Planning, scheduling, and IBP models at Grupo Arauco

Arauco is a Chilean company present in multiple countries. Its business lines are pulp, wood, and panels, with production plants in four or five countries across Latin America.

Its goal, in its own team's words, is to be as efficient an integrated company as possible; given its size, it must constantly look for new decision-support tools.

The growth of Arauco Maderas created new businesses, products, and markets, and with them the underlying question: how to optimize the allocation of demand to its sawmills, given the raw material available from the forestry side.

Capacity planning depended on manual work: one person spent one or two days downloading, merging, and standardizing information to deliver a single solution at the end of the week. On top of that, the project had a demanding six-to-seven-month deadline.

“We needed a system that could generate fast solutions, institutionalizing the planning process to create scenarios without depending on a single person.”

The relationship began with optimization workshops in the logistics area, where Arauco's team worked through how to optimize its processes and the role analytics plays in those decisions. Three successive projects in the wood business came out of that.

Aleph5 formulated and developed the mathematical model that represents the Arauco Maderas business. Formulation was treated as the key step: it is what ensures the right problem gets solved. The model considers economic profit, demand coverage, utilization of productive resources, capacity by plant and location, differentiated costs by line, logistics costs between plants and ports, pricing policies by market, and third-party supply.

The proof of concept was built in Ernest 4.0 together with the Gurobi solver, and in 2019 the model was implemented in an institutional planning system that considers business processes and rules and optimizes production capacity.

• Capacity: optimizing plant load based on raw material supply.
• IBP: a model that replaced the previous tool supporting the S&OP process.
• Scheduling and sequencing: systematizing planning in the panels area.

The capacity project is the most mature. What used to take one or two days of preparation to deliver a weekly solution now produces new solutions in roughly three hours, and the team runs four to five optimizations per week.

The deeper change is in what people spend their time on: from collecting and standardizing information to analyzing opportunities and making decisions with real impact on the company.

“We have moved from having people spend part of their time collecting and standardizing information, and only then analyzing. Today that process is simplified and our people focus on spotting new opportunities and making fast decisions that have an impact on the company: that is the main benefit.”

Arauco's team compares Aleph5's approach with other consultancies: in previous projects the solution was defined without spending time questioning how things are done or what the added value is, and by implementation time validations were missing.

The formulation phase — taking the time to think through and write the rules properly before building — is what Arauco highlights as the difference, along with the experience of the assigned team and its ability to quickly understand the client's process.

“With Aleph5's approach, the formulation phase has brought us very good benefits: when the project enters the testing phase almost everything is correct, we don't run into many surprises, and that ensures we deliver on the timelines we are aiming for.”

Nelson Olavarria shares his experience with the implementation of models for Grupo Arauco's different decision-making levels:

Nelson Olavarria, Deputy Manager of Supply Chain Systems Development