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AndrewCarter, Inc.

REVIEW OF THE CASE

AndrewCarter, Inc. (AC), is a major Canadian producer and distributor of outdoor

lighting fixtures. Its fixture is distributed throughout North America and has been in high

demand for several years. The company operates three plants that manufacture the fixture and

distribute it to five distribution centers (warehouses). During the present recession, AC has seen

a major drop in demand for its fixture as the housing market has declined.

Based on the forecast of interest rates, the head of operations feels that demand for

housing and thus for its product will remain depressed for the foreseeable future. AC is

considering closing one of its plants, as it is now operating with a forecasted excess capacity of

34,000 units per week. The forecasted weekly demands for the coming year are:

Warehouse 1 9,000 units


Warehouse 2 13,000 units
Warehouse 3 11,000 units
Warehouse 4 15,000 units
Warehouse 5 8,000 units

The plant capacities in units per week are

Plant 1, regular time 27,000 units


Plant 1, on overtime 7,000 units
Plant 2, regular time 20,000 units
Plant 2, on overtime 5,000 units
Plant 3, regular time 25,000 units
Plant 3, on overtime 6,000 units

OBJECTIVES
1. Evaluate the various configurations of operating and closed plants that will meet weekly

demand. Determine which configuration minimizes total costs.

2. Discuss the implications of closing a plant.

RELEVANT CASE FACTS AND ANALYSIS

If AC shuts down any plants, its weekly costs will change, as fixed costs are lower for a

non-operating plant. Table 1 shows production costs at each plant, both variable at regular time

and overtime, and fixed when operating and shut down. Table 2 shows distribution costs from

each plant to each warehouse (distribution center).

Table 1 AndrewCarter, Inc., Variable Costs and Fixed Production Costs per Week

Table 2 AndrewCarter, Inc., Distribution Costs per Unit

RESULTS
Plant Operation

The tables below presents various configurations of operating and closed plants that will

meet weekly demand, with configuration which minimizes total costs.

The lowest weekly total cost, operating plants 1 and 3 with 2 closed, is $217,430. This is

$3,300 per week ($171,600 per year) or 1.5% less than the next most economical solution,

operating all three plants. Closing a plant without expanding the capacity of the remaining plants

means unemployment. The optimum solution, using plants 1 and 3, indicates overtime

production of 4,000 units at plant 1 and 0 overtime at plant 3. The all-plant optima have no use of

overtime and include substantial idle regular time capacity: 11,000 units (55%) in plant 2 and

either 5,000 units in plant 1 (19% of capacity) or 5,000 in plant 3 (20% of capacity). The idled

capacity versus unemployment question is an interesting, nonquantitative aspect of the case and

could lead to a discussion of the forecasts for the housing market and thus the plants product.

There are three alternative optimal producing and shipping patterns, where R.T. =

regular time, O.T. = overtime, and W = warehouse. The next table presents the optimum

producing and shipping pattern.


CONCLUSION

This case presents some of the basic concepts of aggregate planning by the transportation

method. The case involves solving a rather complex set of transportation problems. Four

different configurations of operating plants have to be tested. The solutions, although requiring

relatively few iterations to optimality, involve degeneracy if solved manually.

RECOMMENDATION

Getting the solution manually should not be attempted using the northwest corner rule. It

will take eight tableaux to do the all plants configuration, with degeneracy appearing in the

seventh tableau; the 1 and 2 configuration takes five tableaux; and so on.