Case Problem 2: Phoenix Computer

Phoenix Computer manufactures and sells personal computers directly to customers. Orders are
accepted by phone and through the companys website. Phoenix will be introducing several new
laptop models over the next few months and management recognizes a need to develop technical
support personnel to specialize in the new laptop systems. One option being considered is to hire
new employees and put them through a three month training program. Another option is to put
current customer service specialists through a two-month training program on the new laptop
models. Phoenix estimates that the need for laptop specialists will grow from 0 to 100 during the
months of May through September as follows: May20; June30; July85; August85; and
September100. After September, Phoenix expects that maintaining a staff of 100 laptop
specialists will be sufficient.
The annual salary for a new employee is estimated to be $27,000 whether the person is hired to
enter the training program or to replace a current employee who is entering the training program.
The annual salary for the current Phoenix employees who are being considered for the training
program is approximately $36,000. The cost of the three-month training program is $1500 per
person, and the cost of the two-month training program is$1000 per person. Note that the length
of the training program means that a lag will occur between the time when a new person is hired
and the time a new laptop specialist is available. The number of current employees who will be
available for training is limited. Phoenix estimates that the following numbers can be made
available in the coming months:March15; April20; May0; June5; and July10. The
training center has the capacity to start new three-month and two-month training classes each
month; however, the total number of students (new and current employees) that begin training
each month cannot exceed 25.
Phoenix needs to determine the number of new hires that should begin the three-month training
program each month and the number of current employees that should begin the two-month
training program each month. The objective is to satisfy staffing needs during May through
September at the lowest possible total cost; that is, minimize the incremental salary cost and the
total training cost.

It is currently January, and Phoenix Computer would like to develop a plan for hiring new
employees and determining the mix of new hires and current employees to place in the training
program.
Managerial Report
Perform an analysis of the Phoenix Computer problem and prepare a report that summarizes your
findings. Be sure to include information on and analysis of the following items:
1. The incremental salary and training cost associated with hiring a new employee and training
him/her to be a laptop specialist.
2. The incremental salary and training cost associated with putting a current employee through
the training program. (Dont forget that a replacement must be hired when the current employee
enters the program.)
3. Recommendations regarding the hiring and training plan that will minimize the salary and
training costs over the February through August period as well as answers to these questions:
What is the total cost of providing technical support for the new laptop models? How much
higher will monthly payroll costs be in September than in January?

Analysis

Decision Variables:
X1= # of new employees entering the 3 months program in February
X2= # of new employees entering the 3 months program in March
X3= # of new employees entering the 3 months program in April
X4= # of new employees entering the 3 months program in May
X5= # of new employees entering the 3 months program in June

Y1= # of current employees entering the 3 months program in March

Y2= # of current employees entering the 3 months program in April
Y3= # of current employees entering the 3 months program in May
Y4= # of current employees entering the 3 months program in June
Y5= # of current employees entering the 3 months program in July

Z1= # of laptop specialists excess than requirement of May

Z2= # of laptop specialists excess than requirement of June
Z3= # of laptop specialists excess than requirement of July
Z4= # of laptop specialists excess than requirement of August
Z5= # of laptop specialists excess than requirement of September

The monthly cost of a new employees 27000/12=2250

Objective Function
Minimize Cost

Total Incremental Cost+ Training Cost=

8250*x1+5500*y1+2250*z1+8250*x2+5500*y2+2250*z2+8250*x3+5500*
y3+2250*z3+8250*x4+5500*y4+2250*z4+8250*x5+5500*y5+2250*z5;
Subject to:
Demand Constraints:
x1+y1-z1=20;
x1+y1+x2+y2-z2=30;
x1+y1+x2+y2+x3+y3-z3=85;
x1+y1+x2+y2+x3+y3+x4+y4-z4=85;
x1+y1+x2+y2+x3+y3+x4+y4+x5+y5-z5=100;
Availability of Current Employees constraints:
y1<=15;
y1+y2<=35;
y1+y2+y3<=35;
y1+y2+y3+y4<=40;
y1+y2+y3+y4+y5<=50;
Capacity of the training center Constraints:
x1<=25;
y1+x2<=25;
y2+x3<=25;
y3+x4<=25;
y4+x5<=25;
y5<=25;
Non-Zero Constrains:
Xi>0, Yi>0, Zi>0; (for all i= 1, 2, 3, 4, 5)

Lingo Solved
Global optimal solution found.
Objective value:
Infeasibilities:
Total solver iterations:
Elapsed runtime seconds:

698750.0
0.000000
13
0.05

Model Class:

LP

Total variables:
Nonlinear variables:
Integer variables:

15
0
0

Total constraints:
Nonlinear constraints:
Total nonzeros:
Nonlinear nonzeros:

17
75

0
0

Variable
X1
Y1
Z1
X2
Y2
Z2
X3
Y3
Z3
X4
Y4
Z4
X5
Y5
Z5
Row
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Value
10.00000
10.00000
0.000000
15.00000
0.000000
5.000000
25.00000
25.00000
0.000000
0.000000
0.000000
0.000000
0.000000
15.00000
0.000000

Reduced Cost
0.000000
0.000000
2250.000
0.000000
2250.000
0.000000
0.000000
0.000000
6750.000
4500.000
2250.000
0.000000
0.000000
0.000000
10500.00

Slack or Surplus
698750.0
0.000000
0.000000
0.000000
0.000000
0.000000
5.000000
25.00000
0.000000
5.000000
0.000000
15.00000
0.000000
0.000000
0.000000
25.00000
10.00000

Dual Price
-1.000000
0.000000
2250.000
-4500.000
2250.000
-8250.000
0.000000
0.000000
0.000000
0.000000
2750.000
0.000000
0.000000
2250.000
2250.000
0.000000
0.000000

Managerial Report
The monthly cost of a new employee is $27,000/12=$2,250. The training
program is 3 months for a new employee and costs $1,500. So the total cost

of hiring a new employee and training her/him to be a laptop specialist is:

3($2,250) + $1,500 = $8,250.
The training program is only 2 months for current employees and costs
$1,000. So a replacement employee will only need to be hired 2 months
before the laptop specialist is needed in this case. So the incremental cost of
putting a current employee through the training program is 2($2,250) +
$1,000 = $5,500.
Laptop Specialists Schedule:
New

Current

Month
Februar

Employees

Employees

y
March
April
May
June
July
Total

10
15
25

10
25

50

15
50

10
25
25
25
0
15
100

Total cost of providing technical support for the new models= $698,750
Here, 100 employees need to be hired who will be laptop specialists or
replace the current employees who will become laptop specialists, so the
companys monthly payroll cost will increase by 100*2250= $22,500 in
September over January.