sodra Cell AB bought two pulp mills located in Norway from the company Norske Skog. These
mills had their own customers and a distribution system similar to Sodra. From this acquisition, Sodra then
had about 17 terminals where some are situated close to each other. The merger of the two distribution
systems resulted in a surplus of terminals. A continuous striving has therefore been to reduce the number of
terminals. At rst the problem can be viewed as a facility location problem. However, the xed cost
associated with each terminal is rather small as compared to the shipping cost. Because of this, there is a
need to include decisions on and selection of shipping routes. Moreover, as the own shipping capacity is
limited it is also a need to establish which routes should be allocated to spot vessels. A project was set up to
develop an optimisation model that can be used as a tool to investigate dierent scenarios.
3.4.2. Problem
Both short and long-range planning of pulp production occurs throughout the year. On one side of the
supply chain is the customer demand, both domestic and from outside Sweden. There are a total of about
175 delivery points spread across Europe, see Fig. 14. About 80% is delivered outside Sweden and Norway.
Deliveries in Sweden and Norway are normally done by train or lorry. To supply the international customers there are three possible modes of transportation. In order of importance these are vessel, train and
lorry.
The vessels within Sodra Shipping deliver about 0.7 million tons of pulp products to international
harbours. Coupled with each harbour there is a terminal used by So dra. In addition to these terminals there
are also a few other terminals reachable by barge. The ship routes vary in length of time from about six days
for northern Germany to about 25 days for Italy. In addition to their own eet, vessels are used which are
chartered short term (spot vessels). From each terminal, the pulp products are transported to a number of
customer delivery points. This is handled by lorries or train or a combination of both. In addition there is
internal transportation between terminals. Terminals and associated storage capacities are rented in annual
agreements and the cost associated with a terminal is a combination of a xed cost and a continuous cost
based on the actual throughput. Transportation planning is done together with the production planning
and is normally done on a rolling horizon of three months.
The most ecient ship route would be to load at one of the Swedish ports associated with one pulp mill
and then unload at one international harbour/terminal. Fig. 15 illustrates possible ship routes in Northern
Europe. However, due to production plans, storage levels and the size of customer orders, standard ship
routes are to load at two Swedish ports and unload at two harbours/terminals. There is a belief within
Sodra that the number of terminals should be reduced considerably. Large terminals have some positive
eects. First, there will be a smaller total xed cost associated with the handling, and secondly, the amount
delivered to the terminal would be of such size that ships could unload its full cargo at one terminal more
frequently. Hence, more time ecient routes could be used. The drawback is a larger distribution cost from
the terminal to customer delivery points.

Fig. 14. Delivery points in Europe and distribution terminals.

Fig. 15. An example of route choices in northern Europe.

3.4.3. Project
The project covers the strategic and tactical modules of Distribution in Fig. 7, and the
Marketing
department and Sodra Shipping in Fig. 3. In the project we have developed a mathematical model
that
combines the aspects described above. A novel aspect of the model is that it combines a facility location
aspect with ship routing. The model can also be viewed as a supply chain model where the terminals are
potential distribution centres. The objective is to minimize the annual cost comprising of terminal costs and
transportation costs. The sets of variables used are:
Binary variables representing which terminals to enter into contract with.
Binary variables to decide the size (i.e. through ow) of each terminal.
Flow variables to decide the amount of products transported according to a set of possible ship routes.
This is introduced for Sodras ships as well as for the spot ships.
Flow variables to decide the amount of products transported between terminals and between terminals
and customer delivery points.
Flow variables to decide the amount of products transported directly between pulp mills and customer
delivery points by train and lorry, respectively.
The constraints used are:

Limited production capacity at pulp mills.

Limited shipping time for the own eet.
Customer demand.
Flow conservation at terminals.
Limited terminal capacities.
Route proportion restrictions.

The lastwith
set small
of constraints
is used
to This
limit isthe
number
of direct
routes on
(i.e.aroutes
with
point)
for
terminals
total
through
ow.
because
ships
must
deliver
regular
basisone
andunload
it is not
feasible
to
use on
a few
ships
for this.
Proportions
vary
depending
on other
the
terminal
size.
The
restrictions
determine
limits
the
proportion
of
direct
routes
compared
to
the
routes
with
two
or
several
unloading
points.
3.4.4. Results
The number of integer variables in the model is in the range 100500, the number of constraints 1000
5000, and the number of continuous variables 10,000100,000. Solution time with a commercial IP-solver
to get within 0.1% of the optimal solution is about 20 minutes on a 1.7 GHz PC. One dicult and timeconsuming part is to collect the necessary data. We rst need a set of possible routes and this amounts to
several thousand. Secondly, we need distribution costs from terminals to customers. Since these costs are
highly dependent on transportation agreements it is dicult to obtain detailed gures for every possible
combination.
Work to discuss relationships with customers and restructure the locations of terminals is ongoing. The
result so far is a consolidation of volumes to fewer terminals. One advantage is that it is possible to have
stocks with full assortments (service stocks) and hence guarantee delivery at short notice. A disadvantage is
a longer distance to customers. Apart from studying the terminal location problem, the model will also be
used in the strategic/tactical decision-making (12-month perspective) on how to allocate the available TC
vessels. There is a desire to make the routes for a couple of the TC-vessels, or all of them, as regular as
possible, i.e. they would be doing the same route over and over again. The ow of pulp in the supply chain
would in this case be more predictable for everybody concerned. The model is used to make analyses of

di
erentof
terminal
and will in the future be used as a decision support in the annual budgeting
process
Sodra structures
Cell.
3.5. Project 5: Customer relationspulp services: Pulp logistics, pulp IT
3.5.1. Background
Oering added value to customers is an important part of the Sodra Cell strategy for the future. The
strategy is named GPS in accordance with its three main elements:
Growthto achieve a market share for softwood pulp (NBSK) of more than 20% in Western Europe.
Productivityin order to meet the long-term decreasing trend on pulp prices, the productivity needs to
be increased.
Sales valueto oer customers other benets than the bre itself.
One reason
why
the salesarevalue
element
of the strategy
is important
isexpense
to balance
the productivity
goal. is
It
ensures
that
no
measures
taken
to increase
productivity
on thebut
atthey
customer
This
however
not
the
main
reason
why
Sodra
Cell
focuses
on the
salespulp
value
instead,
doOther
this values.
because
ofcan
the
belief
that
added
values
will
be
crucial
for
competing
on
market
in
the
future.
suppliers

make
products
with
properties
similar
to the ones Sojudging
dra Cell
oers,
so the competition
willthe
most
likely
be
decided
factors
inoftheproductivity
future. Furthermore,
fromsupply
the experience
gained
from
Fibreowproject, by
the other
development
that
chainbe has
to start
fromotherwise
a customer
perspective.
benetsupon
for the
as
wellrelates
as for tothethe
supplier, must
clearly
dened;
any
changes will The
be looked
withcustomer,
scepticism.
3.5.2. Problem
The strategy is clear, but what should be done in concrete terms? What can Sodra Cell as a supplier oer
that would be considered as an added value by customers?
3.5.3. Project
To answer these questions an questionnaire was designed and distributed to a relatively large number of
regular customers. The purpose was partly to get a measure of to what extent Sodra Cell already oered
added value to the customers, and partly to investigate where interest for new services could be found. An
example of the type of questions asked and the replies is given in Fig. 16. Based on the result of the enquiry,
together with input from other communication with customers and the experience in the organisation itself,
a number of areas were identied where an interest for development of added value services could be found.
The areas are each one item in the added-value package called PulpServicese. The dierent parts of
PulpServicese are shown in Fig. 17.
The PulpServiceseareas are:

Pulp isQuality
basis
everything iselse.
A consistent product
quality
time
crucialand
forPulp
manyEnvironment
customers, are
andthe
that
thefor
production
environmentally
correct is
also over
very
important.
Pulp Academyto develop and exchange technical competence .
Price Hedgingto assist in handling price developments.
Pulp Updateto serve customers with updated market information.
Pulp ITto reduce transaction costs.
Pulp Logisticsto simplify the pulp supply.

Fig.
16.inResult
fromthe
thedeliveries,
enquiry on
in to
thethe
supply
Almost
50%
of very
the customers
were willing
work more
closely
planning
andwillingness
as shown to
byintegrate
the replies
abovechain.
question,
they
were
open to integrate
theirtobusiness
into
the
Supply
Chain Planning.

Fig. 17. The dierent parts of the PulpServicese-concept.

The last two services are related to the development of the supply chain. This allows customers to:

Order
on-line either through a direct link between Sodra Cell and their customers business system,
or on pulp
the web.
Let Sodra Cell take care of the logistics all the way to the site where the pulp will be consumed.
Let Sodra Cell also take care of the storage of pulp at the consumption site (SMISupplier Managed
Inventory).
Get specic quality data on the pulp units being delivered either systemsystem or on the web.
The PulpServicese-concept
was running
launched
on September
Some
pilot projects
within Pulp
2002.
Logistics
andcustomers,
Pulp IT were
already
at that
time.
So
far,12,
So
dra Cell
iscustomer
engaged
in
SMI-systems
with
three
major
and
there
is
an
interest
to
start
among
others.
One
is
ordering
directly
through IT-links.

Fig.reduced
18. Estimation
of pulp stocks
in the Supply
Chain,
and the
potentialof to
reduce working
capital. It is assumed that 50% of the stock could
be
if an SMI-system
is introduced
based
on better
planning
production
and logistics.

3.5.4. Results
Experience from the sales value initiative is so far very positive. By oering to take over the responsibility
for logistics and stock management in the whole chain, there is an incentive for the customer. Sodra Cell
can help the customer reduce the working capital tied in the pulp stock. A rough estimation shows that on
average this amounts to approximately 10% of the money the customer spent on buying pulp each year (see
Fig. 18).
The incentive for Sodra Cell with the SMI-system is to get information back from the customer specifying planned consumption in the short- and medium term. Based on this information, Sodra Cell can
better plan what to produce in the mills and what to distribute to terminals. However, advanced planning
support is needed in order to take full advantage of this information. This is one argument for the So dra
Cell collaboration with Linkoping University in developing an optimisation model for the production- and
distribution planning. Another reason for Sodra Cell to initiate this work is the belief that it oers a
competitive added value to customers.
4. Conclusions and recommendations
We have described
the woodow The
chainlogistic
at Sodra
Cell and some
systems thatofare
intotal
operation
for
co-ordination
and
support.
costs
toplanning
a large
proportion
the
costsand
for
Sodra
Cell.planning
It
is decision
therefore
important
to be
e
cientcontribute
inlocation
integrated
planning
where
e.g.
production
distribution
or
where
distribution
and
terminal
are
integrated.
It
is
also
important
to
be
customer
in order
provide that
the have
customer
with
services the
suchsupply
as a chain
exibleat service
or
short
lead
times.
We oriented
have
described
vetoprojects
aimed
to improve
Sodra
Cell.
Each
of
these
have
shown
the
importance
of
involving
all
parts
and
personnel
in
the
di

erent
supply
chains
of
using
new
technologies
and advanced
planning
tools of
tothe
enable
the service
or decision
support.
Improvement
in the
supply
chain
is
a
continuous
process
and
some
projects
are
implemented
and
in
use
whereas
some
are
to
be included in Sodra Cells business systems.
The The
models
have a great
support
Sodramaking
Cell in the
future.
maindescribed
benet is probably
that potential
they oer in
an oering
objectivebetter
basis decision
for discussions
andfor
decision
over the borders between the dierent organisations and departments involved in the whole supply
chain.
The experience from the models already in use is that many disputes can be avoided if the parties involved

have
trust
in the
that it captures
theway
essential
to beof
accounted
for when
taking
the decision.
Itsion.
will
then
increase
themodel;
understanding
dierefactors
nt
aspects
thescenarios
problem
aect
the optimal
deciAnother
important
contribution
isintowhat
usewith
the models
toplanning
test dierent
and
to make
sensitivity
analyses
of
current
plans.
This
is
not
possible
manual
as
it
is
too
time-consuming.
The
modules
do
not
to provide
the nal plan but instead they should provide the planners with initial plans of high quality
that have
are derived
quickly.
A major
problem
in the practical
useinofthemodels
suchsystem,
as thebut
ones
presented
in
paperthe
is the
supply
of
data.
Most
of the
necessary
data exist
business
how
do youand
getthis
it from
system
to
model?
Many
times
or disaggregations,
have
be performed
orders
placed
have in
to the
be
joined
with
plans
of aggregations,
various
accuracy
to formonly
the data
data
theto
model
needs.
Sometimes
data
istransport
lacking
the
system.
As
an
example,
there
are
typically
(cost
and
timing
etc.)
about
the
routes
historically
used
in the Data
business
system,
whereas whenhave
optimising
it is interesting
to have also
optionsand
for
the
modelAccuracy
to
explore.
from
dierent
to be
joined
and
maintained
so itother
is updated
accurate.
is
of course
crucial
if thesources
results
from
the
model
can
be however,
considered
trustworthy.
Ideally
the
data
supply
is
fully
automated
and
integrated
to
the
business
system.
It
is,
important
that
the
models
are
used system
even though
is not
the case. Many
companies
seem
to havethe
theplanning
strategy support.
to rst get
the can
perfect
business
with
allthat
kinds
of information
in
it, and
thenuse
start
develop
Aimmediately
lot
be
done
to extract
data
from
most
business
systems,
for
intogoes
models
for
planningThis
support
with
fairly
simple
semi-manual
means
(while
the
IT-development
on
in
parallel).
means
more
work,
but at the same time provides the opportunity of beneting from the optimisations directly.
Although
there are
several
commercial
ERP and
advanced
planningand
systems
available,
there3,are
reasons
why Sodra
Cell
has enough
chosen
to develop
itsmodel
own
OR
models
methods.
In project
theseveral
commercial
packages
did
notfor
have
possibilities
to
the detailed
production
situation.
In project
2,
the
same
situation
was
true
the
detailed
and
combined
harvest/sorting
and
transportation
planning.
In
project
4,
it
is
possible
to
use
such
a
system
but
here
it
was
also
possible
to
make
use
of
earlier
developments.
Another
reason
to
use
tailored
OR
models
and
methods
is
the
strategy
described
above
to
slowly
move
from
acommercial
manual to an
automated system. One future approach is to add the tailored modules as add-in components to
systems.

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