Consider a Small Company That Produces a Single Product in Two

question 2

Essay

Consider 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 now needs to decide where to locate the company's new warehouse(s).There are three locations 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 (if open),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.Formulate and solve a BIP model in a spreadsheet to determine which warehouse(s)should be used and how the product should be distributed from plant to warehouse(s)to customer. Shipping Costs and Capacity of the Plants Fixed Cost,Shipping Costs,and Capacity of the Warehouses

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Definitions:

Stock Dividend

A dividend payment made to shareholders in the form of additional shares, rather than cash, based on the proportion of shares already held.

Common Stock

A type of equity security that represents ownership in a corporation, giving shareholders the right to vote on corporate matters and receive dividends.

Dividend Payable

A liability reported on a company's balance sheet for dividends declared by the board of directors but not yet paid out to shareholders.

Retained Earnings

The portion of net income not distributed as dividends but retained by the company to reinvest in its core business or to pay debt.