Reep Construction recently won a contract for the excavation and site preparation of a new rest area on the Pennsylvania Turnpike. In preparing his bid for the job, Bob Reep, founder and president of Reep Construction, estimated that it would take four months to perform the work and that 10, 12, 14, and 8 trucks would be needed in months 1 through 4, respectively. The firm currently has 20 trucks of the type needed to perform the work on the new project. These trucks were obtained last year when Bob signed a long-term lease with PennState Leasing. Although most of these trucks are currently being used on existing jobs, Bob estimates that one truck will be available for use on the new project in month 1, two trucks will be available in month 2, three trucks will be available in month 3, and one truck will be available in month 4. Thus, to complete the project, Bob will have to lease additional trucks.

The long-term leasing contract with PennState charges a monthly cost of $600 per truck. Reep Construction pays its truck drivers $20 an hour, and daily fuel costs are approximately $100 per truck. All maintenance costs are paid by PennState Leasing. For planning purposes, Bob estimates that each truck used on the new project will be operating eight hours a day, five days a week for approximately four weeks each month.

Bob does not believe that current business conditions justify committing the firm to additional long-term leases. In discussing the short-term leasing possibilities with PennState Leasing, Bob learned that he can obtain short-term leases of one to four months. Short-term leases differ from long-term leases in that the short-term leasing plans include the cost of both a truck and a driver. Maintenance costs for short-term leases also are paid by PennState Leasing. The following costs for each of the four months cover the lease of a truck and driver:

Length of Lease	Cost per Month
1	$4000
2	$3700
3	$3225
4	$3040

Bob Reep would like to acquire a lease that minimizes the cost of meeting the monthly trucking requirements for his new project, but he also takes great pride in the fact that his company has never laid off employees. Bob is committed to maintaining his no-layoff policy; that is, he will use his own drivers even if costs are higher. Managerial Report (original questions) Perform an analysis of Reep Construction's leasing problem and prepare a report for Bob Reep that summarizes your findings. Be sure to include information on and analysis of the following items:

(Original Questions)

1. The optimal leasing plan

2. The costs associated with the optimal leasing plan

3. The cost for Reep Construction to maintain its current policy of no layoffs

Addendum to Case 8-3 Truck Leasing Strategy There are some minor problems with the way this case was written that makes it confusing and difficult to solve. To address these shortcomings, Ive (1) revised the assignment questions, and (2) listed a couple of tips that should help you get started. Revised Assignment questions:

1. If Reep Construction requires that the leasing plan must use the 1, 2, 3 and 1 trucks available from previous long-term lease agreements for months 1 to 4, respectively, and that Reep will not accept a surplus of trucks for any month of the four-month project, determine the optimal leasing plan. That is, identify the number of short-term leases, by month and length of lease, that Reep should obtain for each month to minimize their lease costs, while ensuring that the number of available trucks is equal to the companys needs for each month of the four-month project. We shall refer to this solution as the original formulation.

2. What are the costs associated with this optimal lease plan?

3. Identify and interpret the reduced cost for the decision variables and shadow price for the constraints in your original formulation.

4. What is the total project cost that Reep will experience for this contract?

5. Raylan, a Sr. Data Analyst at Reep, argued that if your original formulation includes sunk costs of previous long-term leases, then to get a better picture of Reeps total leasing costs for this project you should allow, but not require the use of trucks available under previous long-term leases. Following Raylans suggestions, which we shall call the revised formulation, what is the optimal leasing plan and associated costs?