Profit variance analysis is a term coined by HALCO to describe a procedure that involves a detailed comparison of actual and planned operations and net income for each sawmill production run.

A production run may be defined by an accounting period such as a week or a month, or it may be a run of a particular species mix through the mill.

Essential features of the analysis are:

• monitoring of production and log consumption by lumber item and log class;
• monitoring of actual and projected bottlenecks;
• calculation of key performance indicators;
• calculation of sawmill "profit variances".

The total profit variance is the difference between:

• the actual profit from a sawmill production run, and
• what the profit would have been if operations had been exactly in accordance with the predetermined plan.

Objective of this analysis is to allocate the total profit variance to differences in:

• log input;
• machine availabilities;
• lumber yields;
• sales prices;
• market demands.

Benefits:

• helps focus management attention on the opportunity and problem areas of the operation that are not necessarily the most visible, but that have the biggest impact on profit;
• sawmill optimization can be monitored and kept on track;
• provides up-to-date data for the optimization model;
• Helps to justify the expenditures and allocation of resources to:
  • overcome problems;
  • relieve bottlenecks;
  • improve profitability.

If the kilns or planer constrain:

• the kiln and planer time that will be required to process each shift of sawmill production will be calculated, relative to the time that is available.

If lumber size or length mix is a major concern:

• the production that lies within a predetermined size or length mix within each lumber size will be determined and monitored;
• the production of additional premium and unwanted lengths will also be determined and monitored.

HALCO's SAWSIM^® and WOODMAN™ systems are used to develop a linear programming model of the operation:

• to prepare the operating plan for each production run;
• to analyse the variances between actual and planned operating results in terms of identifiable causes.

Assumptions:

• the principle machines in the sawmill are equipped with optimizers;
• there are means to record the log class inputs, machine times, and the rough lumber items produced in machine-readable form.

HALCO has developed software to accumulate the results for each production run in a database from which the analysis is made. If the long log input to the mill is measured accurately, the inputs can be the long log inputs. If not, the inputs can be sawmill blocks that are actually sawn.

Sawmill optimization will be more effective if it is applied in conjunction with the profit variance analysis described here.

The benefits from the optimization will be measurable and more apparent if the production analysis is applied before the optimization is attempted, and the effect of the optimization then becomes a variance that is measured.

Profit variance analysis can be performed by mill staff, or HALCO can carry out the analysis on a regular basis as a service.