Solutions Plus Is An Industrial Chemicals Company

Case Study Analysis: Abstract This analysis examines freight cost and cleaning fluid supplies at two locations; Cincinnati and Oakland, to determine the optimal distribution network to supply the cleaning fluid to Great North American at minimal cost to Solutions Plus. Based on projected cost a bid recommendation is made and decision factors related to the analysis are discussed. Keywords: Solutions Plus, Cost minimization, Breakeven, Bid, Shipping Cost Background Solutions Plus is an industrial chemicals company that produces cleaning fluids and solvents for many applications.

Great North American railroad is taking bids for delivery of a cleaning fluid for its locomotives at eleven different locations. Solutions Plus can produce the cleaning fluid for $1. 20 per gallon at their Cincinnati plant. The management team has elected to limit capacity at the Cincinnati plant to 500,000 gallons. Solutions Plus also negotiated with an industrial chemical company in Oakland, California to produce and ship up to 50,000 gallons of the locomotive cleaning fluid at $1. 65 per gallon. Higher cost at the Oakland plant can be offset by lower shipping costs to some of the customer’s locations.

Total supply of cleaning fluid available to Solutions Plus equates to 550,000 gallons. Great North American railroad demand for the cleaning fluid for the eleven locations is approximately 990,000 gallons. Bid Recommendation The available data was analyzed to make a decision on how to distribute the available resources based on the freight and production costs of the cleaning fluid at each plant. Based on the cost information provided, Solutions Plus has determined that not all locations can be serviced.

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Oakland Lloyd Sample

Thus, considerations for the transportation problem are evaluated in order to find a feasible solution that also minimizes total cost for Solutions Plus. The main issues that constrain the feasible solution are total supply is not equal to total demand, and unacceptable routes. The first issue of total demand at the eleven locomotive locations exceeding total capacity at the two supply locations is addressed by adding a dummy supply location to meet the excess demand of 440,522 gallons. This also leads into the route capacity constraint.

Oakland capacity is limited to 50,000 gallons and Cincinnati capacity to 500,000 gallons. The shipping cost and/or unavailability of transportation between the plants and some locomotive locations will eliminate some of the routes due to cost inefficiency. These routes are the unacceptable routes and will not be considered for distribution from the specified plant. By removing unacceptable routes, Solutions Plus is able to build a linear programming solution to determine which plant/locomotive location combinations are optimal.

Based on the shipping cost provided, the routes that are eliminated are as follows: 1) From Cincinnati to Santa Ana, Los Angeles, Glendale, and Sacramento 2) From Oakland to Houston, Kansas City, Jacksonville, Little Rock, and Bridgeport In order to minimize cost, the 500,000 gallons of cleaning fluid from the Cincinnati plant will be distributed as follows: 1) El Paso – 6,583 at a cost of $13,429. 67 2) Pendleton – 80,290 at a cost of $162,988. 70 3) Houston – 100,447 at a cost of $165,737. 55 4) Kansas City – 106,279 at a cost of $165,795. 99 ) Jacksonville – 48,285 at a cost of $74,359. 33 6) Little Rock – 88,335 at a cost of $136,036. 33 7) Bridgeport – 69,780 at a cost of $107,460. 86 The 50,000 gallons of cleaning fluid from the Oakland plant will be distributed as follows: 1) El Paso – 190 at a cost of $455. 02 2) Sacramento – 49,810 at a cost of $89,657. 30 Total capacity for both plants will service seven locomotive locations at a minimum cost of $915,920. 77. This final bid for Solutions Plus, which includes a 15% markup, for Great North American, should be $1,053,656. 60. Decision Factors

The bid recommendation above is based upon current information and prior management team decisions. However we strongly recommend that management consider the following points before submitting a bid * Capacity: Will great North American seriously entertain a bid that meets only part of their demand? Management previously decided to limit the number of gallons of cleaning fluid produced at the Cincinnati Plant. This decision should be reevaluated to determine if we could improve our chances of having an acceptable bid by increasing our capacity.

In addition we should examine the possibility of contracting with another industrial chemical company to produce and ship additional product. As a result of our analysis there is unmet demand at the following locomotive locations; Santa Ana, El Paso, Kansas City, Los Angeles, Glenda, Jacksonville, Little Rock, Bridgeport, and Sacramento. If we contract with another supplier, these locations should be kept in mind. * Fuel Cost: Our analysis was based on current shipping costs.

Since freight costs can be significantly impacted by the price of oil, we investigated current forecasts for oil prices in the near future. The US Energy Information Administration expects fuel prices to remain relatively flat for the upcoming year. Given the approximately 30% increase in the past two years we can reasonably anticipate additional increases before the end of our contract period. Any increases in shipping cost will erode our profit margin. * Breakeven Point: The minimum cost projected by Solutions Plus is $915,920. 77. Our recommended bid of $1,053,656. 0 would include the standard Solutions Plus markup of 15%. If fuel prices increase as much as 30% over the next two years total costs will increase by about $70,000, which requires a markup of 8% to breakeven. Reference Anderson, D. , Sweeney, D. , Williams, T. , Camm, J. , & Martin, K. (2011). An introduction to management science quantitative approaches to decision making. (13 ed. , p. 306). Mason, OH: South-Western Cengage Learning. Government, US. (2011, November 08). Short-term energy outlook. Retrieved from http://www. eia. gov/forecasts/steo/