Application of Linear Programming to Plywood Manufacture

A linear programming model was developed in 1967 to determine an optimum balance between the available wood mix and the projected sales requirements for known production constraints. Since 1969 this model has been used to analyze potential opportunities and to produce an annual Operating Plan. This Plan contains operating details for raw materials, production and sales. It also contains contingency analyses for major assumptions, which arc analyzed by using parametric techniques. The Operating Plan also ties in with the financial budget.The annual Operating Plan is implemented by scheduling and tracking the mill's production on a biweekly basis. This in turn is achieved through daily scheduling and tracking. Wood, production and shipment schedules consider actual and desired inventories, actual order file, and actual operating conditions, in addition to the targets specified in the Operating Plan. Variances are measured in volumes as well as dollars.A monthly financial variance report analyzes the effect of variances due to price, mix and volume for wood and products on the operating income. Variances due to the mix and volume are emphasized the most and are used to measure the performance of the mill against the Plan, that is the budget. Price variances are mainly controlled by the market forces and hence are reported but not acted upon.As a result of this program the contribution margin of the Division, which is defined as sales income minus the wood costs, has been increased by an average of one million dollars per year between 1970 and 1975 as compared to the base year, 1969.