CaseAssignment 0222

Topics: Costs, Case study, Lernaean Hydra Pages: 7 (1687 words) Published: December 5, 2014
The University of Wisconsin – Milwaukee
Business Administration 478-Supply Chain Analytics
Case Assignment 02 – Dec. 8 at 5:30 PM
Note 1: There are three case studies in this assignment. Each group should select only one case study. Also, each group is required to submit a written report in doc file along with Excel file to D2L dropbox that is assigned to the project. Note 2: These case studies can be done in self-selected of groups of at most 5 people. A single grade will be assigned to the group. It is expected that all group members do the fair amount of work and equal contribution.



Giant Motor Company
This case deals with strategic planning issues for a large company. The main issue is planning the company’s production capacity for the coming year. At issue is the overall level of capacity and the type of capacity—for example, the degree of flexibility in the manufacturing system. The main tool used to aid the company’s planning process is a mixed integer linear programming (MILP) model. A mixed integer program has both integer and continuous variables.

Problem Statement
The Giant Motor Company (GMC) produces three lines of cars for the domestic (U.S.) market: Lyras, Libras, and Hydras. The Lyra is a relatively inexpensive subcompact car that appeals mainly to first-time car owners and to households using it as a second car for commuting. The Libra is a sporty compact car that is sleeker, faster, and roomier than the Lyra. Without any options, the Libra costs slightly more than the Lyra; additional options increase the price. The Hydra is the luxury car of the GMC line. It is significantly more expensive than the Lyra and Libra, and it has the highest profit margin of the three cars. Retooling Options for Capacity Expansion

Currently GMC has three manufacturing plants in the United States. Each plant is dedicated to producing a single line of cars. In its planning for the coming year, GMC is considering the retooling of its Lyra and/or Libra plants. Retooling either plant would represent a major expense for the company. The retooled plants would have significantly increased production capacities. Although having greater fixed costs, the retooled plants would be more efficient and have lower marginal production costs—that is, higher marginal profit contributions. In addition, the retooled plants would be flexible—they would have the capability of producing more than one line of cars. The characteristics of the current plants and the retooled plants are given in Table 1.1. The retooled Lyra and Libra plants are prefaced by the word new. The fixed costs and capacities in Table 1.1 are given on an annual basis. A dash in the profit margin section indicates that the plant cannot manufacture that line of car. For example, the new Lyra plant would be capable of producing both Lyras and Libras but not Hydras. The new Libra plant would be capable of producing any of the three lines of cars. Note, however, that the new Libra plant has a slightly lower profit margin for producing Hydras than the Hydra plant. The flexible new Libra plant is capable of producing the luxury Hydra model but is not as efficient as the current Hydra plant that is dedicated to Hydra production.

The fixed costs are annual costs incurred by GMC, independent of the number of cars produced by the plant. For the current plant configurations, the fixed costs include property taxes, insurance, payments on the loan that was taken out to construct the plant, and so on. If a plant is retooled, the fixed costs will include the previous fixed costs plus -2-

the additional cost of the renovation. The additional renovation cost will be an annual cost representing the cost of the renovation amortized over a long period. Table 1.1 Plant Characteristics

Capacity (in 1000s)
Fixed cost ($millions)


New Lyra New Libra
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