Impact of Facility Location on the Financial Performance of Integrated and Distributed LVL Production in Subtropical Eastern Australia

Abstract

In subtropical eastern Australia, the declining availability of traditional, large hardwood native forest logs has motivated hardwood sawmills to explore potentially utilising small logs in the manufacture of veneer-based engineered wood products (EWPs), such as laminated veneer lumber (LVL). An aspatial mathematical model that maximises net present value (NPV) over a 30-year project life has been applied to estimate the financial performance of LVL manufacture in this region. Of particular interest was how facility location affected financial performance, and whether distributed production of veneer (close to the log resource) and LVL (distant from the log resource) may be more profitable than integrated production under some circumstances. While integrated production of veneer and LVL near the resource maximised NPV, distributed production was found to be more profitable than integrated production in situations where the LVL manufacturing facility had to be located relatively far from the resource. Nevertheless, the level of value-adding and processing scale had a greater impact on financial performance than facility location. The analysis also highlighted that log procurement strategy substantially affected financial performance. Encouragingly for forest growers and wood processors, utilising large volumes of small diameter logs, was important for maximisation of NPV of larger-scale LVL facilities.

Keywords

• financial analysis
• operations research
• optimisation
• log procurement
• processing scale
• forest industry