Formulate a linear program which can be used to generate a comprehensive plan for the whole Far Eastern operations.

Clearly define every variable used in your formulation. Start your report with an executive summary containing the most important results and recommendations. Attach supporting material in Appendices. 

1. Solve your linear program. How many barrels of crude should Global Oil purchase from Saudi Arabia for its Far Eastern operations? How much crude should be refined in Australia? How much in Japan? Provide tables showing the quantities of gasoline and distillate shipped from each of the two refineries and from the U.S. to each of the four market areas.

2. Use sensitivity analysis to answer the following questions. 

a) What is the marginal value of increasing supply from Brunei fields? Can this marginal value be used to estimate the total savings for Far Eastern operations if 41,000 b/d are supplied from Brunei fields instead of 40,000? Explain. 

b) What is the marginal value of increasing the tanker fleet? Can this marginal value be used if we want to increase the size to 7 tankers (from the current size of 6.5)? Explain. 

c) What is the additional cost to Far Eastern operations if demand for gasoline in the Philippines increases to 5,200 b/d? What is the minimum price of gasoline in the Philippines that would make it profitable for Global Oil to consider such an increase in distribution? 6 

d) By how much should the production costs be reduced at the refinery in Japan when operating at high process intensity in order to make it cost effective to use Saudi crude? 

e) Global Oil is planning a three day shutdown of its Australian refinery for maintenance purposes, in the coming year. It has storage facilities and at least two weeks of inventories, so a refinery shutdown for a few days will not disrupt distribution. What would be the cost of a planned shutdown of the refinery in Australia for three days per year? Same question for the refinery in Japan. 

f) Currently, it is not economical to ship US distillate to the Philippines. What is the cost of US distillate at which Global Oil should consider starting such shipments?

3. Several opportunities present themselves to the Global Oil company (see the attached memos). Consider combinations of these options and prepare a recommendation. Document your report.

 

 
 

linear programming models involving approximately 300 variables and 100 constraints for making detailed decisions on a daily or weekly basis. For annual planning purposes the refinery model is greatly simplified. The two crudes (Saudi and Brunei) are input. Two general products are output. They are: (a) gasoline products, and (b) other products such as distillate, fuel oil, etc. In addition, although the refinery has processing flexibility that permits a wide range of yields, for planning purposes it was decided to include only the values at highest and lowest conversion rates (process intensity). Each refinery could use any combination of the two extreme intensities. These yields are shown in Table 1. The incremental costs of operating the refinery depend somewhat upon the type of crude and process intensity. These costs are shown in Table 1. Also shown are the incremental. transportation costs from either Borneo or Saudi Arabia. Marketing Operations Marketing is conducted in two home areas (Australia and Japan) as well as in the Philippines and New Zealand, Demand for gasoline and distillate in all areas has been estimated for 2008. Table 1. Refinery Operations Area Australia Japan Philippines New Zeeland Total 2008 Demand (000s of b/d). Gasoline Distillate Capacity (b/d of input) Saudi Crude Transportation Cost ($/b) High Process Intensity ($/b) Yield of Gasoline Yield of Distillate Low Process Intensity (S/b) Yield of Gasoline Yield of Distillate 9.0 3.0 5.0 5.4 22.4 Australia 50,000 0.65 1.19 0.31 0.61 0.89 0.19 0.73 21.0 12.0 8.0 8.7 49.7 Japan 30,000 0.70 1.26 0.30 0.62 0.88 0.18 0.74 3