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Case Study - Streamlined Operations (IntegratedLtd)

Feb 4, 2015



Background
 
The changing forest economy is shining the spotlight on new economic opportunities in the forest. At a time when the prices for traditional commodity products such as pulp and lumber are low, adding additional revenue streams to existing forest operations can be a potentially attractive business strategy. IntegratedLtd knew that they had some potential alternative sources of income from their forest. Forest carbon presented a possible opportunity for IntegratedLtd to investigate. Carbon sequestration, sold as offsets, could be a long term source of income for the company. Their large landbase offered a lot of potential for a variety of carbon sequestration projects. However, in order to monetize the opportunity, they knew that they would need to be able to model the carbon potential on their landbase to be within a known estimate error.
 
Biofibre for energy was another strong possibility for IntegratedLtd. They were considering an investment in a steam turbine to generate electricity and steam for their large mill complex. Biofibre is a low margin opportunity, where costs have to be closely managed and large volumes of fibre are required to make it viable, and make the capital investment viable. To successfully manage a biofibre operation and to decide on the investment viability, the company required a biofibre inventory. The managers at IntegratedLtd started a project to improve the knowledge they had about their biofibre resources.
 
 
The Problem
 
Traditional inventory uses models to quantify the merchantable volume available in forest stands. These models provide little information on the ‘non-merchantable’ portion of a forest stand. Potential biofibre is comprised of tree tops and branches and possibly dead standing, dead down, and under-utilized tree species. IntegratedLtd knew that a sample was required to quantify these volumes. IntegratedLtd also knew that these volumes needed to exist within a reasonable haul distance to the mill complex.
 
 
The Solution
 
Improving the quality of inventory information of the forest is key to improving the quality of business decisions that can be made. Biofibre used for energy is a low grade forest product that invites a low price in the market. Managing for biofibre procurement is therefore, highly sensitive to cost inputs e.g. haul distance. To quantify this resource, a sample population needed to be defined in relation to distance from the mill complex. IntegratedLtd also knew that current inventory models do not provide quantification of this ‘non-merchantable’ resource, so they needed to measure it directly.
 
To solve this problem, IntegratedLtd decided to:
• Determine the population of interest over which business decisions related to the new facility will be made. This was the next 10 years of harvest allocations that were within 100km haul distance of the proposed biofibre facility. They determined this from GIS data analysis.
• Build a ground sampling program to achieve a ± 15% sampling error (at 95% Confidence Interval) of total green biomass tonnage inside the sample area. They were looking to support a go / no-go decision for the operation, so did not feel they needed low sampling error at the harvest block level. They anticipated post-stratifying the sample results across stand-level variables to produce a biofibre volume estimates for non-sampled stands.
• Conduct the ground sample, including electronic data capture. This included trees of all sizes and dead standing trees. Down woody debris could be captured simultaneously.
• Compile the field data using localized tree taper functions and existing biomass conversions. The compilation must separate traditional ‘merchantable’ and ‘non-merchantable’ yields.
• Report the sampling statistics for the final compilation.

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Source: http://sumacforest.com/resources/casestudies/streamlined-operations-integratedltd/