The effect of flexible lead times on a paper producer

Current competitive conditions in the paper markets have forced the producers to look for new ways of reducing their inventory. However, too often the production planning and inventory management are decoupled activities. Coordination between these activities needs to be done in order to successfully decrease the inventories at hand, especially when considering the characteristics of a special business context, the paper making industry. Also, flexibility is of great importance in a production–distribution network. There is an ongoing debate about who should provide the flexibility and in what form. We believe that the flexibility should be in the form of flexible lead times towards the producer and not – as is the tradition – among the distributors. But even if such an agreement with the lead times is made, it is not trivially self-evident how to use the flexibility in the right way in order to get an optimal improvement of operations. In this paper, two sets of mixed integer linear programming models with a fixed time-horizon will be presented: one combined production and inventory model (for the producer) with fixed lead times and one with flexible lead times. The models are solved with both an MILP-solver and a genetic algorithm. The data are obtained from a Nordic tissue producer in order to test the models and to quantify the effects of flexible lead-times on a producer’s production and inventory costs.