Northwest Newsprint Inc. (A) Harvard Case Solution & Analysis

Introduction

Northwest Clark Inc., is one of the largest producer of the Newsprint and placed among one of the five largest forest products companies in the industry. The plants and mills of the company are located in the United States and Canada whereas, the sales of the company is divided into Six product lines that include newsprint, ground wood papers, fine papers, building products and lumber .

However, in the year 1986 Northwest Clark Inc established Newsprint Inc as a separate subsidiary due to the growing importance of newsprint in the industry along with the responsibility for all of the Northwest Clark pulp and paper operations. The pulp and paper operations of the company are utilized around 85% of the capacity. By the year 1990, it was indicated that some products of the company were made by efficiently using the available resources as compared to other products. The highly efficient use of the available capacity is important in order to achieve the profitability in the highly competitive and capital sensitive market conditions.

Problem statement

Northwest Newsprint is recently facing the challenges in order to identify the ways that help them to reduce the cost of their business operations (Cost saving). The company is concerned about the appropriate options that will be useful in differing demand conditions.

Case Analysis

The topics that are covered in the report include:

  • Recommendation on the specific delivery swaps arrangements that help Northwest to improve its bottom line.
  • Recommendation on conversion of newsprint machine at Naomee Mills into ground wood specialties.
  • Formulation of the problem as a linear program and its benefits.

Part A

Question1

Northwest Newsprint should supply the delivery of Newsprint to the suppliers that charge the minimum cost for it. In addition to this, the company needs to sign a contract with those suppliers in order to meet the demand of the customers that costs around 0.45 per tonne for the Spruce Mills whereas, 0.43 per tonne for Naomee Mills and Duchesne each. However, it will allow Northwest Newsprint to achieve the minimum cost for the production of the Newsprint per tonne. However, this SWAP arrangement will help Northwest Newsprint to improve its bottom line at cost effective manner.

Question 2

At present, it is not significant for Northwest Newsprint to convert the 58,000 tonnes per year machine at Naomee Mills into ground wood specialties. Currently, the ground wood papers operation of the company is utilizing its maximizing capacity so it is not possible to utilize the capacity more than its given limitations. In addition to this, the Northwest Newsprint capacity utilization of the ground wood papers operations is at 96.4% of the annual production, since the ground wood papers business of the company is operating at its full capability.

Part B

Question 1

How does the solution differ from the original allocation?

Problem Formulation Model

Equation

MinZ: 390X+415Y+415Z

 variables

X1

X2

X3

Coefficients

390

415

415

solution

0.45

0.43

0.43

 minimum cost value

533.66

Subject to:

constraints  1

462

0

0

<=

166,320

constraints  2

0

756

0

<=

272,340

constraints  2

0

0

737

<=

265077

LHS

RHS

constraints  1

                      206

         166,320

constraints  2

                      328

         272,340

constraints  3

                      320

         265,077

constraints  1=462X+0Y+0Z

X1=

Spruce Millsconstraints  2=0X+756Y+0Z

X2=

Naomee Millsconstraints  3=0X+0Y+737Z

X3=

Duchesne

 

This solution is different from the original allocation of the newsprint per tonne due to several factors. Firstly, it includes the objective to overcome the existing problems of the company. Secondly, it includes the constraints for achieving the objective that is not considered in the original allocation. However, the objective equation of the solution is MinZ: 390X1+415X2+415X3 that includes the coefficients where X1 represents the Spruce Mills, X2 represents Naomee Mills and X3 denotes the Duchesne. The main purpose of this model is to allocate the supplies among the different distribution channels in a way that results in the cost saving.................................

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