558f Strategic Planning in the Pulp and Paper Industry under Uncertain Conditions – a Fuzzy Optimization Approach

Jerker Björkqvist, Computer Science, Department of Chemical Engineering, Åbo Akademi University, Lemminkäinenk. 14 B, Turku, Finland, Janne Roslöf, Information technology, Turku Polytechnic, Sepänkatu 1, Turku, Finland, and Stefan N. Karlsson, Presently with Neste Jacobs Oy, Finland.

In the pulp and paper industry major strategic investment decisions are made continuously. A modern paper mill is a significant long-term investment and, thus, the companies are looking for reliable decision support mechanisms for their strategic planning.

The profit and return on investments of a pulp and paper mill is dependent on various factors, such as raw material, labour, transportation, and energy costs, as well as demands, paper prices, interest rates etc. Some of these factors vary regionally more, some less. Hence, the investment decision is actually a geographical decision, the big questions being where to invest, when and how much.

Although the pulp and paper industry is a significant field of business, only in the Nordic European countries the turnover is US$ 50 billion, there is limited number of publications focusing on the presented topics by from an operations research perspective. An obvious challenge to this approach is that forecasts, demand trends, and prices etc. are uncertain and imprecise by nature. Hence, the formulations should be developed to also handle optimisation under uncertain conditions. This could further help the decision makers to not selecting strategic plans that easily fail due to high sensitivity to uncertainty.

In this paper we present a mathematical programming based optimization model for optimising the revenues based on given forecasts for production costs, paper prices and demands. The uncertain components are described utilizing concepts adopted from the fuzzy set theory.

In addition, a case study illustrating how the proposed model performs is presented. In the case study, the task is to supply five geographical areas in Europe with different paper qualities. Each area has a forecasted demand for a set of paper qualities. The market is supposed to develop according to a growth plan. Costs for raw materials, labour, and logistics are given as forecasts. Using the optimisation methods proposed in the paper, optimal solutions to support the strategic planning are obtained. A solution provides information on where to produce each paper qualities, where the investments should be done, and how the logistic should be arranged.

Although the presented model focuses on the problem formulation in the pulp and paper industry, the approach can be easily tuned and applied to even other fields of investment-oriented business.