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DISTRIBUTION LOGISTICS IN THE FINNISH FOREST INDUSTRY November 2002 Department of Forest Economics University of Helsinki Visit http honeybee helsinki fi mmekn fpm toolbox transport distribution htm for updates DISTRIBUTION LOGISTICS IN THE FINNISH FOREST INDUSTRY November 2002 Department of Forest Economics University of Helsinki http honeybee helsinki fi mmekn fpm toolbox transport distribution htm 1 FOREWORD This paper studies the distribution logistics and information systems in the Finnish forest industry Marketing logistics comprises all those sub areas of logistics that are perceivable for the customer and which make sure that the customer receives the right product in the right quantity in the right quality at the right time at the right place Marketing logistics covers physical distribution but it takes into account also those factors and decisions of principle which lay behind the physical functions Thus physical distribution is considered as one sub area of marketing logistics If we would like to discuss also all the other sub areas of marketing logistics e g warehousing decisions logistic make or buy decisions etc this book would have considerably more pages than it currently has Therefore we will now take a look on the most operative area of logistics i e on distribution transports and information system The author conforms to the following conceptual hierarchy logistics management marketing logistics distribution transports information systems In fact logistic management as a science suffers from the multitude of different definitions Finland is situated fairly far away from its main market areas The country suffers also from long inner transport distances and rough natural conditions Whereas a sawmill in southern Sweden is able to deliver sawn timber to Germany within 24 hours a sawmill in the eastern part of Finland has to do with three day delivery times Suomen mets ja puutalous Euroopassa Logistic costs play a major part in the Finnish forest industry They may rise up to 10 15 of the sales price For instance the transport for sawn timber from Finland to Central Europe costs ca 400 FIM ton and the transport of paper products ca 500 FIM ton Finland has distance benefits only to the Russian market the market of which have not so far proved very attractive Suomen mets ja puutalous Euroopassa The significance of appropriate distribution has been strengthened also by changes in the forest industry and its business environment Distribution networks have been expanded to more distant markets Delivery lots have decreased and delivery intervals have shortened Delivery times have shortened and the requirements for punctuality have raised The need for transport information has grown Suppliers have overtaken more responsibilities for deliveries Juslin Neuvonen DISTRIBUTION LOGISTICS IN THE FINNISH FOREST INDUSTRY November 2002 Department of Forest Economics University of Helsinki http honeybee helsinki fi mmekn fpm toolbox transport distribution htm 2 From the forest industry s point of view logistics emphasizes the integrated planning and implementation of the industry s processes such as raw wood procurement production planning and control and physical distribution Paper recycling has brought up a new planning object into the logistic system Juslin Neuvonen The core of logistic problems in business is to balance the opposite costs caused by different business activities so that the total costs are minimized As an example of these kinds of opposite costs we could name the costs of production and warehousing Production favors long drives which minimizes costs per produced unit However long drives lead to raising warehousing costs since it is usually not possible to immediately sell the whole production drive Thus cost reduction in one of the company s activities does not necessarily cause total costs to go down The existence of two opposite costs is still quite easy an optimization task Unfortunately the total logistic system of a company entails a multitude of opposite costs the cost optimum of which is difficult to outline The development of information technology has facilitated the transfer of logistical thinking on to a practical level Juslin Neuvonen In this chapter we take a look at the material flows of the Finnish forest industry We will especially focus on the physical distribution of finished goods In addition to portraying material flows we will also describe the hardware e g trucks ships and containers that is employed in export transports Later on in this chapter we will deal with information flows and information systems MATERIAL FLOWS AND SYSTEMS OF PHYSICAL DISTRIBUTION Material flows The following list and its components present the typical material flow of a Finnish paper product The presented material flow is restricted to virgin fiber The total material flow of a paper product would normally also include some other integrated material flows such as recycled fiber fillers coatings and chemicals There are sub components under the main rubrics The sub components depict the issues that are normally taken into consideration at each step of the material flow However the list is by no means exhaustive TIMBER HARVESTING Harvesting methods Forest haulage Intermediate storage at roadside ROUNDWOOD TRANSPORT Transport modes of roundwood PULP MILL Woodlot measuring Roundwood storage and handling DISTRIBUTION LOGISTICS IN THE FINNISH FOREST INDUSTRY November 2002 Department of Forest Economics University of Helsinki http honeybee helsinki fi mmekn fpm toolbox transport distribution htm 3 Internal transports Production process Pulp storage Transporting pulp to a paper mill Notice Paper mills are often integrated next to pulp mills in Finland If this is the case economic pipelining can be used otherwise other modes of transport must be used PAPER MILL Warehousing and handling of pulp or pipeline connection from an integrated pulp mill Warehousing and handling of roundwood for mechanical pulping Warehousing and handling of recycled paper for de inking Internal transports Production process Warehousing finished products and their handling TRANSPORT OF FINISHED PRODUCTS Handling Transport modes of finished goods Intermediate warehousing and or delivery to the customers The logistic structure of paper industry could be described by the phrase from stump to the customer and back to the mill The purpose of all activities is to achieve the strategic goals of the company with minimal costs Systems of physical distribution The three fundamental constituents of large forest industry companies are Group s logistic services department located in the home country Terminal warehouses in the main market areas and Independent distribution companies operating from these locations Logistic services department is centrally responsible for all transport of goods Independent distribution companies in the main market areas which take care of the distribution from the ports to customers support it Foreign terminal warehouses are important for the distribution logistics of large companies They help to better master the material flow and customer service related to the deliveries The actual transport service is usually bought from external carriers DISTRIBUTION LOGISTICS IN THE FINNISH FOREST INDUSTRY November 2002 Department of Forest Economics University of Helsinki http honeybee helsinki fi mmekn fpm toolbox transport distribution htm 4 We will take a closer look on the physical distribution system of a large forest industry company with respect to export deliveries As an example we examine a multinational corporation X with headquarter in Helsinki Its logistics service department is centrally in charge of transports It arranges transports all the way from different production units of the corporation to the customer s warehouse In order to master delivery arrangement effective implementation planning and control are required A logistic control system is connected with the corporate sales and production planning and control systems Planning the delivery arrangement contains three important areas budgeting routing and development Budgeting refers to annual planning of deliveries Material and monetary flows are planned for the coming year Routing means Information Technology based continuous and real time follow up of transport costs routes and other factors having an influence on transports Its objective is to assign an optimal route for a product customer and at the same time to provide true information to sales on deductible items caused by transports A deductible item is a transport cost in monetary terms which has to be deducted in order to calculate the coverage that is due to the factory Routing makes follow up on the structural changes of approximately 40 000 routes Both economic and technical preparations for future challenges belong to the scope of logistic development As examples of this work one could name preventive work against consignment damage and development work with information systems such as EDIFACT or SAP Operative activities are the most visible parts of a transport system Traffic operators work in the shipment unit of the logistic services department They keep the products flowing Despite of advance agreements and schedules changes frequently occur in the planned product flow For instance production delivery and shipping schedules may change The know how of a traffic operator is emphasized in such situations He she must be familiar with the

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