Internal supply chain management in the Chilean sawmill industry

Purpose – The existing business paradigm in the sawmill industry is that improvements are achieved by enhancements at each individual sawmilling plant. The authors investigate a collaborative approach, and propose a model for optimizing production and inventory planning decisions within a system of plants. Design/methodology/approach – The methodology models the sawmill production process in terms of two transformation stages and two inventory stages. The authors then extend the model to account for supply chain decisions consisting of timber transfers among plants. They apply the model at 11 Chilean sawmills to evaluate whether they can benefit from operating in a more integrated manner. Findings – The authors find an opportunity to increase profits by more than 15 percent through a higher utilization of the capacity and a better assignment of production orders. Research limitations/implications – The study neglects the possibility of exchanging raw material among plants. Also, the findings are derived from a computational simulation, so are estimates, not actual observations. Practical implications – The study challenged the business paradigm of the company the authors performed the study for. Now, it is implementing the suggested improvements. Originality/value – An investigation into how a number of sawmilling companies working together can profit from their distinctive competitive advantages, and which proved successful in challenging one company's business paradigms.