Royal Canin trying to make the most effective use of an organizations resources. Therefore, Royal Canin plan to produces two types of cat biscuits which are chicken-flavored and fish-flavored biscuits. Each formula has been created to deliver nutrition tailored to the cat health needs whatever their breed, age or lifestyle. It is costs $25 to make chicken-flavored biscuit and $30 to make fish-flavored. Based on the analysis of current inventory levels and outstanding orders, Royal Canins production manager has specified that at least 300 units of chicken-flavored and at least 200 units of fish-flavored must be produced during the next month. In addition, Royal Canin must produce a total of at least 600 units of the cat biscuits in the next month.

Royal Canin recognized that good inventory management is crucial. On the other hand, Royal Canin can reduce costs by reducing inventory. In addition, production may stop and customers become dissatisfied when an item is out of stock. Royal Canin fixed costs

total $205,000 per year, their labor costs are $30 per item and materials costs $20 per item. Royal Canin has relatively stable demand for its product throughout the year, with an annual total of 30,000 items. The cost of placing an order is estimated at $200 and the annual cost of holding inventory is estimated at 30% of any products value. The company purchases the items for $250.

Royal Canin location of a new factory, warehouse or distribution center is a strategic issue with substantial cost implications. Each new potential plant, warehouse or distribution center will require a different allocation of shipments depending on its own production and shipping costs and the costs of each existing facility. The choice of a new location depends on which will yield the minimum cost for the entire system. Royal Canin has three plants located at Des Moines, Evansville and Fort Lauderdale. Des Moines has 76 units of capacity, Evansville 82 units of capacity and Fort Lauderdale 77 units of capacity per period. All three plants supply three warehouses located at Albuquerque, Boston and Cleveland. The warehouse at Albuquerque requires 72 units per period; the warehouse at Boston requires 102 units per period; and the one at Cleveland requires 41 units per period. The costs of transporting each plant to each warehouse are as follows: Des Moines $4, $8, $8; Evansville $16, $24, $16; Fort Lauderdale $8, $16, $24.

The following network shows the different connecting cities and the distance of each connecting branch, in miles):

Based on the case above, answer following questions:

a. Formulate the linear programming problem for Royal Canin.

b. Solve this problem graphically, giving the optimal values of all variables.

c. What is the total cost of the cat biscuit using the optimal mix? How many of the cat

biscuits the operation manager must produce?

d. Amira Balqis, the Royal Canin marketing manager, expects to sell 3,0 00 items each year and wants the average price to be $100. Will Royal Canin break even with this strategy?

e. Would it better for Royal Canin to reduce their fixed costs from $205,000 to

$130,000 or to reduce their labour costs from $30 to $15?

f.How many items should the Royal Canin order at a time? What is the total cost of this

plan?

7. What would be the effect on holding costs and ordering costs if Royal Canin had to

order 600 items at a time?

8. Assuming annual demand for items increases from 30,000 to 35,000; the cost of holding stock is recalculated as 35% of the product value; and the cost of placing an order fall to $95, what is the new EOQ?

1. Formulate an initial feasible solution to Royal Canin transportation problem using the

northwest corner rule.

10. Use the stepping stone method to find the optimal solution that will minimize

transportation cost of this problem.

11. Determine a minimal spanning tree network that will connect all the cities from Royal

Canin Main Office (1) that will minimize their cost.

94 3 6 58 81 73 54 9 55 62 7 12 96 47 85 81 43 71 89 98 10 105 8 84 13 2 73 106 78 75 5 11 144 94 3 6 58 81 73 54 9 55 62 7 12 96 47 85 81 43 71 89 98 10 105 8 84 13 2 73 106 78 75 5 11 144