Presented to the Industrial Engineering Department

Gokongwei College of Engineering

De La Salle University
Term 2, A.Y. 2020-2021

In partial fulfillment
of the course
in LBYIE3D

Term Project: Northwest Newsprint Inc.

Submitted by:
Junsay, Kimberly
and
Rodas, Giannina

Submitted to:
Ms. Jayne Lois San Juan

May 29, 2021

 I. Introduction
Northwest Newsprint Inc. was a major producer of newsprint with pulp mills in the
Pacific Northwest and Canada from which they supplied various North American markets. With
this, their production capacity for each of their major mills is shown in Table 1. Since the
provider of newsprints is one of the major suppliers, their annual demand for each of the
distribution centers located in the U.S. as well as Canada is shown in Table 2. Moreover, the
company also has a set value for its operation level which is depicted in Table 3.
Table 1. Production Capacity

Mill Daily (tonnes) Annual (tonnes)

Spruce Mills 462.0 166.320

Naomee Mills 756.5 272.340

Duchesne 737.0 265.077

Total Capacity 703.737

Table 2. Projected Demand

Distribution Center Annual Demand (tonnes)

Seattle 40,727

Chicago 55,608

Dallas 92,680

New Orleans 92,680

Denver 23,832

Los Angeles 211,841

San Francisco 52,960

Vancouver 32,581

Calgary 8,145

Total Demand 611,054

Table 3. Required Operation Level

 Mill Operation Level

Spruce Mills 133,056

Naomee Mills 217,340

Duchesne 212,062

Since Northwest Newsprint produces and distributes newsprints to their customers, there
are a variety of costs incurred in the process. The production cost is one of them, as the cost per
unit for this is shown in Table 4. Next, since the company also distributes the newsprints,
transportation costs are also incurred which is displayed in Table 5. Lastly, the revenue for each
tonne of newsprint is dependent on the location of the distribution centers. Those that are located
in the U.S. have higher selling prices compared to those that reside in Canada. They have a $50
difference because the newsprints are sold for $750 per tonne in the U.S. while in the latter
country it is only $700. This is shown in Table 6.
Table 4. Production Cost

Distribution Centers\Production Plants Spruce Mills Naomee Mills Duchesne

Seattle 0 46.68 52.80

Chicago 89.77 128.82 97.17

Dallas 162.24 204.13 210.42

New Orleans 166.18 195.08 200.62

Denver 151.77 162.83 142.82

Los Angeles 0 147.46 150.14

San Francisco 151.11 115.49 124.83

Vancouver 0 72.42 42.17

Calgary 0 77.50 87.94

Table 5. Transportation Cost

Distribution Centers\Production Plants Spruce Mills Naomee Mills Duchesne

 Seattle 390 415 415

Chicago 390 415 415

Dallas 390 415 415

New Orleans 390 415 415

Denver 390 415 415

Los Angeles 390 415 415

San Francisco 390 415 415

Vancouver 390 415 415

Calgary 390 415 415

Table 6. Revenue

Distribution Centers\Production Plants Spruce Mills Naomee Mills Duchesne

Seattle 750 750 750

Chicago 750 750 750

Dallas 750 750 750

New Orleans 750 750 750

Denver 750 750 750

Los Angeles 750 750 750

San Francisco 750 750 750

Vancouver 700 700 700

Calgary 700 700 700

Lastly, the company also planned the desired tonnes of newsprints to be distributed to
each distribution center. Table 7 shows the predetermined values for this case with the total units
per mill are shown.
Table 7. Planned Distribution
Distribution Centers\Production Spruce Mills Naomee Mills Duchesne Total
Plants

Seattle - 40,727 - 40,727

Chicago 55,608 - - 55,608

Dallas 64,976 27,704 - 92,680

New Orleans - 92,680 - 92,680

Denver 23,832 - - 23,832

Los Angeles - 22,401 189,440 211,841

San Francisco - 52,960 - 52,960

Vancouver - - 32,581 32,581

Calgary - - 8,145 8,145

II. Objectives
● Maximize profit for each transportation route
● Optimize the production of tonnes of newsprint
● Meet the demands of the distribution centers

III. Model Formulation

In formulating the model for Northwest Newsprint Inc., the conceptual model is first
established. This is to ensure that the mathematical model would easily be understood provided
the right representation of how it will work.
 Figure 1. Conceptual Model Formulation
The conceptual model of the distribution system of the company is shown in Figure 1.
Rectangular shapes that are highlighted in green are the mills or production plants, while the
ones colored in blue are the distribution centers. This is based on the production distribution plan
that was set by the company. Spruce Mills can provide tonnes of newsprints to Chicago, Dallas,
and Denver, while Naomee Mills is able to provide for Seattle, Dallas, New Orleans, Los
Angeles, and San Francisco. Lastly, Duchesne is able to provide to Los Angeles, Vancouver, and
Calgary distribution centers.

𝑥𝑖𝑗 = 𝑡𝑜𝑛𝑛𝑒𝑠 𝑜𝑓 𝑛𝑒𝑤𝑠𝑝𝑟𝑖𝑛𝑡 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑 𝑓𝑟𝑜𝑚 𝑚𝑖𝑙𝑙 𝑖 𝑡𝑜 𝑑𝑖𝑠𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑐𝑒𝑛𝑡𝑒𝑟 𝑗

where:
𝑖 = 1, 2, 3 (𝑆𝑝𝑟𝑢𝑐𝑒 𝑀𝑖𝑙𝑙𝑠, 𝑁𝑎𝑜𝑚𝑒𝑒 𝑀𝑖𝑙𝑙𝑠, 𝐷𝑢𝑐ℎ𝑒𝑠𝑛𝑒)
𝑗 = 1, 2, 3, 4, 5, 6, 7, 8, 9 (𝑆𝑒𝑎𝑡𝑡𝑙𝑒, 𝐶ℎ𝑖𝑐𝑎𝑔𝑜, 𝐷𝑎𝑙𝑙𝑎𝑠, 𝑁𝑒𝑤 𝑂𝑟𝑙𝑒𝑎𝑛𝑠, 𝐷𝑒𝑛𝑣𝑒𝑟, 𝐿𝑜𝑠 𝐴𝑛𝑔𝑒𝑙
𝑆𝑎𝑛 𝐹𝑟𝑎𝑛𝑐𝑖𝑠𝑐𝑜, 𝑉𝑎𝑛𝑐𝑜𝑢𝑣𝑒𝑟, 𝐶𝑎𝑙𝑔𝑎𝑟𝑦)

Z = Profit
 Maximize Z
Figure 2. Decision Variables
The decision variables for the model are depicted in Figure 2 which is denoted by x with
two sets, i and j. Moreover, the mills that produce newsprint were assigned to set i while the
distribution centers were assigned to set j. Variable x was set to be the tonnes of newsprint
produced and delivered from mill i to distribution center j. Lastly, since the objective of the
problem is to maximize cost, it was assigned to the variable Z.

Production Capacity
𝑥1𝑗 ≤ 166, 320 (Spruce Mills)
𝑥2𝑗 ≤ 272, 340 (Naomee Mills)
𝑥3𝑗 ≤ 265, 077 (Duchesne)

Operation Level
𝑥1𝑗 ≥ 133, 056 (Spruce Mills)
𝑥2𝑗 ≥ 217, 340 (Naomee Mills)
𝑥3𝑗 ≥ 212, 062 (Duchesne)

Planned Units for Distribution Center

𝑥𝑖1 = 40, 727 (Seattle)
𝑥𝑖2 = 55, 608 (Chicago)
𝑥𝑖3 = 92, 680 (Dallas)
𝑥𝑖4 = 92, 680 (New Orleans)
𝑥𝑖5 = 23, 832 (Denver)
𝑥𝑖6 = 211, 841(Los Angeles)
𝑥𝑖7 = 52, 960 (San Francisco)
𝑥𝑖8 = 32, 581 (Vancouver)
𝑥𝑖9 = 8, 145 (Calgary)

Figure 3. Constraints
Next, the constraints of the model are shown in Figure 3 where the production capacity,
operation level, and initially planned units for each distribution center are formulated. The values
of the constraints of the production capacity are based on Table 1 while the operation level is
based on Table 3. Lastly, the planned units for each distribution center were referenced from
Table 7 which was provided by the company.

𝑀𝑎𝑥 𝑍 = Σ (𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡 − 𝑇𝑟𝑎𝑛𝑠𝑝𝑜𝑟𝑡𝑎𝑡𝑖𝑜𝑛 𝐶𝑜𝑠𝑡) × Σ(𝑥𝑖𝑗)

Figure 4. Objective Function

The objective function of the model is displayed in Figure 4. Since it was previously
mentioned that the goal is to maximize profit (Z), the costs (production and transportation), in
reference to Tables 4 and 5, were subtracted from the revenue based on Table 6. With this, to get
the profit per unit of newsprint sold, it will now be multiplied to the variable x which represents
the number of units produced and delivered to the distribution centers.

IV. Model Validation & Sensitivity Analysis

Running the model with the current distribution plan as shown in Table 7, the model was
able to generate a profit of $121,537,867.15. This is reflected in the x variable as shown in Table
8 below, which reflects the data in Table 7.

Table 8. X Values of the Present System

Units Units Units

Destination Destination Destination
Delivered Delivered Delivered

Spruce - Seattle . Naomee - Seattle 40727 Duchesne - Seattle .

Spruce - Chicago 55608 Naomee - Chicago . Duchesne - Chicago .

Spruce - Dallas 64976 Naomee - Dallas 27704 Duchesne - Dallas .

Spruce - New . Naomee - New 92680 Duchesne - New .

Orleans Orleans Orleans

Spruce - Denver 23832 Naomee - Denver . Duchesne - Denver .

Spruce - LA . Naomee - LA 22401 Duchesne - LA 189440

Spruce - San . Naomee - San 52960 Duchesne - San .

Francisco Francisco Francisco

Spruce - Vancouver . Naomee - . Duchesne - 32581

 Vancouver Vancouver

Spruce - Calgary . Naomee - Calgary . Duchesne - Calgary 8145

Total 144416 236472 230166

Table 9. Summary of Values of the Present System

Present System

Spruce Mills 144416

Naomee Mills 236472

Duchesne Mills 230166

Profit $121,537,867.15

Table 9. Shows the values of the production and profit using the planned distribution.
However, the company would like to see if this can be further improved. And thus, the new
model was set to maximize the profit by optimizing the allocation of x.

New Model (Undetermined Distribution Plan)

 Figure 5. Conceptual Model Formulation (Undetermined Distribution Plan)
Figure 5 depicts the new model that will be tested by the company. Unlike the previous
conceptual model in Figure 1, this new model is unrestricted and does not follow the distribution
plan set by the company. It lets the model choose which distribution centers the units produced
by each mill should be delivered to. Hence, the constraint for the planned units for each
distribution center was removed.

Table 10. X Values Obtained After Optimization

Units Units Units

Destination Destination Destination
Delivered Delivered Delivered

Spruce - Seattle . Naomee - Seattle 40727 Duchesne - Seattle .

Naomee - Duchesne -
Spruce - Chicago . . 55608
Chicago Chicago
 Spruce - Dallas 92680 Naomee - Dallas . Duchesne - Dallas .

Spruce - New Naomee - New Duchesne - New

73640 19040 .
Orleans Orleans Orleans

Naomee -
Spruce - Denver . . Duchesne - Denver 23832
Denver

Spruce - LA . Naomee - LA 111800 Duchesne - LA 100041

Spruce - San Naomee - San Duchesne - San

. 52960 .
Francisco Francisco Francisco

Naomee - Duchesne -
Spruce - Vancouver . . 32581
Vancouver Vancouver

Naomee -
Spruce - Calgary . 8145 Duchesne - Calgary .
Calgary

Total 166320 232672 212062

This allocation will be able to further increase the profit, generating $ 125,500,604.03 of
profit, $3,962,736.88 more than the previous allocation which is equivalent to 1.6%. Pushing the
Spruce Mill to shoulder more of the demand (7%) will allow the company to profit more
efficiently.
Table 11. Summary of Values After Optimization

Present System After Optimization Difference

Spruce Mills 144416 166320 21904 7.05%

Naomee Mills 236472 232672 -3800 -0.81%

Duchesne Mills 230166 212062 -18104 -4.09%

Profit $121,537,867.15 $ 125,500,604.03 $ 3962736.88 1.60%

Freight Discount (New Shipping Costs)

Northwest also considered a 5% freight rate discount for any mill-destination shipments
greater than 100,000 tonnes to increase profit. Considering the optimal allocation of shipments
(after optimization), Table 10, Naomee-LA has 111800, and Duchesne - LA has 100041 tonnes.
The shipping cost for these locations is $415. Applying a 5% discount will yield a value of
$394.25. Thus, transforming the transportation cost table to the one shown below (Table 12).
Table 12. New Shipping Cost Table

A B C D E F G H I

1 0 390 390 390 390 0 390 0 0

2 415 415 415 415 415 394.25 415 415 415

3 415 415 415 415 415 394.25 415 415 415

This freight rate discount scheme will yield a profit of $129,896,304.78, or 3.32% more
when compared against the present system. However, the allocation of shipments was not
optimized in the present system. Hence, the Freight Rate Discount Model was compared against
the Optimized system to see how much more the company can profit off, by applying the
discounted rates as they use the same allocation distribution. The Freight Rate Discount scheme
generated 1.72% or $ 4,395,700.75 more profit once applied to the optimized system. Hence, the
company should apply the freight rate discount scheme to maximize profit.

Table 13. Comparison of Freight Rate Discount Profit Against Present and Optimized System

Present System Freight Rate Discount Difference

Profit $121,537,867.15 $ 129,896,304.78 $ 8,358,437.63 3.32%

After Optimization Freight Rate Discount Difference

Profit $ 125,500,604.03 $ 129,896,304.78 $ 4,395,700.75 1.72%

Naomee Machine Conversion (58,000 Production Reduction)

Present System Reduction of 58,000 in Naomee

Production Capacity Production Capacity

𝑥1𝑗 ≤ 166, 320 (Spruce Mills) 𝑥1𝑗 ≤ 166, 320 (Spruce Mills)
𝑥2𝑗 ≤ 272, 340 (Naomee Mills) 𝑥2𝑗 ≤ 214, 340 (Naomee Mills)
 𝑥3𝑗 ≤ 265, 077 (Duchesne) 𝑥3𝑗 ≤ 265, 077 (Duchesne)

Operation Level Operation Level

𝑥1𝑗 ≥ 133, 056 (Spruce Mills) 𝑥1𝑗 ≥ 133, 056 (Spruce Mills)
𝑥2𝑗 ≥ 217, 340 (Naomee Mills) 𝑥2𝑗 ≥ 183720 (Naomee Mills)
𝑥3𝑗 ≥ 212, 062 (Duchesne) 𝑥3𝑗 ≥ 212, 062 (Duchesne)

Figure 6. New Production and Operation Constraints

The company also considered converting a 58,000 tonne/yr machine at Naomee to be
converted to groundwood to see if it was feasible. The new constraints were obtained by
subtracting 58,000 from the Production Capacity of Naomee Mills. The new production capacity
of Naomee Mills is 214,340. Since the company has an 85% utilization rate or the company only
works 6 out of 7 days, the new operation level is obtained by multiplying 214,340 by 6/7, which
results in 183720.

Table 14. New Distribution Allocation using 58K Reduction Model

Units Units Units

Destination Destination Destination
Delivered Delivered Delivered

Spruce - Seattle . Naomee - Seattle 40727 Duchesne - Seattle .

Spruce - Chicago . Naomee - Chicago . Duchesne - Chicago 55608

Spruce - Dallas 92680 Naomee - Dallas . Duchesne - Dallas .

Spruce - New 73640 Naomee - New 19040 Duchesne - New .

Orleans Orleans Orleans

Spruce - Denver . Naomee - Denver . Duchesne - Denver 23832

Spruce - LA . Naomee - LA 93468 Duchesne - LA 118373

Spruce - San . Naomee - San 52960 Duchesne - San .

Francisco Francisco Francisco
Spruce - Vancouver . Naomee - . Duchesne - 32581
Vancouver Vancouver

Spruce - Calgary . Naomee - Calgary 8145 Duchesne - Calgary .

Total 166320 214340 230394

Table 14 shows that reducing a 58,000 tonnes/yr machine in Naomee will shift the
demand to Duchesne as the allocation of Naomee-LA decreased from 111800 to 93468.
Similarly, Duchesne-LA increased from 100041 to 118373.

Table 15. Summary of Changes in 58k Reduction Model Against Present and Optimized System

Present System 58k Reduction Difference

(After
Optimization)

Spruce Mills 144416 166320 21904 7.05%

Naomee Mills 236472 214340 -22132 -4.91%

Duchesne Mills 230166 230394 228 0.05%

Profit $121,537,867.15 $ 125,451,474.27 $ 3913607.12 1.58%

After Optimization 58k Reduction Difference

Spruce Mills 166320 166320 0 0.00%

Naomee Mills 232672 214340 -18332 -4.10%

Duchesne Mills 212062 230394 18332 4.14%

Profit $ 125,500,604.03 $ 125,451,474.27 -$ 49129.76 -0.02%

Table 15 shows that converting a 58,000 tonne/yr machine into groundwood specialties.
Comparing it against the present system, it only yields a 1.58% profit increase, which is less than
the profit increase from the optimized allocation which is at 3.32%, as seen from Table 11.
Again, comparing the 58K Reduction Model against the Optimized System, it can be seen that
the 58K Reduction yields less profit.

Optimistic and Pessimistic Demands

Table 16. Optimistic and Pessimistic Demand Table

Distribution Center Optimistic Demand Pessimistic Demand

Seattle 45028 29557

Chicago 61481 45518

Dallas 102468 75863

New Orleans 102468 75863

Denver 26349 19507

LA 234213 173401

San Francisco 58553 43350

Vancouver 36022 23646

Calgary 9006 5911

Testing the optimized model (after optimization) against the optimistic and pessimistic
demand, the results of the model show that the pessimistic demand yielded an infeasible solution.
The optimistic demand on the other hand was able to yield 6.27% more profit as opposed to the
present system (Table 17). However, this optimistic scenario may not be a good basis as the
demand fluctuates and does not reflect the reality of the expected demand.

Table 17. Summary of Optimistic Demand Results

Present System Optimistic Difference

Demand (After
Optimization)
 Spruce Mills 144416 166320 21904 7.05%

Naomee Mills 236472 272340 35868 7.05%

Duchesne Mills 230166 236928 6762 1.45%

Profit $121,537,867.15 $137,801,465.68 16263598.53 6.27%

V. Conclusion
Table 18. Summary of Results

Present System After Freight Rate 58k Reduction Optimistic

Optimization Discount (After Demand (After
(After Optimization) Optimization)
Optimization)

Spruce Mills 144416 166320 166320 166320 166320

Naomee Mills 236472 232672 232672 214340 272340

Duchesne Mills 230166 212062 212062 230394 236928

Profit $121,537,867. $125,500,604. $129,896,304. $125,451,474. $137,801,465.

15 03 78 27 68

Therefore, Northwest Newsprint should implement the optimized delivery allocation as

this would allow the company to increase profit by 1.6%. Implementing the freight rate discount
will also generate increased profits for the company. Applying both the freight rate discount to
the optimized allocation will allow the company to profit as much as 3.32% or $8,358,437.63 as
opposed to the present system. The conversion of a 58,000 tonne/yr machine into groundwood
specialties in Naomee will not be as profitable as the other two options. The optimistic demand
may be able to yield 6.27% more profit; however, this optimistic scenario may not be a good
basis as the demand fluctuates and does not reflect the reality of the expected demand.

VI. Appendix
Appendix A. Present System
Appendix B. After Optimization
Appendix C. Freight Rate Discount
Appendix D. 58K Discount
Appendix E. Optimistic
Appendix F. Pessimistic