Wood Logistics Case Study: Rayon Sales

With the reduction in the government custom duty from 25 to 10 percent in the rayon pulp segment in the financial year 1997, the prices in international market dropped remarkably by about 40%. This had put the company in immense pressure. So the company had no other option but to increase its production level to the twice of its current status. Also cutting the costs considerably was also a major focus. to gear up for doubling the production level, it also had to cut its costs substantially.
Thus to increase the Rayon pulp production, the major weightage should be given to managing the wood consumption. The problem of wood logistics was a critical one as the company generally held six months of Woodstock in its wood yard.
Different options

In the last four years the proportion of Eucalyptus had never gone below 50% but at the same time there was a month when the company operated with a high proportion of eucalyptus as 70%.
2) Fixing the contract with the Suppliers
Since the company follows the fixed price contract with the suppliers irrespective of the moisture content in the incoming wood, doing this would help in:
• Reduction in the cost as less quality check personnel involvement would be needed
• Given the crunch of suppliers in the Andhra Pradesh region, it would certainly help in maintaining good relations with suppliers
• Good relations with suppliers will help in avoiding the cost of getting wood from far off places 3) Managing multiple grades and products
Since the company would like to expand its RG pulp manufacturing, the demand of the product might get decreased. Hence the company should look at other feasible options like paper pharmaceutical and textile industries.
4) Maintaining low level of inventory (not more than 3