The Strategic Design of Forest Industry Supply Chains

This paper presents a market‐driven approach to design production‐distribution networks for the lumber industry. The approach is developed to tackle a vast array of issues, from the adaptation of an enterprise supply chain to its evolving environment, such as changing forest policies, to enterprise rationalizations through mergers or acquisitions. The methodology takes into account the specificity of the industry divergent manufacturing processes as well as the lumber market segmentation into contracts, vendor managed inventory (VMI) agreements and spot markets. The approach is based on a comprehensive two‐stage stochastic programming with recourse model. A sample average approximation (SAA) method based on Monte Carlo sampling techniques is proposed to solve this stochastic program, and it is shown that this approach outperforms the use of a comparable deterministic model based on averages. Finally, the decision support system developed to implement the approach is used to show how it can contribute to dealing with strategic issues in the Eastern‐Canadian lumber industry. Forest policy as well as acquisition and rationalization issues are analyzed through applications of the methodology to a virtual but realistic case called Virtu@l‐Lumber.