A Sequential Optimization Approach in Tactical Planning for Value Creation in the Forest Products Industry

Abstract

Strategic, tactical, and operation-level forest management plans are commonly formulated by forest planners following even-flow yield principles. Although strategic planning ensures a sustained supply of timber over the long term, it disregards individual mills’ requirements, which leads to discrepancy between supply and demand. We hypothesize that a value-based timber allocation decision, which accounts for individual mills’ demands during tactical level planning, reduces such discrepancy by increasing value over the entire supply chain. Three types of linear programming models were constructed: Model A—status quo volume-maximization model, Model B—supply chain net present value-maximization (NPV) model, and Model C—a novel approach with sub-models embedded that maximize the NPV of individual mills in the allocation decision. Our results showed that only 58% of the annual allowable cut was profitable and the mean net revenue per harvested area was $2455 ha−1 using Model A. The respective values using Models B and C were 64% and $3890 ha−1 and 96% and $4040 ha−1, respectively, showing that Model C generated the highest net revenue for all mills. Such a method of value-based sequential optimization (Model C) will be crucial in sustainable use of forest products and sustaining future bioeconomy, particularly for managing mixed species stands that contain timber suitable for manufacturing a wide range of products with different market values.