Case Studies

Lumber in Mexico

Ray, Asim, Emma E. DeFalomir, and Leon Lasdon. "An Optimization-Based Decision Support System for a Product Mix Problem." Interfaces, Vol. 12, No. 2 (1982), pp. 26-31

The use of linear programming to solve real life production problems is often hindered by two factors. One is that the terminology used in optimization problems is often mathematical in context and difficult for managers to follow and thus adopt. Secondly, management will often want an immediate answer and coming up with the correct optimization code can take time.

Linear programming was used in finding the optimal product mix in plywood manufacturing at Canadian Forest Products, Ltd. Due to the success of this company, the same idea was used in the same context at Plywood Ponderosa de Mexico, S.A.

Plywood Ponderosa de Mexico produces 85 million square feet of plywood each year. The demand for the type of wood needed is seasonal. In the winter, plywood is needed primarily for furniture manufacturing. In the summer, the construction industry is the main consumer of plywood .

Plywood Ponderosa de Mexico has 3 subsidiary companies that supply logs and there are 4 grades of logs used. A large number of different panel grades and thickness are used. This makes the product mix formulation complex. There are over 90 variables and 45 constraints.

By using linear programming, Plywood Ponderosa de Mexico found that its earlier production of thicker plywood was not the most profitable. The model showed that thinner grades gave the most profit and the company was able to increase its profits by 20%.

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