Case Studies

Andrew-Carter, Inc.
Andrew-Carter, Inc. (A-C), is a major Canadian producer and distributor of outdoor lighting
fixtures. Its products are distributed throughout South and North America and have been in high demand
for several years. The company operates three plants to manufacture fixtures and distribute them to five
distribution centers (warehouses).
During the present global slowdown, A-C has seen a major drop in demand for its products, largely
because the housing market has declined. Based on the forecast of interest rates, the head of operations
feels that demand for housing and thus for A-C’s products will remain depressed for the foreseeable future.
A-C is considering closing one of its plants, as it is now operating with a forecast excess capacity of 34,000
units per week. The forecast weekly demands for the coming year are as follows:

Warehouse 1 9,000 units

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

Plant capacities, in units per week, are as follows:

Plant 1, regular time 27,000 units

Plant 1, on overtime 7,000

Plant 2, regular time 20,000

Plant 2, on overtime 5,000

Plant 3, regular time 25,000

Plant 3, on overtime 6,000

If A-C shuts down any plants, its weekly costs will change, because fixed costs will be lower for a
nonoperating plant. Table 13.9 shows production costs at each plant, both variable at regular time and
overtime, and fixed when operating and shutdown. Table 13.10 shows distribution costs from each plant to
each distribution center.

Discussion Questions

1. Evaluate the various configurations of operating and closed plants that will meet weekly demand.
Determine which configuration minimizes total costs.
2. Discuss the implication of closing plant.
No.1

Configuration 1 : Operating Plant

Step 1

Over Time Capacity (unit)

Regular Time (unit) Total (unit)
(unit) Warehouse 1 9000
Plant 1 11000 0 11000 Warehouse 2 13000
Plant 2 20000 0 20000 Warehouse 3 11000
Plant 3 25000 0 25000 Warehouse 4 15000
Total 56000 Warehouse 5 8000
Total 56000

Step 2

Total
Regular Time Over Time Operating Non-operating
(dollar)
Plant 1 $30,800.00 $0.00 $14,000.00 $0.00 $44,800.00
Plant 2 $55,600.00 $0.00 $12,000.00 $0.00 $67,600.00
Plant 3 $68,000.00 $0.00 $15,000.00 $0.00 $83,000.00
Total $195,400.00

Step 3

Plant 1 Plant 2
Distribution Unit (unit) Distribution Unit (unit)
Warehouse 1 0 Warehouse 1 9000
Warehouse 2 13000 Warehouse 2 0
Warehouse 3 0 Warehouse 3 11000
Warehouse 4 15000 Warehouse 4 0
Warehouse 5 0 Warehouse 5 0

Plant 3
Distribution Unit (unit)
Warehouse 1 0
Warehouse 2 0
Warehouse 3 0
Warehouse 4 0
Warehouse 5 8000
Step 4

Plant 1 Plant 2
Distribution Cost (dollar) Distribution Cost (dollar)
Warehouse 1 $0.00 Warehouse 1 $3,600.00
Warehouse 2 $5,720.00 Warehouse 2 $0.00
Warehouse 3 $0.00 Warehouse 3 $5,500.00
Warehouse 4 $6,900.00 Warehouse 4 $0.00
Warehouse 5 $0.00 Warehouse 5 $0.00
Total $12,620.00 Total $9,100.00

Plant 3
Distribution Cost (dollar)
Warehouse 1 $0.00
Warehouse 2 $0.00
Total Distriibution Cost $24,520.00
Warehouse 3 $0.00
Warehouse 4 $0.00
Warehouse 5 $2,800.00
Total $2,800.00

Step 5

Total Cost $219,920.00

Configuration 2 : Closed Plant

Step 1

Over Time Capacity (unit)

Regular Time (unit) Total (unit)
(unit) Warehouse 1 9000
Plant 1 0 0 0 Warehouse 2 13000
Plant 2 20000 5000 25000 Warehouse 3 11000
Plant 3 25000 6000 31000 Warehouse 4 15000
Total 56000 Warehouse 5 8000
Total 56000
Step 2

Total
Regular Time Over Time Operating Non-operating
(dollar)
Plant 1 $0.00 $0.00 $0.00 $6,000.00 $6,000.00
Plant 2 $55,600.00 $17,400.00 $12,000.00 $0.00 $85,000.00
Plant 3 $68,000.00 $20,520.00 $15,000.00 $0.00 $103,520.00
Total $194,520.00

Step 3

Plant 1 Plant 2
Distribution Unit (unit) Distribution Unit (unit)
Warehouse 1 0 Warehouse 1 9000
Warehouse 2 13000 Warehouse 2 0
Warehouse 3 0 Warehouse 3 11000
Warehouse 4 15000 Warehouse 4 0
Warehouse 5 0 Warehouse 5 0

Plant 3
Distribution Unit (unit)
Warehouse 1 0
Warehouse 2 0
Warehouse 3 0
Warehouse 4 0
Warehouse 5 8000

Step 4

Plant 1 Plant 2
Distribution Cost (dollar) Distribution Cost (dollar)
Warehouse 1 $0.00 Warehouse 1 $3,600.00
Warehouse 2 $5,720.00 Warehouse 2 $0.00
Warehouse 3 $0.00 Warehouse 3 $5,500.00
Warehouse 4 $6,900.00 Warehouse 4 $0.00
Warehouse 5 $0.00 Warehouse 5 $0.00
Total $12,620.00 Total $9,100.00
 Plant 3
Distribution Cost (dollar)
Warehouse 1 $0.00
Warehouse 2 $0.00
Total Distribution Cost $24,520.00
Warehouse 3 $0.00
Warehouse 4 $0.00
Warehouse 5 $2,800.00
Total $2,800.00

Step 5

Total cost $219,040.00

Dari perhitungan yang telah dilakukan diketahui bahwa total cost dari konfigurasi 1 (Operating
Plant) adalah sebesar $219,920.00 dan total cost untuk konfigurasi 2 (Closed Plant) adalah sebesar
$219,040.00, dapat diketahui bahwa total cost yang paling rendah adalah total cost pada konfigurasi 2
(Closed Plant). Setelah melakukan analisis dari perhitungan total cost antara dua konfigurasi didapatkan
bahwa kofigurasi 2 (Closed Plant) memiliki total cost yang paling rendah sehingga konfigurasi yang dipilih
untuk menekan total cost adalah konfigurasi 2 yaitu dengan cara menutup Plant 1.