Operations Management - Make-or-Buy Decision
Frandec Company manufactures, assembles, and rebuilds material handling equipment used in warehouses and distribution centers. One product, called a Liftmaster, is assembled from four components: a frame, a motor, two supports, and a metal strap. Frandec's production schedule calls for at least 5000 Liftmasters to be made next month.
Frandec purchases the motors from an outside supplier, but the frames, supports, and straps may be either manufactured by the company or purchased from an outside supplier. Manufacturing and purchase costs per unit are as follows:
|
Component
|
Manufacturing Cost
|
Purchase Cost
|
|
Frame
|
$38.00
|
$51.00
|
|
Support
|
$11.50 (2)
|
$15.00 (2)
|
|
Strap
|
$6.50
|
$7.50
|
Three departments are involved in the production of these components. The time (in minutes per unit) required to process each component in each department is as follows:
|
Component
|
Cutting
|
Milling
|
Shaping
|
|
Frame
|
3.5
|
2.2
|
3.1
|
|
Support
|
1.3 (2)
|
1.7 (2)
|
2.6 (2)
|
|
Strap
|
0.8
|
---
|
1.7
|
The available capacity (in hours) for the three departments is as follows:
|
Capacity (hours)
|
350
|
420
|
680
|
How many of each component should be manufactured and how many should be purchased?
Let FM = number of frames manufactured
FP = number of frames purchased
SM = number of supports manufactured
SP = number of supports purchased
TM = number of straps manufactured
TP = number of straps purchased
Using Microsoft Excel Solver
Solve the problem using Microsoft Excel. Be sure to generate the Sensitivity Analysis report with the solution.
Question #1
Identify the optimal solution for the Frandec Company - how many frames, supports and straps should be manufactured and/or should be purchased to minimize total cost?
Question #2
Identify the total minimum cost of the manufacturing and purchasing plan.
SENSITIVITY ANALYSIS
Question #1
How much should Frandec be willing to pay for an additional hour of time in the shaping department?
Question #2
Another manufacturer has offered to sell frames to Frandec for $45 each. Could Frandec improve its position by pursuing this opportunity? Why or why not?
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Question: Frandec Company manufactures, assembles, and rebui...
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Frandec Company manufactures, assembles, and rebuilds materials handling equipment used in warehouses and distribution centers.
One product, called a Liftmaster, is assembled from four components: a frame, a motor, two supports, and a metal strap. Frandec?s production schedule calls for 5000 Liftmasters to be made next month.
Frandec purchases the motors from an outside supplier, but the frames, supports, and straps may be either manufactured by the company or purchased from an outside supplier. Manufacturing and purchase costs per unit are shown.
|
Component
|
Manufacturing Cost
|
Purchase Cost
|
|
Frame
|
$38.00
|
$51.00
|
|
Support
|
$11.50
|
$15.00
|
|
Strap
|
$6.50
|
$7.50
|
Three departments are involved in the production of these components. The time (in minutes per unit) required to process each component in each department and the available capacity (in hours) for the three departments are as follows:
|
|
Department
|
|
|
Component
|
Cutting
|
Milling
|
Shaping
|
|
Frame
|
3.5
|
2.2
|
3.1
|
|
Support
|
1.3
|
1.7
|
2.6
|
|
Strap
|
0.8
|
---
|
1.7
|
|
Capacity (hours)
|
350
|
420
|
680
|
Formulate and solve a linear programming model for this make-or-buy application. How many of each component should be manufactured and how many should be purchased?
What is the total cost of the manufacturing and purchasing plan?
How many hours of production time are used in each department?
How much should Frandec be willing to pay for an additional hour of time in the shaping department?