Impact of Over-Run on Profitability of Hardwood Sawmills

Charles D. Ray, Vijay Wadhwa, Judd H. Michael

Abstract


The objective of this paper is to ascertain if the common sawmill efficiency measure, over-run, bears a significant relationship to the ultimate measure of efficiency-profitability. A data set of log grades and lumber yields from twelve batches of red oak logs, representing about four weeks of production, was collected from a mill in central Pennsylvania. The over-run and actual profitability of each batch were calculated from mill results. For comparison, each batch was optimized through a linear programming technique to determine potential mill profitability under prevailing log and lumber prices; the corresponding over-run of each optimized batch was calculated. Stepwise linear regression techniques were utilized to prove a hypothesis that no relationship exists between over-run and profitability, either actual profit as realized by the sawmill studied or theoretically optimal profit as determined by a linear programming solution. Simple linear regression was then used to validate the result. The study demonstrates clearly that, in this case, over-run is not a predictor of profitability, and as influenced by a company's choice of log scale, is merely a relative measure of operational efficiency that may lead to mistaken assumptions about mill profitability.

Keywords


Over-run;optimal profitability;sawmill efficiency;stepwise linear regression;log scales

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