Quantitative Methods II

A Case Study on The Acid Chemical Company: Planning an Outline Schedule for a Fleet of Road Tankers

Submitted to

Prof. Rajluxmi V. Murthy

Submitted By Group 12 Arnab Sengupta Gaurav Kumar Mayank Mishra Thilak Kumar S. Ravi Kumar Yadav 1111091 1111106 1111122 1111152 1111137

INDIAN INSTITUTE OF MANAGEMENT, BANGALORE

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

Executive Summary
The Transport Department of Acid Chemical Company operates a fleet of road tankers, which are used for carrying two chemical intermediates. One of these is called Acidic and has to be delivered to customers in various parts of the country from Acid Chemicals own factory on Teesside. The Acid Chemical Company manufactures Acidic which has to be transported to 10 different customers locations: Cardiff, Grimsby, Huddersfield, Hull, London, Blackpool, Manchester and Chester. It receives Caustic only from another company which is located in Huddersfield. The Caustic is used in the manufacture of other chemicals. The company has total 10 tankers, of 4 types, some of which have two compartments, for carrying Acidic and Caustic separately. A compartment carrying Acidic needs to be cleaned before it can be used for Caustic. Cleaning is allowed only once at the beginning of the year. Tankers are available to be used on average 60% of the year (5240 hours) and the remaining 40 percent of the time is used up in inspection and maintenance etc.

The total cost of operations consists of two components: The cost of a new tanker is about 8000 pounds. The cost of prepping an existing tanker is about 200 pounds, and the re-sale value of a tanker is roughly 3000 pounds. The cost running the tankers is proportional to distance covered @ 10p/ mile.

The Company needs to asses if the present fleet is capable of meeting next year demands at least cost and if not, what size of fleet is required and how to make modifications to the compartments and allocate tankers to suitable duties as to minimize the total cost.

We analyzed the problem with two different options. Firstly, we checked whether the forecasted demand be met by the current capacity or not. In our findings, we observed that the current capacity is not enough to meet the demand. So we formulated the situation as a linear programming optimization problem to calculate the minimum cost that the company has to endure to meet the requirements of its clients. We took number of tankers to be purchased, the number of tankers whose type needs to be interchanged and the number of trips that all the tankers of a particular type needs to make through a particular route as our decisions variables.

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

Constraints were set up using the time available and the requirement at the various locations, and the total cost was taken as the objective function.

Through our analysis, we found that the company needs to purchase 2 more tankers of type C and have 1, 3, 4 and 4 tankers of Type A, B, C and D respectively (after interchanging their types) to obtain a minimum cost of operation equal to 107669.40.

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

Problem Statement
The company will have certain number of tankers of Type A, B, C and D, each tanker having a certain carrying capacity of Acidic and Caustic (non-interchangeable) and are able to function for a maximum of 5240 hours a year. Each of the depots at the various locations has a minimum requirement for the chemicals. There are also certain constraints for off-loading the quantity of chemicals at the various depots. Depots at Huddersfield and Manchester C can accept a load of only 5.5 tons of Acidic, while all other depots do not accept anything less than 15 tons. The cost of adding a new tanker is 8000 whereas the cost of preparing an existing tanker for the road is 200. The cost of operating the tankers per unit distance is 10p. Our task is to minimize the cost for the company to meet the estimated demand for the ensuing year, keeping the above constraints in mind.

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

Options:
1. Existing Fleet with No Changes 2. Changing the existing fleet of tankers (Conversion + Buying new tankers)

Evaluation of Options: Option 1: Existing Fleet with No Changes To check the feasibility of transportation with the existing number of tankers, without adding any tankers and without cleaning. From the case facts we find that Type A can carry only acidic, while B can carry only caustic chemicals.

Consider Acidic requirement at locations where only Type A tankers can supply (since minimum order accepted by them is 15 ton)
Location Blackpool Manchester A Manchester B Chester Cardiff London Grimsby Hull Total Acidic Requirement 6000 4000 2200 6200 2000 900 650 350 22300 Number of trips 1356 Hours required 364 13.0 = 4732 243 12.5 = 3037.5 134 12.5 = 1675 376 23.0 = 8648 122 30.0 = 3660 55 26.0 = 1430 40 13.0 = 520 22 11.0 = 242 23944.5

Number of hours available for Type A tankers = 1 5240 = 5240 hrs. Number of hours required for Type A tankers = 23944.5 hrs. >> 5240 hrs.

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

So we can clearly see from the above condition that the available capacity is not enough for meeting the requirements given.

Option 2: Changing the existing fleet of tankers (Conversion + Buying new tankers) We form equations of objective function, variable constraints, time constraints, capacity constraints and equality constraints. We minimize the objective function

[ ( )

( (

))]

Where: The first term gives the total distance covered by all the tankers, multiplied by the cost per unit distance. The second term gives the fix cost incurred on acquiring new tanker, subsequently make them usable on road.

Our Objective is to minimise this cost incurred in transporting acidic and caustic from different places via 12 routes. Variables:
Variable Type Description X(i,j) is the number of trips through route j that the tankers of type i have to make. i = A, B, C and D j = 1, 2, 3 12 Total 48 variables Number of tankers of other types converted to Type A Number of tankers of other types converted to Type B Number of tankers of other types converted to Type C Number of tankers of other types converted to Type D Number of tankers bought of Type A

X(i,j)

Continuous Non-negative Integer Integer Integer Integer Integer Non-negative

A_Change B_Change C_Change D_Change A_Buy

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

B_Buy C_Buy D_Buy

Integer Non-negative Integer Non-negative Integer Non-negative

Number of tankers bought of Type B Number of tankers bought of Type C Number of tankers bought of Type D

Let P(j) and Q(j) be the Distance and the Duration associated with Route j
Route j 1 2 3 4 5 6 7 8 9 10 11 12 Journey Teesside Huddersfield return Teesside Blackpool return Teesside Blackpool Huddersfield Teesside Teesside Manchester A return Teesside Manchester B return Teesside Manchester B return Teesside Chester return Teesside Cardiff return Teesside London return Teesside London Huddersfield Teesside Teesside Grimsby return Teesside Hull return Constraint X(A,1) = 0 X(A,6) = 0 X(B,j) = 0 j = 2, 3, 4 12 X(C,j) = 0 j = 2, 3, 4, 5, 7, 8, 9, 10 11, 12 X(D,1) = 0 Distance P(j) (miles) 166 280 298 210 224 228 330 520 480 503 270 190 Reason Tanker of Type A cannot go to Huddersfield or Manchester C as these places can offload Acidic of only 5.5 tons and Type A can carry 16.5 tons. Tankers of Type B carry only Caustic, so they would only go to Huddersfield and no other location. Tankers of Type C can carry Acidic only to Huddersfield and Manchester C as other locations would require a minimum quantity of 15 tons. Tanker of Type D cannot go to Huddersfield or Duration Q(j) (hours) 11.0 13.0 15.0 12.5 12.5 12.0 23.0 30.0 26.0 30.0 13.0 11.0

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

X(D,6) = 0

Manchester C as these places can offload Acidic of only 5.5 tons and Type A can carry 16.5 tons. Number of trips made by tankers of a particular type along a particular route will necessarily have to be non-negative Tankers of Type A and B can be interchanged Tankers of Type C and D can be interchanged Number of tankers bought of each type are nonnegative numbers Number of tankers that are interchanged between types or bought are integers Number of hours a tanker of Type A can run in a year. Product of Q(j) and X(A,j) gives the amount of time required by all tankers of Type A in Route j. Sum of all such times gives the total time required by tankers of Type A in all 12 routes. Number of hours a tanker of Type B can run in a year.

5 6 7 8

X(i,j) >= 0 i = A, B, C, D j = 1, 2, 3 12 A_Change + B_Change = 0 C_Change + D_Change = 0 A_Buy, B_Buy, C_Buy, D_Buy>= 0 int(A_Buy, B_Buy, C_Buy, D_Buy) int(A_Change, B_Change, C_Change, D_Change) ( ( ) ( ))) ( )

10

( ( ) 11

)) ( )

( ( ) 12

)) ( )

Number of hours a tanker of Type C can run in a year.

( ( ) 13

)) ( )

Number of hours a tanker of Type D can run in a year.

14 15 16 17 18 19 20

16.5 [ X(B,1) + X(C,1) + X(C,6) ] + 5.5 [ X(D,3) + X(D,4) + X(D,5) + X(D,7) + X(D,8) + X(D,10) ] >= 53000 5.5 X(C,1) >= 9000 16.5 [ X(A,2) + X(A,3) + X(D,2) + X(D,3) ] >= 6000 16.5 [ X(A,4) + X(D,4) ] >= 4000 16.5 [ X(A,5) + X(D,5) ] >= 2200 5.5 X(C,6) >= 950 16.5 [ X(A,7) + X(D,7) ] >= 6200

Requirement of Caustic at Teesside Requirement of Acidic at Huddersfield Requirement of Acidic at Blackpool Requirement of Acidic at Manchester A Requirement of Acidic at Manchester B Requirement of Acidic at Manchester C Requirement of Acidic at Chester

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

21 22 23 24

16.5 [ X(A,8) + X(D,8) ] >= 2000 16.5 [ X(A,9) + X(A,10) + X(D,9) + X(D,10) ] >= 900 16.5 [ X(A,11) + X(D,11) ] >= 650 16.5 [ X(A,12) + X(D,12) ] >= 350

Requirement of Acidic at Cardiff Requirement of Acidic at London Requirement of Acidic at Grimsby Requirement of Acidic at Hull

We will solve it now by putting all the constraints in excel sheet. We have minimized the cost using excel solver. It gives us three solutions:
Variables A_Change A_Buy Number of Type A Tankers B_Change B_Buy Number of Type B Tankers C_Change C_Buy Number of Type C Tankers D_Change D_Buy Number of Type D Tankers Objective Function Value Solution 0 0 1 0 0 3 -4 2 4 +4 0 4 105523.9

1) TO cater to the requirement in the optimum way we need only one tanker of type A. We need three type B tankers. We need four tankers of type C and type D each. We do not have tanker of type D, but can convert tanker of type C to type D. We would buy 2 tankers of type C and convert 4 tankers of type C to type D tankers. So our final combination would be (A,B,C,D) = (1,3,4,4)

We are taking solution (1, 3, 4, 4) for further analysis. Now calculating number of the trips by each type of tankers to different location would be following:

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

Value of X(i,j)s for Solution X 1 2 3 4 5 6 7 8 9 10 11 12 A 0 0 0 0 0 0 0 49.0101 54.54545 0 39.39394 21.21212 B 926.5846 0 0 0 0 0 0 0 0 0 0 0 C 1717.025 0 0 0 0 172.7273 0 0 0 0 0 0 D 0 0 363.6364 242.4242 133.3333 0 375.7576 72.20202 0 0 0 0

Further we need to test whether this solution satisfy all the constraints or not. By putting all these values into the constraints we get following values/slacks or rangeConstraints for Solution (1,3,4,4) Value(s) 1 2 3 4 5 6 7 8 9 10 0 0 0 0 0 1717.025 0 0 0-2 -2, -1, 0, 1, 2 3633.939 <= Type = = = = >= = = >= Constraint 0 0 0 0 0 0 0 0 integer 5240 Description Number of trips of Type A tankers to Huddersfield and Manchester C Number of trips of Type B tankers to locations other than Huddersfield Number of trips of Type B tankers to locations other than Huddersfield and Manchester C Number of trips of Type A tankers to Huddersfield and Manchester C Number of trips made by tankers of a particular type along a particular route Transfers between Type A and Type B tankers Transfers between Type C and Type D tankers Number of tankers bought of each type Number of tankers that are interchanged between types or bought are integers The number of hours a Type A tanker can run in a year.

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

11 12 13 14 15 16 17 18 19 20 21 22 23 24

10192.43 20960 20960 53000 9443.638 6000 4000 2200 950 6200 2000 900 650 350

<= <= <= >= >= >= >= >= >= >= >= >= >= >=

15720 20960 20960 53000 9000 6000 4000 2200 950 6200 2000 900 650 350

The number of hours a Type B tanker can run in a year. The number of hours a Type C tanker can run in a year. The number of hours a Type D tanker can run in a year. Requirement of Caustic at Teesside Requirement of Acidic at Huddersfield Requirement of Acidic at Blackpool Requirement of Acidic at Manchester A Requirement of Acidic at Manchester B Requirement of Acidic at Manchester C Requirement of Acidic at Chester Requirement of Acidic at Cardiff Requirement of Acidic at London Requirement of Acidic at Grimsby Requirement of Acidic at Hull

We can see constraints 1 to 24, none of these constraints are violated. It proves the feasibility of our solution. Since tanker trips cannot be floating value. We need to convert number of trips into the integer value. By converting floating number into the integer value we get following values:

Integral Value of X(i,j)s for Solution X 1 2 3 4 5 6 7 8 A 0 4 0 0 0 0 0 49 B 928 0 0 0 0 0 0 0 C 1716 0 0 0 0 173 0 0 D 0 0 360 243 134 0 376 73

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

9 10 11 12

55 0 40 22

0 0 0 0

0 0 0 0

0 0 0 0

Further we need to test whether this solution satisfy all the constraints or not. By putting all these values into the constraints we get following values/slacks and range-

Constraints for Solution with integral X(i,j) Value(s) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 0 0 0 0 0 1716 0 0 02 -2, -1, 0, 1, 2 3714 10208 20952 20950.5 53003.5 9438 <= <= <= <= >= >= Type = = = = >= = = >= Constraint 0 0 0 0 0 0 0 0 integer 5240 15720 20960 20960 53000 9000 Description Number of trips of Type A tankers to Huddersfield and Manchester C Number of trips of Type B tankers to locations other than Huddersfield Number of trips of Type B tankers to locations other than Huddersfield and Manchester C Number of trips of Type A tankers to Huddersfield and Manchester C Number of trips made by tankers of a particular type along a particular route Transfers between Type A and Type B tankers Transfers between Type C and Type D tankers Number of tankers bought of each type Number of tankers that are interchanged between types or bought are integers The number of hours a Type A tanker can run in a year. The number of hours a Type B tanker can run in a year. The number of hours a Type C tanker can run in a year. The number of hours a Type D tanker can run in a year. Requirement of Caustic at Teesside Requirement of Acidic at Huddersfield

Quantitative Methods II Case Study: Acid Chemical Company

Group 12 Section B

16 17 18 19 20 21 22 23 24

6006 4009.5 2211 951.5 6204 2013 907.5 660 363

>= >= >= >= >= >= >= >= >=

6000 4000 2200 950 6200 2000 900 650 350

Requirement of Acidic at Blackpool Requirement of Acidic at Manchester A Requirement of Acidic at Manchester B Requirement of Acidic at Manchester C Requirement of Acidic at Chester Requirement of Acidic at Cardiff Requirement of Acidic at London Requirement of Acidic at Grimsby Requirement of Acidic at Hull

Thus we can see that constraints one to constraints 24. None of them is violated by the solution. It proves feasibility of our solution.

Optimum Solution is (A, B, C, B) = (1, 3, 4, 4) Value of Objective Function with integral X(i,j)s = 105669.4 So total cost (including the fixed cost) = 105669.4 + 2000 = 107669.4