The encyclopedia · Engineering & Operations · Strategic decision · 2008–2010
Norske Skog used OR to close two mills and a machine, saving $100m a year.
As newsprint demand fell, the papermaker used mixed-integer programming to cut capacity and re-plan supply, saving $100m a year plus $18m of tactical gains.
Norske Skog
the move
Global papermaker Norske Skog had seen demand for its products fall for a decade as electronic media displaced newsprint, forcing hard choices such as closing production lines and entire mills.
Operations research models became central to the company's decisions, covering tactical supply-and-production planning and the strategic capacity problem over its global network of mills, machines, inventory and transport.
Tactical use of the models saved US$8 million a year in Australasia and US$10 million in Europe; in 2008 the board used a model to decide to close two paper mills and a paper machine, saving the company US$100 million a year versus the status quo, equivalent to about 3% of revenue.
why it works
- Declining demand makes capacity the leverage point
- Which plant to close is not obvious to human judgement
- A network model makes an irreversible decision defensible
- Measured: $100m a year from closures and $18m tactically
what transfers
Shrinking is also an optimization problem: the cheapest plant to close is not obvious, and a network model makes irreversible capacity cuts defensible and worth millions.
what came after
Norske Skog's board made a major capacity decision on the basis of the model, and the paper became a finalist for the 2009 Franz Edelman Award, showing how OR can guide both day-to-day supply planning and expensive structural change.
references
- Norske Skog Improves Global Profitability Using Operations Research (abstract)
- Norske Skog improves global profitability using operations research
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