Finnish Forest Research Institute  Metla

Media release January 31, 2005

Dissertation on rationalization of the production-distribution system in the Finnish nursery industry

Improved cost-efficiency of seedling production through centralization of production at larger nurseries

Production and distribution costs are an important factor in the price construction of seedlings and hence, they affect the profitability of forest planting and the forestry as a whole. Juho Rantala, M.Sc. (Agriculture and Forestry), has studied rationalization of production and distribution of seedlings from the viewpoint of cost-efficiency.

The Finnish forest nursery market encountered a number of significant changes in the 1990s: seedling production was incorporated into independent nursery companies, uniform pricing was dissolved, and annual demand for seedlings dropped by one third, down to the current level of approximately 160 million seedlings. The research work clarifies the role of economies of scale in nursery production and distribution activities. Optimization models for transportation of seedlings and models for improving cost-efficiency in the whole production-distribution chain are also introduced in the doctoral thesis. The main approach used is operations research, but the methods of work studies and business economics are also applied

The research begins by exploring the economic rationality for production phase mechanization, which is followed by a review on transportation costs and finally, an optimal production-distribution network design is presented. The results indicate that mechanization of an individual production phase is profitable only if the annual production volume for a production unit is considerably larger than it is today. On the other hand, centralizing production to fewer large-scale units increases transportation costs. The effects of transportation planning method and different production strategies on the transportation costs of a nursery company were studied by building various virtual models with a different number of nursery units and different levels of production specialization among them. To create optimal transportation plans, linear programming was applied. Here, the best case result was that the transportation plan created for the whole nursery company reduced transportation costs by more than 30% compared with the currently used unit-specific transportation planning.

Furthermore, various mathematical optimization techniques and their suitability for coordination of seedling transportation were studied. In addition, a capacitated mixed integer programming model is introduced for use in cost minimization of the integrated production-distribution network. The performed optimization calculations showed that the number of nursery units was reduced by two to four units from the currently used five units depending on the constraints set for the optimization; production and distribution costs were correspondingly reduced by 11-21 %.

Cost-efficiency of the production-distribution system in a nursery company can be improved through centralized production in larger nursery units. In spite of the incorporation of nursery companies, all large-scale Finnish nursery companies are still owned by institutions that are controlled by the government. Hence, it is relevant to view the results also from the viewpoint of Finnish nursery industry as a whole. Viewed from this perspective, it seems, at least from the standpoint of cost-efficiency of the production-distribution systems, that there are too many nursery units in Finland.

Rantala’s doctoral thesis ”Models for designing the production-distribution system in supply chains of the Finnish nursery industry” is part of the “Technology, organization and logistics in forest nursery economy” initiative run by the Finnish Forest Research Institute, started in 2001. Other research under the same project include topics such as organization of planting work, organization and timing of young stands management, commoditization of silvicultural services and mechanization of planting.

Additional information:

  • Researcher Juho Rantala
    Finnish Forest Research Institute, Suonenjoki Research Station
    tel. +358 10 211 4855, fax +358 10 211 4801
    email: juho.rantala @ metla.fi

Publication:


Press releases in English are available at: http://www.metla.fi/ajankohtaista/index-en.htm   Metlan RSS-newsfeed
Finnish Forest Research Institute - Metla/Communications
Unioninkatu 40 A, FI-00170 HELSINKI, FINLAND. Phone +358 10 211 2000    E-mail: info @ metla.fi