Estimating the Value-Creation Potential of Wood Supply Using a Hybrid Simulation-Optimization Approach

Current implementation of wood supply optimization models in the province of Quebec, Canada, do not include financial performance indicators. We describe a methodology for compiling a hybrid simulation-optimization model that can be used to estimate the value-creation potential (VCP) of any subset of species-wise annual allowable cut (AAC) volume from the long-term wood supply models used in Quebec. Our model retrofits financial performance indicators to the optimal solution of the long-term wood supply optimization model, which we link to a network flow optimization model that simulates profitmaximizing fibre consumption behaviour of a network of primary processing facilities. This network flow model can be used to simulate the subset of available fibre supply that a given profit-maximizing industrial network configuration will consume, and provide new insight into the techo-economic factors limiting fibre consumption. If solved repeatedly using different network configurations (e.g., opening or closing one or more facilities, expanding or reducing capacity at exiting facilities, testing different model-exogenous market price assumptions, or testing the impact of different stumpage rate models on network behavior, etc.), the network flow model can be used as a framework to generate scenarios, which can then be compared and analysed. Our methodology uses readily-available wood supply models and input data, and can be applied to any of the 71 management units that make up the managed public forest in the province of Quebec. Thus, we present a methodology that produces state-of-the-art VCP estimates, which could be leveraged to yield new provincial-scale insight into the complex relationships between wood supply modelling and timber licensing policy, stumpage policy, industrial fibre consumption network configurations, and market prices. We run a number of scenarios on management unit UA 064-51, as an example of application of our methodology, and report VCP as a function of the proportion of AAC that is consumed.