Forestry innovation clears logjam

Carter Holt Harvey Forests expects to pay off a $7 million supply chain project within two years through cost savings and making better use of its logs.

Chief executive Jeremy Fleming said Canopy, which involved tying together the company's geographic information systems, SAP financial management system and SAP and Numetrics planning systems, gives Forests a single view of its business.

The project was run by Carter Holt's IT services subsidiary, Oxygen.

"It meant we were able to replace legacy systems which were costing us more to support, and it also means we were able to outsource all the hardware, systems hosting and SAP support to Oxygen," Fleming said.

"Return on investment is based on savings booked through reduced costs. By 2007 we should be past payback."

Improvements in land use efficiency are expected to deliver further annual cost savings of more than 10 per cent.

Fleming said the 18-month project was delivered on budget, the first time ever for SAP, and delivered all the expected functionality and results. "From a business management view, the big change is we are able to offer reliable supply to customers. There is better matching of day to day product from the forests."

Traditionally in a large forests business, firms have sold logs as they became available. Different customers require different log quality, depending on whether the wood is to be processed into finished lumber, pulp, plyboard or other uses, but it has been hard to match supply with demand.

In the past, Forests may have supplied unsuitable logs or bought in logs from other producers to meet supply contracts. "We don't want to source logs from areas which cost more because they are further away from the mill or send high-value logs to low-end users," Fleming said.

"Canopy is giving me greater confidence with our planning. The improved forecasting means we get a clear picture of execution against plan."

Carter Holt Harvey Forests has 330,000ha under cultivation, making it the largest owner and manager of plantation forests in New Zealand. It harvests 5 million tonnes a year.

The planning horizon for forestry is 30 years, with a short-term plan done five years in advance and plans for physical activity done 18 to 24 months out.

Planting trees and cutting them down again requires building a road network capable of bearing almost 15,000 trucking movements a month.

Oxygen's Canopy project manager, Doug McCutcheon, said it was the first SAP-based forestry solution which goes from planting to harvesting and shipping to the customer.

"When we looked around Europe and America to see if anyone else was doing this, we found no one had taken it this far," McCutcheon said. "Typically SAP picks up the process at the procurement stage. We have created an integrated end-to-end 25-year cycle."

McCutcheon said because the system was now demand driven, Canopy can issue cutting instructions, optimising the weekly production schedule based on constraints such as distance, customer price and contract agreements.

He said by integrating data from the Esri GIS system with SAP, Forests can track costs for each block. "Harvesting a forest is a bit like setting up a small township. You have to build a roading system, so there is a major engineering operation."

Carter Holt Harvey Forests business planning manager Roger Kay said integrating SAP applications with spatial data had allowed operational plans for forestry, engineering, harvesting and distribution to be viewed as a single plan.

"It's this ability to get a single view of the plan which is key to enabling optimisation of products, distribution, and secondary processing," Kay said.