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Article Excerpt
The Norwegian company Omya Hustadmarmor supplies calcium carbonate slurry to European paper manufacturers from a single processing plant, using chemical tank ships of various sizes to transport its products. Transportation costs are lower for large ships than for small ships, but their use increases planning complexity and creates problems in production. In 2001, the company faced overwhelming operational challenges and sought operations-research-based planning support. The CEO, Sturla Steinsvik, contacted More Research Molde, which conducted a project that led to the development of a decision-support system (DSS) for maritime inventory routing. The core of the DSS is an optimization model that is solved through a metaheuristic-based algorithm. The system helps planners to make stronger, faster decisions and has increased predictability and flexibility throughout the supply chain. It has saved production and transportation costs close to US$7 million a year. We project additional direct savings of nearly US$4 million a year as the company adds even larger ships to the fleet as a result of the project. In addition, the company has avoided investments of US$35 million by increasing capacity utilization. Finally, the project has had a positive environmental effect by reducing overall oil consumption by more than 10 percent.
Key words: transportation: freight, materials handling; decision analysis: multiple criteria.
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The Omya Group is the major shareholder of Omya Hustadmarmor, a production company located close to the town of Molde on the west coast of Norway. Omya Hustadmarmor produces calcium carbonate slurry that the European papermaking industry uses as a filler and a coating pigment. In fact, high-quality paper may contain more than 50 percent calcium carbonate, which explains why the periodical National Geographic, for example, is quite heavy.
Omya Hustadmarmor is the largest production unit within the Omya Group, with yearly production of more than three million metric tons. The main input in the slurry production is marble stone, which comes from a quarry in northern Norway and from some local quarries. Omya Hustadmarmor transforms the marble stone into slurry in a wet grinding process, adding various chemicals and water. It then ships 15 or 16 slurry variants from the plant to the paper mills, storing them on route in 10 first-tier tank farms, located in Germany, the Netherlands, the United Kingdom, Sweden, and Finland (Figure 1). It supplies customers from the first-tier tank farms but also maintains a few second-tier tank farms located near some major customers. Omya Hustadmarmor expects to start supplying the North American market soon.
[FIGURE 1 OMITTED]
The company uses chemical tank vessels, currently ranging from 2,400 to 16,000 metric tons, to transport slurry from the plant to the first-tier tank farms and smaller barges, rail, or truck to transport it from the tank farms to the paper mills. Transportation times from the plant to the first-tier tank farms run between two to five days in summer and six days in winter. The company also uses barges to transport slurry between first-tier and second-tier tank farms, up the Rhine and Maas rivers. It generally uses direct (single-destination) shipping in the transportation from the plant to the first-tier tank farms. Gallego and Simchi-Levi (1990) analyzed the benefits of using a direct shipping strategy.
Since the early 1980s, Omya Hustadmarmor has grown from a yearly production volume of less than 200,000 metric tons to over three million (Figure 2), investing frequently in production, storage, and vessel capacity.
[FIGURE 2 OMITTED]
The Omya Group is a majority owner of many of the vessels in the tank-vessel fleet. Anders Utkilens Rederi (AUR), a shipping company based in Bergen, Norway, is the other shareholder. AUR, which also takes care of the spot market trading, ship management, and crewing, has been transporting slurry for Omya Hustadmarmor since 1984.
When vessels are not transporting slurry from Omya Hustadmarmor, they are used in the spot market. Hence, use of the vessels carries a high opportunity cost. Their most important spot-market activity is transporting methanol from Russia to Western Europe. After vessels deliver slurry to the tank farms in Sweden and Finland, they often pick up methanol in Russia before heading west out of the Baltic Sea.
The company can take advantage of economies of scale in transporting slurry from the plant to the tank farms, with large vessels costing much less per ton than small vessels. However, planning for large vessels is challenging because they require more storage space at the plant and at the tank farm.
The vessel transportation costs constitute a major part of the total product costs. Hence, for the slurry business to be profitable, Omya Hustadmarmor must use large vessels as much as possible and load them fully on trips from the plant to the tank farms.
Operational Challenges
To plan trips from the plant to the tank farms, the company takes two steps. Planners (1) decide which vessel should depart on which day for which tank farm, and (2) decide what mix of products each vessel should carry. To fully utilize the capacity of each vessel, it must always ship multiple slurries. Planners must coordinate the replenishment of different slurries.
The planners must ensure that the tank farm inventories do not reach uncomfortably low levels before a vessel arrives to replenish them. If they did not receive raw materials in time, the papermills would have to stop production. Because the investment cost for one paper machine can be in the magnitude of one billion US dollars, it is crucial that Omya Hustadmarmor delivers slurry on time. Historically, it has never had a stockout situation. To maintain this record, the company keeps very high safety stocks at the tank farms. The cost of capital tied up in the safety stocks is low compared to its other costs, such as production and transportation costs. However, the high safety stocks consume storage space in the tank farms, limiting the space left for replenishment stocks and limiting the use of large vessels. Planners must consider the available storage capacities and the safety stocks for the various slurries at each destination tank farm in using large vessels. It can be difficult to find a plan that will fill a large vessel from inventory at the plant and discharge its contents into the available storage capacity at the destination tank farm.
The planning is further complicated by constraints on minimum transportation quantities. Because the slurries are quite dense (between one and a half and two metric tons per cubic meter), vessels reach their weight capacities (metric tons) before they reach their volume capacities (cubic meters). Hence, a full vessel will normally have some empty tanks or some partially filled tanks. However, any partially filled...
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