Expert Answers

NEW JERSEY INSTITUTE OF TECHNOLOGY

CASE STUDY I

SOUTHERN MISSISSIPPI PULP & PAPER COMPANY (SMP&P)

BACKGROUND

SMP&P is a fully integrated paper company with extensive holdings in woodlands, several large mills, and nationwide distribution facilities.  The company manufactures a wide variety of paper products under its own brand name, and a more limited product line under contract for private distributors.  SMP&P’s oldest mill, Bayou 1, is located in Pass Christian, Mississippi and produces four major products; book paper, coarse paper, container board and food board.  The flow of materials through the mill is illustrated below:

                                               KRAFT                                               BEATING

           CHIPPING              PULPING

                                                                                                         MACHINING

hardwood                                    

                                                 BLEACHING                                                                                        book paper

                                                                                                                                                                                                 coarse paper

softwood

                                                                                                                    container

                                 SEMI-CHEMICAL PULPING                                                                        board                  

                                                                                                                     food board

PROCESS DESCRIPTION

The milling process begins with chipping in which two different grades of hardwood and one type grade of softwood are used as inputs.  After chipping, the hardwood outputs enter Kraft pulping or semi-chemical pulping.  The softwood and hardwood outputs from chipping enter the Kraft pulping operation.  Some of the hardwood outputs from chipping transverse through semi chemical pulping process.  No softwood chipping outputs can enter semi chemical pulping.  From Kraft pulping, some products enter the bleaching stage while others go directly through beating.  Semi-chemical pulping products go directly to the beating stage process.  The outputs of the beating process are inputs into machining which produces the four major products, book paper, coarse paper, container board and food board.

Hardwood and softwood inputs for chipping are available from internal company sources in limited quantities.  Additional quantities can be purchased at a slightly higher cost.  The related availability’s and costs are as follows:

                                                INTERNAL SOURCES          INTERNAL                 EXTERNAL                WOOD TYPE               IN TONS PER YEAR COST                          COST             

            Hardwood - grade 1     110,000 tons per year              $18 per ton                  $18.65 per ton

            Hardwood - grade 2     88, 500  tons per year              $18.10 per ton             $18.20 per ton

            Softwood                     160,000 tons per year              $19 per ton                  $ 20.95 per ton

When required, up to 15,000 tons per year of softwood Kraft pulp can be purchased.  Quantity discounts are available on these purchased quantities so that the first 5000 tons/yr. would cost $57/ton while the second 10,000 tons/yr. cost $53/ton.  This purchased pulp cannot be bleached and is used as an input into the beating process.

The following process yields (tons output/tons input) and capacities (tons input/year) were provided by the operations manager:

                                                                                    YIELDS

 PROCESS                  HARDWOOD - 1       HARDWOOD - 2       SOFTWOOD  CAPACITIES

   Chipping                             .969                            .942                           .98                  700,000     

   Kraft Pulping          .88                              .88                             .88                  130,000

   Semi- Chemical Pulping    .765                              .755                           ----                             125,000

   Bleaching                            .90                              .90                             .825                170,000

   Beating                               .99                              .99                             .99                  300,000

   Machining                           .98                              .98                             .98                  285,000

MARKET DEMANDS & OTHER REQUIREMENTS

The four final products must be composed of at least 25% of grade 1 hardwood and at least 50% softwood.  At least 10% of the composition must consist of outputs from the bleaching process.  Due to contractual requirements a minimum of 33,400 tons of coarse paper, 117,800 tons of container board and 61,500 tons of food board must be produced in the upcoming year.  SMP&P marketing has determined that all of the book paper that can be produced will be sold as well as any excess of the other three products above there minimum requirement.

OPERATIONAL COSTS

Company records show that variable operating cost ($/ton output) for each process are defined as follows:

 PROCESS                                          OPERATING COST

   Chipping                                               $ 2.40 per ton          

   Kraft Pulping                            $ 13.12 per ton

   Semi- Chemical Pulping                        $ 18.98 per ton

   Bleaching                                              $  6.03 per ton

   Beating                                                 $    .77 per ton

   Machining                                             $  7.16 per ton

Book paper sells for $210 per ton, $125 per ton for coarse paper, $133 per ton for container board and $128 per ton for food board.

QUESTIONS  

A. Develop and solve a linear programming model to determine output and input requirements which will maximize profits.

 B. Senior management is considering implementing modifications to the Bayou 1 plant to increase output capacity.  Due to budget constraints only one operation or process can be modified.  The cost of increasing capacity is approximately the same for each operation and would result an     increase of capacity by 10%.  Which operation (process) would you recommend to increase capacity.  Support your answer with analysis.