Problem :
New Bedford Steel Coking Coal Supply Problem
New Bedford Steel (NBS) is a small steel manufacturing company. Coking coal is a necessary raw material in the production of steel, and NBS procures 1.0 - 1.5 million tons of coking coal per year. It is now time to plan for the 1997 production, and Stephen Coggins, coal supply manager for NBS, has solicited and received bids from the following eight suppliers for next year. He has organized the information about the bids in the following table.
| Bids Received from Potential Coking Coal Suppliers |
|
Ashley |
Bedford |
Consol |
Dunby |
Earlam |
Florence |
Gaston |
Hopt |
| Capacity (mtons) |
300 |
600 |
510 |
655 |
575 |
680 |
450 |
490 |
| Union/Nonunion |
U |
U |
N |
U |
N |
U |
N |
N |
| Truck/Rail |
R |
T |
R |
T |
T |
T |
R |
R |
| Volatility (%) |
15 |
16 |
18 |
20 |
21 |
22 |
23 |
25 |
| Price (S/ton) |
49.5 |
50 |
61 |
63.5 |
66.5 |
71 |
72.5 |
80 |
Based on market forecasts and 1996 production characteristics, NBS is planning to accept bids for 1,225 mtons (1,225 million tons) of coking coal. This coal must have an average volatility of at least 19% (volatility is the percent of volatile or burnable matter in the coal). Also, as a hedge against adverse labor relations, NBS has decided to procure at least 50% of its coking coal from union mines (United Mine Workers). Finally, Steve Coggins needs to keep in mind that capacity for bringing in coal by rail is limited to roughly 650 mtons per year, and capacity for bring in coal by truck is limited to 720 mtons per year.
Questions:
1. How much coal should Coggins contract for from each supplier?
2. What will be NBS's total cost of supply?
3. What will be NBS's average cost of supply?
Use both MATLAB Optimisation Toolbox and Excel Solver to solve the problem and perform sensitivity analysis.