A simulation-based optimization approach to integrated inventory management of a sawlog supply chain with demand uncertainty

This paper develops a simulation-based optimization supply chain model for supplying sawlogs to a sawmill from a forest management unit. The simulation model integrates the two-way flow of information and materials under the stochastic demand of the sawmill production unit. The dynamic optimization model finds the optimum inventory policy (s, S) that minimizes the total inventory cost for the three supply chain agents - sawmill storage, merchandizing yard, and forest management unit. The model is used to analyze a real sawmill case study in northwestern Ontario, Canada. It was found that the merchandizing yard absorbs shocks of uncertain demand from the sawmill production unit and reduces idle time, but it increases the total cost of the supply chain by $11 802 (about 42%). The optimized model predicts that only 3.5 days of inventory is required at the sawmill storage. The simulation-based optimization supplier model will help in decision-making at the tactical and operational level in the forest products industry supply chain through a two-way flow of information and materials.