Sales and production planning for sawn timber
The way production and sales planning are conducted varies between different companies, depending on their strategies, resources and whether the raw material procurement is in own hands or done by supply partners.
Long-term planning, sales planning
With long-term planning the prime target is to allocate the resources available, predicted raw material supply (species, qualities, sizes, lengths, seasonal variations etc) and the potential market and sales related ossibilities.
Especially in larger companies, the time span covers at least a quarter, sometimes several quarters up to a year.
In order to get full benefit from the planning one needs to have relatively accurate customer information of the existing customers and also of the potential ones.
The expected log supply – first obviously converted into sawn goods – is then divided between markets, even down to customer and product level. The aim of this exercise is to allocate every single cubic metre in such a way that maximum financial yield is achieved by counting the costs and revenues of each product.
Medium to short-term planning, production planning
Long-term planning is then split into smaller entities, which suit the production. This time frame can be either weeks or even months. Production planners are at the same time working with the sales plan in real time, monitoring both stocks and future production to ensure that deliveries take place as planned and that the stock stays under control.
The work at the mill is steered by, among other things:
- Anticipation of log inflow, based on delivery data, log reserves and log stock
- Steering of log yard
- Cutting plans for the production
- Value, yield and profitability calculation to support the sales
- Known deliveries
- Time tables for deliveries and its follow up
Planning and its support to raw material sourcing
The general information from the market is processed into detailed data, through which the mill can still try to steer the inflow of log species and length cutting matrixes.
Sometimes the Pine and Spruce raw material markets work differently, possibly resulting in one or the other specie becoming a better choice for sawing. However, one cannot change the log inflow on a short notice and hence the long-term planning becomes even more important to keep the whole chain under control.
The cutting matrixes are decided primarily by market requirements and strategic choices, because by steering the lengths the mill combines the market specific length stipulations also with different delivery types like containers and trailers, where the right length combination is vital for the correct utilization of freight space.
IT in sawmilling, programmes and tools, and terms
There are several IT programmes in use in the sawmilling industry. A common challenge in the handling of products and order-delivery chain is that the sawmilling a “disassembling” industry. Most of the ERP systems are geared towards the assembly type of industry.
Regardless what kind of system each company has got in use, the terms below are universally used:
- ERP (Enterprise Resource Planning) is an IT-based planning system, which takes care of the order to delivery chain up to storage and invoicing
- MRP (Material Requirement Planning) is the production planning part of the ERP
- CRM (Customer Relationship Management) deals with the customer relationship related areas of the business
- BI (Business Intelligence) is dealing with all aspects of the business, analysing it
On top of these there are company specific systems and modules integrated to its own processes and systems, including external connections such as those related to banking functions.
Raw material procurement in Finland has several specific features, therefore the practical operations are managed by specific programmes, which are geared towards this function.
It is most important to acknowledge the fact that the raw material procurement is a part of the ERP, and also integrated to the ERP system in use. In practice the ERP incorporates both internal and external ICT programmes and messaging, which are required in the running of business processes, everyday routines and plans. The data gained from process automation and manual feeds into the system is then ready to be used and analysed within the operations.
The special feature of the sawmilling industry is the challenge of falling products: in order to produce one product, there are always several other products and by products, which need to be placed as well.
Sawmilling is like a big jigsaw puzzle, where several grades and lengths are being handled simultaneously between different customers and markets in a most profitable way.
In practice the emphasis between products and markets can change very quickly – for instance due to demand, supply or exchange rates. Therefore, sawmilling is nowadays a global business, if one market’s demand alters markedly this will have an immediate effect on the falling products, which may have been going to other countries.
The optimum stock turnover is important in all market conditions, because in sawmilling industry there is a lot of sawmill’s working capital tied to the chain from the forest to the customer.
As noted before, in the sawmill industry the cost of raw material in relation to the endproduct price is exceptionally high at around 70 percent. This is why the optimal utilization of raw material is a must for the business. Good tools to achieve this are the raw material simulation and various profitability calculations take down to a single product level.
The size of the company is an important factor when strategies and operational models are being determined. As a rule of thumb a smaller company can be more flexible in moving volumes from one market to another, whereas the bigger ones are likely to be more committed to its chosen markets. However, as market conditions change in practice all companies do change emphasis between markets and shift some of the volumes to better paying ones.
Regardless the size of the company the goal for every sawmiller is profitability. Efficient sales and production planning are key elements in their efforts to achieve that.
