CASE STUDY 391 Case Study Andrew-Carter, Inc. Andrew-Carter, Inc. (A-C), is a major Canadian producer and distributor of outdoor lighting fixtures. Its fixture is distributed throughout North America and has been in high demand for several years. The company operates three plants that manufac- ture the fixture and distribute it to five distribution centers (warehouses). During the present recession, A-C has seen a major drop in demand for its fixture as the housing market has declined. Based on the forecast of interest rates, the head of operations feels that demand for housing and thus for its product will re- main depressed for the foreseeable future. A-C is considering closing one of its plants, as it is now operating with a forecasted excess capacity of 34,000 units per week. The forecasted weekly demands for the coming year are Warehouse 1 9,000 units Warehouse 2 13,000 units Warehouse 3 11,000 units Warehouse 4 Warehouse 5 15,000 units 8,000 units The plant capacities in units per week are Plant 1, regular time Plant 1, on overtime Plant 2, regular time Plant 2, on overtime Plant 3, regular time Plant 3, on overtime 27,000 units 7,000 units 20,000 units 5,000 units 25,000 units 6,000 units If A-C shuts down any plants, its weekly costs will change, as fixed costs are lower for a nonoperating plant. Table 9.34 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and shut down. Table 9.35 shows distribution costs from each plant to each warehouse (distribution center). Discussion Questions 1. Evaluate the various configurations of operating and closed plants that will meet weekly demand. Determine which configuration minimizes total costs. 2. Discuss the implications of closing a plant. Source: Professor Michael Ballot, University of the Pacific. TABLE 9.34 Andrew-Carter, Inc., Variable Costs and Fixed PLANT VARIABLE COST FIXED COST PER WEEK OPERATING NOT OPERATING Production Costs per Week No. 1, regular time $2.80/unit $14,000 $6,000 No. 1, overtime 3.52 No. 2, regular time 2.78 12,000 5,000 No. 2, overtime 3.48 No. 3, regular time 2.72 15,000 7,500 No. 3, overtime 3.42 TABLE 9.35 TO DISTRIBUTION CENTER Andrew-Carter, Inc., FROM PLANT WI W2 W3 W4 W5 Distribution Costs per Unit No. 1 $0.50 $0.44 $0.49 $0.46 $0.56 No. 2 0.40 0.52 0.50 0.56 0.57 No. 3 0.56 0.53 0.51 0.54 0.35