Quantitative Methods

Case assignment 1

Report on

GSA Industries
Submitted to

Case Study

Dr. Solymosi Tams

Submitted by
Team 6 Mohammad Abdul Mannan Maqsud Usman Horvth-Pityk Ella Hou Shaoli

Executive summary G.S.A industries Produces four different types of prefabricated housing units at two locations: - El Cajon, California and Elkhart, Indiana. The prefabricated units are transported to regional distribution centers in Phoenix, Nashville and Miami. The organization is concerned to take decisions like which of the building at El Cajon plant should produce which model of housing unit, the optimal units to be produced in building four keeping in consideration the sub-assemblies constraints and the units to be transported to each of the distribution from the two production units. These decisions are to be made so the profit can be maximized and the cost can be minimized, as the case may be. By using the algorithm of LPP it is found that the organization can choose to produce 55 units in building 4, allocate Picket fence, Gentle stream, Town house and El president to building 1,2,3 and 4 respectively and transport all the units produced to three distribution centers, since the demand is more than the production units. Statement of the Problem/s: As we mentioned in executive summery GSA Industries produces four models of prefabricated housing units in each of two locations and the prefabricated housing units are transported to regional distribution centers. With this basic information we would like to define our problem statemets...

Plant? These Production quantitity can be determined by analyzing the rate at which various subassemblies can be manufactures and passes along to the next operation.

We have to decide production capacity by using network representation given in the case. Same is shown below.

Figure 1: Building 4 Subassembly Capacities for Gentle Stream Model Allocation of housing models to the buildings at El Cajon plant: The El Cajon plant consists of four separate buildings, each of which will produce a different model. The number of housing units which can be produced in a building depends on many factors, including the size and shape of the building and the existing production facilities. These allocation has to be done by maximizing the gross profits per housing Model Given table for capacity of each building is reproduced below. Table 1: building capacity for each model Picket fence 30 60 40 95 Town house 25 55 35 85 Gentle stream 20 50 30 See text E1 Presidente 10 45 N/A 65

Building 1 Building 2 Building 3 Building 4

Interpretation of table: If Building 1 is used to produce the Picked Fence Model- 30 such models can be produced If it is used to produce the Town House Model- 25 such model can be produced. Decide on the routes of transportation from El Cajon to distribution centers: The unit transportation costs from El Cajon depend on the mode and time of transportation. The cost of changing modes of transportation at a city (rail to truck, truck to rail, or track to ship) is 250 per vehicle. Various costs are as below given in the case. Table 2: Transportation cost and time from El cajon route to Distribution centers From Truck Routes El Cajon El Cajon Phoenix Phoenix Dallas Rapid City Rapid City Rapid City Chicago Chicago Oklahoma City Oklahoma City Oklahoma City Nashville Raleigh Rail Routes El Cajon Shipping Routes To Phoenix Dallas Rapid City Oklahoma City New Orleans Chicago Oklahoma City Nashville Nashville Raleigh New Orleans Nashville Raleigh Miami Miami Phoenix No. of Days 1 3 2 2 1 3 2 4 2 3 3 4 5 3 4 2 Cost/Day $375 $300 $250 $175 $300 $325 $250 $200 $300 $375 $225 $300 $200 $350 $250 $250

El Cajon Phoenix Chicago Chicago Oklahoma City Raleigh Boat Routes New Orleans

Dallas Rapid City Nashville Raleigh Raleigh Miami Miami

4 3 3 4 3 3 4

$350 $175 $200 $225 $250 $300 $400

Transportation of units to regional distribution centers by minimizing the transportation cost: Unit transportation charges are independent of the model shipped We need to minimize our transportation coat so as to increase our net profit of the year. Concluding Problem statement: First we need to decide on the number of units can be produced in building 4 at El Cajon plant, Based on that we need to allocate the model to buildings maximizing gross profit. (Figure 2:Consolidated diagram for all the possess and problems:)

Decide on the route of transportation to the distribution centers from El Cajon Plant and lastly solve it as a transportation problem minimizing the cost. QUESTION 1: Maximum production capacity of Gentle stream model at building 4 in El Cajon. The plant is being reconfigured and the building 4 depends on the sub-assemblies in order to execute the production process. Now the sub-assembly process has different production routes. The various production lines for sub-assembly are as following:-

Figure 1: Building 4 Subassembly Capacities for Gentle Stream Model In the above assembly setting there are two lines emerging out of the initial point. Now the line to node one has the capacity of 30 units and further the 20 units can move to node 3 and 10 units to node 4. This is because in case we move all the 30 units to node 3, there will be production congestion as the capacity to node 6 is just 20. So we move the maximum 20 units to node 3 and 10 to node 4. After this the units will move to the final node easily as the capacity is double than we need. For the second line of production of sub-assembly, we can only move 25 units to node

2. This is because the capacity of the lines to node 4 and 5 is only 10 and 15 only. So, 10 units will move from node 4 to node 7 and 15 units from node 5 to node 7. This will cause the output of 15 units from line 2. So the total number of units that can be produced from the sub-assembly is 55 Question 2 Which Building should produce which model at the El Cajon plant in order to maximize gross profit. (Ignore transportation costs in this analysis and discuss why this is probably valid with particular set of data. Discuss how the model would change if it were not valid)? ANSWER (A) In the previous question we determined from the network diagram of gentle stream in building 4 that we can produce 55 units of gentle stream in that building. We recreate the table below with this figure. Table 3: building allocation after B4 allocation B1 B2 B3 B4 Picket Fence 30 60 40 95 Town House 25 55 35 85 Gentle Stream 20 50 30 55 E1 Presidente 10 45 0 65

The table shows how much of each product that could be manufactured in the respective buildings B1, B2, B3 and B4. For example GSA can produce 30 units of picket fence in building B1, or 60 units in B2 and so on. We need to maximize the gross profit given the above table. It is also given that each building will produce only one product. Hence, we face an assignment problem and with the following given gross profit table we can find an optimum solution to assign a building to a particular product.

Table 4: Gross profit margin for all the models Model Picket Fence Town House Gentle Stream El Presidente Gross profit/unit $ 9,600 $ 11,520 $ 15,360 $ 19,200

By multiplying the figures in Table 3 by the respective gross profit values we get the following table:Table 5: Total gross profit
Picket Fence B1 B2 B3 B4 288000 576000 384000 912000 Town House 288000 633600 403200 979200 Gentle Stream 307200 768000 460800 844800 El Presidente 192000 864000 0 1248000

Using Vogel's method for maximization, the maximum gross profit we get is $2,707,200 and the assignments are highlighted in the table above. We summarize the assignments as follows: Table 6: Allocation of the models to building at El Cajon Plant Model Picket Fence Town House Gentle Stream El Presidente Building B1 B3 B2 B4 Units 30 35 50 65

We have obtained the above solution using the solver on excel as well and have obtained the same solution.

PART (B) Now the question clearly mentions that while formulating the model we have to ignore the transportation costs. Now for the given set of data of Gross profit, we can ensure the validity of the model of the allocation of various types of housing units to different buildings on the basis of the L.P.P method. Now the validity can change if the figures go beyond the allowable increase/decrease, as shown in the below sensitivity report. For example, in case of Picket fence, it has been allocated to building 1 and the allowable increase is infinity so in case the Gross profit figure exceed the given amount up to infinity then the model will still hold good but since the allowable decrease is $19200 which means that if the figure of gross profit falls below this limit then the model validity will be lost and new model will have to be formulated. Table 7: Sensitivity Analysis Report Cell $C$14 $D$14 $E$14 $F$14 $C$15 $D$15 $E$15 $F$15 $C$16 $D$16 $E$16 $F$16 $C$17 $D$17 $E$17 $F$17 Name Fence House Stream Presidente Fence House Stream Presidente Fence House Stream Presidente Fence House Stream Presidente Value 1 0 0 0 0 0 1 0 0 1 0 0 0 0 0 1 Cost 0 0 -38400 -249600 -134400 -76800 0 0 -19200 0 0 -556800 -182400 -115200 -307200 0 Coefficient 288000 288000 307200 192000 576000 633600 768000 864000 384000 403200 460800 0 912000 979200 844800 1248000 Increase 1E+30 19200 38400 249600 134400 76800 249600 115200 19200 38400 76800 556800 182400 115200 307200 1E+30 Decrease 19200 38400 1E+30 1E+30 1E+30 1E+30 76800 249600 1E+30 19200 38400 1E+30 1E+30 1E+30 1E+30 115200

QUESTION 3 The minimal total transportation costs from El Cajon to each of the distribution cities. (Discuss any time implications of your recommendations). In case of El Cajon plant of the GSA industry, the case mentions various routes that are available and the modes alternatives. There are three modes available: Truck, rail and boat. Below is the diagrammatic representation of the routes. The cost and time for the same is produced in the table 2.1 in problem statement:

Figure 3: Routes from El cajon to distribution centers (The green colored routes are selected as per minimum cost allocation.) Now on the basis of the above mentioned routes and modes we have the following alternatives available to transport the goods from El Cajon to Phoenix, Nashville

and Miami. We will choose the route from plant to the distribution center which will produce the minimum cost:-

Figure 4: All the routes cost calculation )El Cajon to Distribution centers So the minimum transportation costs are as following:Table 8: Consolidated minimum costs of transportation from El Cajon
DISTRIBUTION CENTER

1. Phoenix 2. Nashville 3. Miami Question 4:

MINIMUM COST ($) 375 1675 2625

The allocation of each housing model from each production city to each distribution city.

As now, we have decided on transportation routes and cost from El Cajon to distribution centers, we will allocate housing model to those regional distribution centers. (i.e. Phoenix, Nasville and Miami) Transportation cost for the as per our calculations mentioned in previous question. Table 9: Transportaion cost (El Cajon to Distribution Centers) From /To Phoenix El cajon 375 Nasville 1675 Miami 2625

Transportation cost from Elkhart to distribution centers: Table 10: Transportaion cost (Elkhart to Distribution Centers) From/To Phoenix Elkhart 1450 Nasville 725 Miami 2500

Supply and demand data: For El Cajon Plant (As per our calculation after allocating the models to buildings): For Elkhart Plant (As per given in the case): Table 11:Supply and demand data for each of the models Model Picket Fence Town House 50 60 80 60 75 90 205 210 100 75 30 130 35 110 Gentle Stream 60 30 85 175 75 50 125 El Presidente 90 20 90 200 120 65 185

Phoenix Nasville Miami Demand Production at Elkhart Plant Production at El cajol plant Total units available (Supply)

As per the table, we can see that company is in supply deficit for all the four products (models) so for solving it as a transportation problem we need to add dummy supplier in all the cases. Formulation for model Picket Fence: Table 12.1: Allocation of units of Picket Fence Picket Fence From/To Elkhart El Cajon dummy supplier Demand Phoenix 1450 375 99999 50 Nasville 725 1675 99999 80 Miami 2500 2625 99999 75 Supply 100 30 75 205

As mentioned above we have created dummy supplier here which will supply 75 units. We put cost for that supplier very high so as to avoid it from the solution. After solving it with the excel solver we got solution: Table 12.2: Allocation of units of Picket Fence

Total cost of this transportation is coming to $98250.

We also tried it by putting constraint of Allocated demand should be less than equal to the actual demand and we got the same answer for the both procedure. By same method we solved the problem for other three models. Solutions for those are as follow. Table 13: Allocation of units of Town House: Town House:

Table 14: Allocation of units of Gentle Stream: Gentle Stream:

Table 15: Allocation of units of El Presidente: El Presidente:

Table 16: Consolidated transportation cost and allocation of the models:

Question 5: Net profit of GSA for the year: The following statement consolidates all the costs and revenues for the year from which we can determine the net profits. Model Picket Fence Town House Gentle Stream El Presidente Total Revenue Transportation cost Fixed cost Over heads Total cost Net Profit total units 130 110 125 185 gross profit in $ 9,600 11,520 15,360 19,200 total gross profit in $ 1,248,000 1,267,200 1,920,000 3,552,000 7,987,200 581,750 3,000,000 2,000,000 5,581,750 2,405,450

Since it is given that whatever is produced by the firm will be sold because of favorable economic conditions, our revenues will be close to $ 8 million. The transportation cost is as calculated in the previous question. The fixed costs and overheads are given. We have a healthy profit of $2.4 million.

Recommendations: If we meet the total demand by the distribution centers i.e. Phoenix 260 Nashville 190 Miami 340 Then the Gross Profit would be 10,915,200 Our major constraint would of course be building additional capacity. There are two factors that we would need to consider. One is the cost of building and the other is time. The cost of building may not be that much of a hindrance as we have $2.4 million in profits and we would be able to raise additional funds because of our strong finances. The other factor, time, will be more of an issue in our case. As no one can predict the future, we may not have an indication of the future economic conditions which could affect our predictions of the demand being as high as it currently is.

Tables and figures: Figures: Figure 1: Building 4 Subassembly Capacities for Gentle Stream Model Figure 2: Consolidated diagram for all the possess and problems Figure 3: Routes from El Cajon to distribution centers Figure 4: All the routes cost calculation ) El Cajon to Distribution centers Tables: Table 1: building capacity for each model Table 2: Transportation cost and time from El Cajon route to Distribution centers Table 3: building allocation after B4 allocation Table 4: Gross profit margin for all the models Table 5: Total gross profit Table 6: Allocation of the models to building at El Cajon Plant Table 7: Sensitivity Analysis Report Table 8: Consolidated minimum costs of transportation from El Cajon Table 9: Transportaion cost (El Cajon to Distribution Centers) Table 10: Transportaion cost (Elkhart to Distribution Centers) Table 11:Supply and demand data for each of the models Table 12.1: Allocation of units of Picket Fence Table 12.2: Allocation of units of Picket Fence Table 13: Allocation of units of Town House: Table 14: Allocation of units of Gentle Stream: Table 15: Allocation of units of El Presidente:

Table 16: Consolidated transportation cost and allocation of the models: Table 17:Net profit calculation for the year(after fixed cost and overheads)