"Transco" is a small company that produces a single product in two plants and serves customers in five different regions. The company has been using a make-to-order policy of producing the product only in the quantities needed to fill the orders that have come in from the various regions. However, because of the problems caused by the sporadic production schedule, management has decided to smooth out the production rate and ship the product to one or more storage warehouses, which then will use inventory to fill the incoming regional orders.
Management can use three warehouse locations currently under consideration. For each location, there is a fixed monthly cost associated with leasing and operating the warehouse there.
Furthermore, each potential warehouse location has a maximum capacity for monthly shipments restricted primarily by the number of trucking docks at the site. The product costs $400 to produce at plant 1 and $300 to produce at plant
2. The shipping cost from each plant to each potential warehouse location is shown in the first table below. The fixed leasing and operating cost (ifopen), the shipping costs, and the capacity (maximum monthly shipments) of each potential warehouse location are shown in the second table below. The monthly demand in each of the customer regions is expected to be 200, 225, 100, 150, and 175 units, respectively. Management wants to determine how the product should be distributed from the plants to the warehouse(s), then to the customers at a minimum cost.
Shipping Cost (per unit) Capacity
|
|
WH #1
|
WH #2
|
WH #3
|
(units/month)
|
|
Plant1
|
$25
|
$50
|
$75
|
500
|
|
Plant2
|
$50
|
$75
|
$25
|
400
|
Shipping Costs and Capacity of the Plants
Fixed Cost Shipping Cost (per unit) Capacity
|
|
(per month)
|
Region1
|
Region2
|
Region3
|
Region4
|
Region5
|
(units/mo.)
|
|
WH#1
|
$50,000
|
$30
|
$70
|
$75
|
$55
|
$40
|
700
|
|
WH#2
|
$30,000
|
$55
|
$30
|
$45
|
$45
|
$70
|
500
|
|
WH#3
|
$70,000
|
$70
|
$30
|
$50
|
$60
|
$55
|
1000
|
Fixed Cost, Shipping Costs, and Capacity of the Warehouses
Phase One:
1. Analyze the provided information in the above case and use your own words to provide a summary of the case including any assumption or observations you might have.
2. Based on your understanding of the Transportation Model, Formulate this case as a spreadsheet model and solve it using SOLVER module on Excel. Comment on the obtained results using your own words.
Phase Two:
1. Conduct a complete what-if (sensitivity) analysis on the above case. You are expected to apply all the techniques to be learnt in chapter 5 in this section.
2. Provide a summary of your findings along with your supported recommendations to the decision makers of Transco.