Intro
Operations management deals with managing processes that turn one or more inputs into one or more outputs. In the case of the lumber industry the inputs include raw logs, Facilities/land, equipment/machinery, energy, and labour. The outputs are lumber as well as wood chips and wood waste. This page is meant to give a brief introduction to many of the operations management concepts used in lumber production today.
Contents
1) Planning and Budgeting
2) Process Management
3) Capacity and Output
4) Quality
5) Inventory Management
6) Technology
1) Planning and Budgeting
Planning is crucial when building a new mill or during an expansion project. The costs of constructing a combination sawmill/planer mill can be well over 200 million dollars*. The high cost of many projects in the lumber industry makes planning and budgeting crucial. A Work Breakdown Structure (WBS) can be used to determine all the individual tasks and estimate a total time for a project. A WBS could be used for huge projects like a capital expansion, or smaller projects like scheduling weekend maintenance. Decision trees can be used to choose between two alternatives based on the probability of outcomes.
-Example WBS
-Example decision tree
2) Process Management
Lumber production is a continuous flow process. All Mills use flow diagrams to analyze the flow of lumber through the mill as it is transformed from a log into boards. Computer programs create real time flow diagrams that managers can check to see problems as they arise. Process charts can be used to analyze specific processes or jobs. Process charts are a tool for process improvement and simplification.
-Example flow diagram
-Example process chart
3) Capacity and Output
The majority of mills success is gauged solely on their output. Computers provide instant information on wood flow and bottlenecks. In a mill there is inevitably one activity that runs less efficiently than others and causes a capacity bottleneck. There are also moving bottlenecks that can occur whenever there is a wood jam-up or a machine breakdown. Managers follow the theory of constraints and improve overall capacity by improving the slowest activity to remove the bottleneck and improve throughput time.
There is debate as to the role economies of scale play in lumber production. Industry leaders Weyerhaeuser and Canfor have recently built the largest and mills in the world*. These “super-mills” have as many 5 lines coming into the mill feeding two stackers at the back end. Other companies believe smaller mills with 2-3 lines feeding a single stacker have better returns because of simpler wood flow.
-Example bottleneck analysis
4) Quality
Random Sampling is the main tool that insures quality in the lumber industry**. Standard deviation is calculated and improvements are made to limit overall variation. Once a reoccurring problem is found in sampling an Ishikawa diagram (fish-bone chart) can be used to look into its possible causes. Benchmarking is procedure of measuring companies’ products against industry leaders. The lumber trade is rapidly becoming a global trade and standards must be met. Total quality management stresses the three principles of customer satisfaction, employee involvement and continuous quality improvements.
-Example Ishikawa diagram
5) Inventory Management
The purpose of inventory management is to determine appropriate inventory levels. High inventory levels are expensive, while low inventory risks backorders or a stockout when the sale is lost because lumber could be purchased else where. Inventory holding costs are a major consideration for every inventory manager. If a mills’ holding cost is 20%, and average value of total inventory is 10% of sales, then average annual cost of holding inventory is 0.20(0.10)=2% of total sales. If total sales were 50 million then the yearly inventory holding cost would be 1 million dollars. Because of the high cost of inventory a perpetual inventory system is used by most lumber producers to keep constant tabs on all inventories.
6) Technology
Mills are constantly becoming more high tech. Many jobs have been eliminated by technology for example in many planer mills lumber is now graded by machines instead of people. Demand patterns are charted by computers to predict seasonal and cyclical trends. Computerized resource scheduling programs such as Pert (Program Evaluation and Review Technique) and CPM (Critical Path Method) are also found in most mills**. The major difference between the two is that CPM has a single time estimate while PERT has makes three time estimates based on probabilities. Large mills use an enterprise resource planning system to support the many processes and storage needs.
Current Hard Times
The world lumber market is currently going through some tough times. British Columbia is especially hard hit by low housing starts in the U.S.*** These lean times call for lean systems and the concepts of Operations Management are more important than ever. As lumber prices drop and the dollar rises many mills will see curtailments and shutdowns. The most well managed efficient operations stand the best chance of staying afloat.
References
**Baldwin Richard F. (1984). Operations Management in the Forest Products Industry. [San Francisco, CA]: Miller Freedman Publications
Ritzman Larry P. et all (2007). Foundations of Operations Management. [United States]: Pearson Prentice Hall
*Forestry giant opens world's largest mill: rival may also build super mill, The Canadian Press Daily Commercial News and Construction Record. Vol. 77, Iss. 31; pg. Feb 13, 2004.
***Forestry industry's high-tech, high-paying jobs at risk, Anonymous. Pulp & Paper Canada. Westmount: Vol. 108, Iss. 11; pg. 19, 1 pgs Nov 2007.
Further Reading
The Canadian Lumber Industry: Recent Trends
Careers in Forestry
Canadian Forests
BC Forest Information
Canadian Labour Productivity
British Columbia's Wood Industries Network
Operations management deals with managing processes that turn one or more inputs into one or more outputs. In the case of the lumber industry the inputs include raw logs, Facilities/land, equipment/machinery, energy, and labour. The outputs are lumber as well as wood chips and wood waste. This page is meant to give a brief introduction to many of the operations management concepts used in lumber production today.
Contents
1) Planning and Budgeting
2) Process Management
3) Capacity and Output
4) Quality
5) Inventory Management
6) Technology
1) Planning and Budgeting
Planning is crucial when building a new mill or during an expansion project. The costs of constructing a combination sawmill/planer mill can be well over 200 million dollars*. The high cost of many projects in the lumber industry makes planning and budgeting crucial. A Work Breakdown Structure (WBS) can be used to determine all the individual tasks and estimate a total time for a project. A WBS could be used for huge projects like a capital expansion, or smaller projects like scheduling weekend maintenance. Decision trees can be used to choose between two alternatives based on the probability of outcomes.
-Example WBS
-Example decision tree
2) Process Management
Lumber production is a continuous flow process. All Mills use flow diagrams to analyze the flow of lumber through the mill as it is transformed from a log into boards. Computer programs create real time flow diagrams that managers can check to see problems as they arise. Process charts can be used to analyze specific processes or jobs. Process charts are a tool for process improvement and simplification.
-Example flow diagram
-Example process chart
3) Capacity and Output
The majority of mills success is gauged solely on their output. Computers provide instant information on wood flow and bottlenecks. In a mill there is inevitably one activity that runs less efficiently than others and causes a capacity bottleneck. There are also moving bottlenecks that can occur whenever there is a wood jam-up or a machine breakdown. Managers follow the theory of constraints and improve overall capacity by improving the slowest activity to remove the bottleneck and improve throughput time.
There is debate as to the role economies of scale play in lumber production. Industry leaders Weyerhaeuser and Canfor have recently built the largest and mills in the world*. These “super-mills” have as many 5 lines coming into the mill feeding two stackers at the back end. Other companies believe smaller mills with 2-3 lines feeding a single stacker have better returns because of simpler wood flow.
-Example bottleneck analysis
4) Quality
Random Sampling is the main tool that insures quality in the lumber industry**. Standard deviation is calculated and improvements are made to limit overall variation. Once a reoccurring problem is found in sampling an Ishikawa diagram (fish-bone chart) can be used to look into its possible causes. Benchmarking is procedure of measuring companies’ products against industry leaders. The lumber trade is rapidly becoming a global trade and standards must be met. Total quality management stresses the three principles of customer satisfaction, employee involvement and continuous quality improvements.
-Example Ishikawa diagram
5) Inventory Management
The purpose of inventory management is to determine appropriate inventory levels. High inventory levels are expensive, while low inventory risks backorders or a stockout when the sale is lost because lumber could be purchased else where. Inventory holding costs are a major consideration for every inventory manager. If a mills’ holding cost is 20%, and average value of total inventory is 10% of sales, then average annual cost of holding inventory is 0.20(0.10)=2% of total sales. If total sales were 50 million then the yearly inventory holding cost would be 1 million dollars. Because of the high cost of inventory a perpetual inventory system is used by most lumber producers to keep constant tabs on all inventories.
6) Technology
Mills are constantly becoming more high tech. Many jobs have been eliminated by technology for example in many planer mills lumber is now graded by machines instead of people. Demand patterns are charted by computers to predict seasonal and cyclical trends. Computerized resource scheduling programs such as Pert (Program Evaluation and Review Technique) and CPM (Critical Path Method) are also found in most mills**. The major difference between the two is that CPM has a single time estimate while PERT has makes three time estimates based on probabilities. Large mills use an enterprise resource planning system to support the many processes and storage needs.
Current Hard Times
The world lumber market is currently going through some tough times. British Columbia is especially hard hit by low housing starts in the U.S.*** These lean times call for lean systems and the concepts of Operations Management are more important than ever. As lumber prices drop and the dollar rises many mills will see curtailments and shutdowns. The most well managed efficient operations stand the best chance of staying afloat.
References
**Baldwin Richard F. (1984). Operations Management in the Forest Products Industry. [San Francisco, CA]: Miller Freedman Publications
Ritzman Larry P. et all (2007). Foundations of Operations Management. [United States]: Pearson Prentice Hall
*Forestry giant opens world's largest mill: rival may also build super mill, The Canadian Press Daily Commercial News and Construction Record. Vol. 77, Iss. 31; pg. Feb 13, 2004.
***Forestry industry's high-tech, high-paying jobs at risk, Anonymous. Pulp & Paper Canada. Westmount: Vol. 108, Iss. 11; pg. 19, 1 pgs Nov 2007.
Further Reading
The Canadian Lumber Industry: Recent Trends
Careers in Forestry
Canadian Forests
BC Forest Information
Canadian Labour Productivity
British Columbia's Wood Industries Network
