YYZ Inc, a custom drum set manufacturer, has seen its demand grow significantly in recent times due to its quality and recent endorsements by big stars (e.g. Neil Peart, Steward Copeland, among others). The company anticipates a nationwide demand for the upcoming year of 110000 kits in East, 180000 in the South, 120000 in the Midwest, and 100000 in the West regions. The Supply Chain Manager along with its top Executive team are considering building a network of manufacturing facilities in four potential sites: New York, Atlanta, Chicago, and San Diego. Besides their location, the facilities could have a capacity of 200000 or 400000 drum sets per year. The annual fixed costs at each of the four locations along with the production and transportation costs for each of the markets are described in the table below.

Supply

                                                     New York                            Atlanta                                    Chicago                                     San Diego

Demand

East                                                 $ 211.00                           $ 232.00                               $ 238.00                                      $ 299.00

South                                            $ 232.00                             $ 212.00                               $ 230.00                                       $ 280.00

Midwest                                       $ 240.00                             $ 230.00                               $ 215.00                                       $ 270.00

West                                             $ 300.00                             $ 280.00                               $ 270.00                                       $ 225.00

Small Plant Cap                        200,000.00                          200,000.00                          200,000.00                                     200,000.00

Fixed Costs                           $ 6,000,000.00                   $ 5,500,000.00                     $ 5,600,000.00                                $ 6,100,000.00

Large Plant Cap                      400,000.00                      400,000.00                             400,000.00                                       400,000.00

Fixed Costs                              $ 10,000,000.00             $ 9,200,000.00                        $ 9,300,000.00                                 $ 10,200,000.00

Table 1. Production and Transportation Costs for YYZ, Inc.

MGT 351 Spring 2016

Case Study 2 2

1. Given the current conditions, where would YYZ Inc built its factories and how large should they be?

a. Express the model algebraically indicating the decision variables, objective function, and constraints.

b. Develop the model in Excel (name the file case2_1)

c. What is the total cost of this alternative?

2. Assume the shareholders are demanding that a manufacturing plant is built in every location being considered. Based on this, answer the following questions.

a. Express the model algebraically indicating the decision variables, objective function, and constraints.

b. Develop the model in Excel (name the file case2_2)

c. What is the total cost of this alternative?