The Canadian Pulp and Pulp (P&P) industry has been recently confronted by shrinking markets and tighter profit margins. Transforming P&P mills into Integrated Forest Biorefineries (IFBR) is a prominent solution to save the struggling industry and allow diversification towards the promising bioproducts markets. The implementation of such a strategy is a complex process that faces many sources of uncertainty. Therefore, the industry is in need for a planning tool that facilitates the IFBR network design by taking the uncertain market conditions into consideration.
First, we propose a mixed integer programming model to optimize the investment plan in addition to other tactical decisions over a long term planning horizon. We test the model using a realistic case study for Canadian P&P companies, where we perform a set of sensitivity analysis tests in terms of bioproduct demand and energy prices. Our results showcase the potential of the IFBR to help the P&P industry and highlight the substantial impact of the bioproduct demand on its profitability.
Second, we develop a Multi-stage Stochastic Programming model which explicitly incorporates the demand uncertainty. We also develop a simulation platform to validate the model and compare its performance with alternative decision models. We assess the value of incorporating demand uncertainty in the planning process and we also elaborate on the value of flexibility in terms of adjusting the investment plan in response to changes in market trends. Our results demonstrate the significant value of explicitly incorporating the uncertainty in IFBR network design as well as flexibility in the investment plan.