Optimization of raw material procurement at pulp or paper mills - the influence of weather-related risks

There are usually many sources for the supply of raw material to a pulp or paper mill in Sweden. Optimization of this supply is therefore a challenging task, and can only be managed properly if all aspects of risk are considered. In our study, these risks are related to when the weather reduces the load-bearing capacity of the ground or the roads. A stochastic and a deterministic model have been formulated, and they have been solved with mixed-integer quadratic programming and tested with data from a Swedish forest company. The results of this study show that the option value is greater than zero and that both the optimal policy and the option value change whenever the storage cost is altered. This shows that the optimal planning policy obtained from the stochastic model differs from the solution of the deterministic model.