A system and method of producing both loose cellulose insulation and bonded fiber/cellulose insulation products utilizing shredded paper particles, including making shredded paper particles in a shredded paper particle line and diverting a portion of the shredded paper particles to a bonded fiber/cellulose product line whereby the shredded paper particle line forms an in-process production and delivery of shredded paper particles to the bonded fiber/cellulose product line. Moisture is added to the shredded paper particles at the bonded fiber/cellulose product line, and bonded fiber/cellulose insulation products are produced with the bonded fiber/cellulose product line from the diverted portion of shredded paper particles and loose cellulose insulation is produced from shredded paper particles that are not diverted from the shredded paper particle line.