Simulation-optimisation based framework for Sales and Operations Planning taking into account new products opportunities in a co-production context

The North American lumber industry produces mostly commodity products (i.e. products with standard dimensions and properties). However, some customers also want products showing very specific characteristics. Because sawing involves co-production (many different types of lumbers are obtained from a single tree), sawmills do not know how the introduction of a new “speciality” product will affect quantities for the other products they also produce. We propose a simulation-optimisation based framework to tackle the kinds of problems such as these, where classical formulations cannot be used. A log breakdown simulator is used in combination with a tactical planning model in order to realise Sales and Operations Planning. The plan gives the information to the decision maker about which orders for speciality products should be accepted, what to produce and when, as well as the equipment settings to use and the raw material to buy/consume at each period. Through an industry-inspired case study, we show how the framework can lead to substantial benefits.