1/7/2016 Northwest Newsprint

Q1. Northwest Newsprint as a Linear Program Formulation

To formulate the Northwest Newsprint production-distribution problem as a linear function we need to

define the decision variables, objective function and constraints.

Decision Variables (A-W): Transportation Routes

Decision Profit
Mill Destination Revenue/Ton Prod Cost Ship Cost
Variables Margin
a 55608 Spruce Chicago $ 750 $ 89.77 $ 390 $ 270.23
b 64976 Spruce Dallas $ 750 $ 162.24 $ 390 $ 197.76
c 0 Spruce New Orleans $ 750 $ 166.18 $ 390 $ 193.82
d 23832 Spruce Denver $ 750 $ 151.77 $ 390 $ 208.23
e 0 Spruce San Francisco $ 750 $ 151.11 $ 390 $ 208.89
f 40727 Naomee Seattle $ 750 $ 46.68 $ 415 $ 288.32
g 0 Naomee Chicago $ 750 $ 128.82 $ 415 $ 206.18
h 27704 Naomee Dallas $ 750 $ 204.13 $ 415 $ 130.87
i 92680 Naomee New Orleans $ 750 $ 195.08 $ 415 $ 139.92
j 0 Naomee Denver $ 750 $ 162.83 $ 415 $ 172.17
k 22401 Naomee Los Angeles $ 750 $ 147.46 $ 415 $ 187.54
l 52960 Naomee San Francisco $ 750 $ 115.49 $ 415 $ 219.51
m 0 Naomee Vancouver $ 700 $ 72.42 $ 415 $ 212.58
n 0 Naomee Calgary $ 700 $ 77.50 $ 415 $ 207.50
o 0 Duchesne Seattle $ 750 $ 52.80 $ 415 $ 282.20
p 0 Duchesne Chicago $ 750 $ 97.17 $ 415 $ 237.83
q 0 Duchesne Dallas $ 750 $ 210.42 $ 415 $ 124.58
r 0 Duchesne New Orleans $ 750 $ 200.62 $ 415 $ 134.38
s 0 Duchesne Denver $ 750 $ 142.82 $ 415 $ 192.18
t 189440 Duchesne Los Angeles $ 750 $ 150.14 $ 415 $ 184.86
u 0 Duchesne San Francisco $ 750 $ 124.83 $ 415 $ 210.17
v 32581 Duchesne Vancouver $ 700 $ 42.17 $ 415 $ 242.83
w 8145 Duchesne Calgary $ 700 $ 87.94 $ 415 $ 197.06
*Canadian destinations are highlighted in red

Objective Function: profit margin of each transportation route * tonnes of newsprint shipped along
each of these routes = a*270.23+b*197.76+c*193.82+d*208.23+e*208.89+f*288.32+g*206.18+h*130.
87+i*139.92+j*172.17+k*187.54+l*219.51+m*212.58+n*207.50+o*282.20+p*2
37.83+q*124.58+r*134.38+s*192.18+t*184.86+u*210.17+v*242.83+w*197.06

Constraint 1: Production Capacity

Spruce (a-e) Total Capacity <= 166,320
Naomee (f-n) Total Capacity <= 272,340
Duchesne (o-w) Total Capacity <= 265,077
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Constraint 2: Operation Level  Must operate 6/7 days (85.741% uptime)

Spruce (a-e) Total Operating Level >= 133,056
Naomee (f-n) Total Operating Level >= 217,340
Duchesne (o-w) Total Operating Level >= 212,062

Constraint 3: Distribution Center Volume

Seattle Total Demand = 40,727
Chicago Total Demand = 55,608
Dallas Total Demand = 92,680
New Orleans Total Demand = 92,680
Denver Total Demand = 23,832
Los Angeles Total Demand = 211,841
San Francisco Total Demand = 52,960
Vancouver Total Demand = 32,581
Calgary Total Demand = 8,145

Q2. LP Solution Results

Decision Profit
Mill Destination Revenue/Ton Prod Cost Ship Cost
Variables Margin
A - Spruce Chicago $ 750 $ 89.77 $ 390 $ 270.23
B 92,680 Spruce Dallas $ 750 $ 162.24 $ 390 $ 197.76
C 73,640 Spruce New Orleans $ 750 $ 166.18 $ 390 $ 193.82
D - Spruce Denver $ 750 $ 151.77 $ 390 $ 208.23
E - Spruce San Francisco $ 750 $ 151.11 $ 390 $ 208.89
F 40,727 Naomee Seattle $ 750 $ 46.68 $ 415 $ 288.32
G - Naomee Chicago $ 750 $ 128.82 $ 415 $ 206.18
H - Naomee Dallas $ 750 $ 204.13 $ 415 $ 130.87
I 19,040 Naomee New Orleans $ 750 $ 195.08 $ 415 $ 139.92
J - Naomee Denver $ 750 $ 162.83 $ 415 $ 172.17
K 111,800 Naomee Los Angeles $ 750 $ 147.46 $ 415 $ 187.54
L 52,960 Naomee San Francisco $ 750 $ 115.49 $ 415 $ 219.51
M - Naomee Vancouver $ 700 $ 72.42 $ 415 $ 212.58
N 8,145 Naomee Calgary $ 700 $ 77.50 $ 415 $ 207.50
O - Duchesne Seattle $ 750 $ 52.80 $ 415 $ 282.20
P 55,608 Duchesne Chicago $ 750 $ 97.17 $ 415 $ 237.83
Q - Duchesne Dallas $ 750 $ 210.42 $ 415 $ 124.58
R - Duchesne New Orleans $ 750 $ 200.62 $ 415 $ 134.38
S 23,832 Duchesne Denver $ 750 $ 142.82 $ 415 $ 192.18
T 100,041 Duchesne Los Angeles $ 750 $ 150.14 $ 415 $ 184.86
U - Duchesne San Francisco $ 750 $ 124.83 $ 415 $ 210.17
V 32,581 Duchesne Vancouver $ 700 $ 42.17 $ 415 $ 242.83
W - Duchesne Calgary $ 700 $ 87.94 $ 415 $ 197.06
*Canadian destinations are highlighted in red
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Production Before Production After

Δ Production
Optimization Optimization
Spruce 144416 166320 7.05%
Naomee 236472 232672 -0.81%
Duchesne 230166 212062 -4.09%
Profit $ 121,537,867 $ 125,500,604 1.60%
The LP solution allocates the production capacity between plants more efficiently to optimize profit
based on transportation and production costs.

Q3. Freight Discounts

Decision Profit
Mill Destination Revenue/Ton Prod Cost Ship Cost
Variables Margin
A - Spruce Chicago $ 750 $ 89.77 $ 390 $ 270.23
B 92,680 Spruce Dallas $ 750 $ 162.24 $ 390 $ 197.76
C 73,640 Spruce New Orleans $ 750 $ 166.18 $ 390 $ 193.82
D - Spruce Denver $ 750 $ 151.77 $ 390 $ 208.23
E - Spruce San Francisco $ 750 $ 151.11 $ 390 $ 208.89
F 40,727 Naomee Seattle $ 750 $ 46.68 $ 415 $ 288.32
G - Naomee Chicago $ 750 $ 128.82 $ 415 $ 206.18
H - Naomee Dallas $ 750 $ 204.13 $ 415 $ 130.87
I 19,040 Naomee New Orleans $ 750 $ 195.08 $ 415 $ 139.92
J - Naomee Denver $ 750 $ 162.83 $ 415 $ 172.17
K 111,800 Naomee Los Angeles $ 750 $ 147.46 $ 394 $ 208.29
L 52,960 Naomee San Francisco $ 750 $ 115.49 $ 415 $ 219.51
M - Naomee Vancouver $ 700 $ 72.42 $ 415 $ 212.58
N 8,145 Naomee Calgary $ 700 $ 77.50 $ 415 $ 207.50
O - Duchesne Seattle $ 750 $ 52.80 $ 415 $ 282.20
P 55,608 Duchesne Chicago $ 750 $ 97.17 $ 415 $ 237.83
Q - Duchesne Dallas $ 750 $ 210.42 $ 415 $ 124.58
R - Duchesne New Orleans $ 750 $ 200.62 $ 415 $ 134.38
S 23,832 Duchesne Denver $ 750 $ 142.82 $ 415 $ 192.18
T 100,041 Duchesne Los Angeles $ 750 $ 150.14 $ 394 $ 205.61
U - Duchesne San Francisco $ 750 $ 124.83 $ 415 $ 210.17
V 32,581 Duchesne Vancouver $ 700 $ 42.17 $ 415 $ 242.83
W - Duchesne Calgary $ 700 $ 87.94 $ 415 $ 197.06

Production Before 100K Tonne Discount

Δ Production
Optimization (NM/DU-LA)
Spruce 144416 166320 7.05%
Naomee 236472 232672 -0.81%
Duchesne 230166 212062 -4.09%
Profit $ 121,537,867 $ 129,896,305 3.32%
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Based on the optimal solution Northwest Newsprint can benefit from the 5% reduced ship rates for
shipments above 100,000 tonnes on the Naomee-Los Angeles and Duchesne- Los Angeles.

Q4. Delivery Swap

Given the distribution map and transportation costs it is evident that the transportation route between
Naomee Mills and New Orleans could benefit from a delivery swap arrangement. Under the optimized
solution, this would require the least amount of production (19,040 tonnes) to be transferred to one of
the US mills.

Q5. Convert Machine at Naomee

Converting the 58,000 tonne machine at Naomee would decrease the production capacity and operating
level at the Naomee facility subject to the highlighted constraints below:

Constraint 1: Production Capacity

Spruce (a-e) Total Capacity <= 166,320
Naomee (f-n) Total Capacity <= 214,340
Duchesne (o-w) Total Capacity <= 265,077

Constraint 2: Operation Level  Must operate 6/7 days (85.741% uptime)

Spruce (a-e) Total Operating Level >= 133,056
Naomee (f-n) Total Operating Level >= 183,777
Duchesne (o-w) Total Operating Level >= 212,062
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Decision Profit
Mill Destination Revenue/Ton Prod Cost Ship Cost
Variables Margin
A - Spruce Chicago $ 750 $ 89.77 $ 390 $ 270.23
B 92,680 Spruce Dallas $ 750 $ 162.24 $ 390 $ 197.76
C 73,640 Spruce New Orleans $ 750 $ 166.18 $ 390 $ 193.82
D - Spruce Denver $ 750 $ 151.77 $ 390 $ 208.23
E - Spruce San Francisco $ 750 $ 151.11 $ 390 $ 208.89
F 40,727 Naomee Seattle $ 750 $ 46.68 $ 415 $ 288.32
G - Naomee Chicago $ 750 $ 128.82 $ 415 $ 206.18
H - Naomee Dallas $ 750 $ 204.13 $ 415 $ 130.87
I 19,040 Naomee New Orleans $ 750 $ 195.08 $ 415 $ 139.92
J - Naomee Denver $ 750 $ 162.83 $ 415 $ 172.17
K 111,800 Naomee Los Angeles $ 750 $ 147.46 $ 394 $ 208.29
L 52,960 Naomee San Francisco $ 750 $ 115.49 $ 415 $ 219.51
M - Naomee Vancouver $ 700 $ 72.42 $ 415 $ 212.58
N 8,145 Naomee Calgary $ 700 $ 77.50 $ 415 $ 207.50
O - Duchesne Seattle $ 750 $ 52.80 $ 415 $ 282.20
P 55,608 Duchesne Chicago $ 750 $ 97.17 $ 415 $ 237.83
Q - Duchesne Dallas $ 750 $ 210.42 $ 415 $ 124.58
R - Duchesne New Orleans $ 750 $ 200.62 $ 415 $ 134.38
S 23,832 Duchesne Denver $ 750 $ 142.82 $ 415 $ 192.18
T 100,041 Duchesne Los Angeles $ 750 $ 150.14 $ 394 $ 205.61
U - Duchesne San Francisco $ 750 $ 124.83 $ 415 $ 210.17
V 32,581 Duchesne Vancouver $ 700 $ 42.17 $ 415 $ 242.83
W - Duchesne Calgary $ 700 $ 87.94 $ 415 $ 197.06

Production Before 58,000 Tonne

Δ Production
Optimization Reduction @ Naomee
Spruce 144416 166,320 7.05%
Naomee 236472 214,340 -0.81%
Duchesne 230166 230,394 -4.09%
Profit $ 121,537,867 $ 127,907,714 2.55%

Converting the Naomee Mills machine would only increase profits by 2.55% as compared to the possible
3.32% that could be achieved through optimal route design alone. However, given that Groundwood
specialties is a faster-growing segment currently operating at 96% capacity; Northwest could use this
opportunity to create additional capacity in the Groundwood segment at a minimal cost, with less than
1% reduction in profits.
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Q6. Optimistic vs Pessimistic Demand Conditions

Production Before
Optimistic Demand Δ Production
Optimization
Spruce 144416 166,320 7.05%
Naomee 236472 272,340 -0.81%
Duchesne 230166 236,928 -4.09%
Profit $ 121,537,867 $ 144,659,511 8.69%
Under optimistic demand conditions there are favorable increases in productivity and profit.

Production Before
Pessimistic Demand Δ Production
Optimization
Spruce 144416 166,320 7.05%
Naomee 236472 272,340 -0.81%
Duchesne 230166 236,928 -4.09%
Profit $ 121,537,867 $ 97,899,782 -10.77%
Under pessimistic demand conditions there is no feasible solution for optimization based on the
allocated demand constraints leading to a 10.77% decrease in production and profits.