Johannes Windisch , Lauri Sikanen, Dominik Röser, David Gritten

Supply chain management applications for forest fuel procurement – cost or benefit?

Windisch J., Sikanen L., Röser D., Gritten D. (2010). Supply chain management applications for forest fuel procurement – cost or benefit? Silva Fennica vol. 44 no. 5 article id 124. https://doi.org/10.14214/sf.124

Abstract

It is commonly agreed that logistics is very demanding in forest fuel business. Even though logistics and supply chain management (SCM) tools already have found their way into forestry business, for example, in roundwood operations, they are not yet very widespread in the field of forest fuel procurement. The present study investigates if modern supply chain management applications are capable of increasing the profitability of forest fuel procurement operations. Since margins are low, decreasing the provision costs could boost wood-based bioenergy business. The study is based on the investigation of two Finnish forest owners associations (FOA) involved in forest fuel procurement using a modern SCM tool. The investigation is done by cost-benefit analysis (CBA) using the net present value (NPV) methodology to determine the profitability. According to the estimates made by the staff, which are based on data such as work time records and delivery notes from before and after introduction of the new system, in both FOAs, the benefits far outweigh the costs over a considered timespan of ten years. However, the amount of the NPV varied significantly. For FOA1, with an annual chip production of 150 000 loose m3, the NPV is 212 739 euro, while for FOA2, with an annual chip production of 37 000 loose m3, the NPV is 969 841 euro. Even if the NPV of FOA2 seems to be very high, the profitability of SCM tools in forest fuel procurement is clearly demonstrated. Additionally, the results indicate that a considerable cost saving potential in forest fuel procurement is attainable through improving work flows and thus reduce the work input.

Keywords
logistics; forest fuel; supply chain management; cost-benefit analysis

Received 17 August 2009 Accepted 15 October 2010 Published 31 December 2010

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