Problem 1:

(A) Consider a company making a single product. The demand for the next four days is 60, 200, 160 and 100
units. The company employs 15 people and each person works for 8 hours daily. Each person makes one
unit of the product/hour. The employees can work for 1 extra hour per day overtime. The costs of
regular and over time production are Tk. 80 and 120 per product. The company has to meet the daily
demand but can produce more and store them for further use at Tk. 4/unit/day. The company can get the
product made outside and buy it at Tk. 125/unit. If the company does not use an employee, it costs
Tk. 60/hour. Find the least cost production plan.

(B) The company uses a different kind of a costing system by which the cost of labor is separated
from the cost of the products made. Cost of regular time labor is Tk. 60/hour and cost of overtime labor is
Tk. 100/hour. The material cost is Tk. 20/unit. The company starts with 15 people and can add or layoff
people. The persons employed for the day have to be paid Tk. 480/day whether they make products or
not. Additional cost of hiring a person is Tk. 200/person and cost of layoff is Tk. 200/person. The cost of
not utilizing the facility is Tk. 40/hour. The company is also exploring the possibility of the staff working for a
maximum of 2 hours overtime. Find the least cost plan under the new assumptions.

Problem 2 (Mini Case):

What a day! First being called into his boss’s office and then receiving an urgent telephone call from the
company president himself. Fortunately, he was able to reassure them that he has the situation under control.
Although his official title is supply chain management for the BMZ Company, Karl Schmidt often tells his friends
that he really is the company’s crisis manager. One crisis after another. The supplies needed to kip the
production lines going haven arrived yet. Or the supplies have arrived but are unusable because they are the
wrong size. Or an urgent shipment to a key customer has been delayed. This current crisis is typical. One of
the company’s most important distribution centers – the one in Los Angeles – urgently needs an increase flow
of shipments from the company.

Karl was chosen for this key position because hi is considered a rising young star. Having just received his
MBA degree from a top American business school four years ago, he is the youngest member of upper-level
management in the entire company. His business school training in the latest management science techniques
has proven invaluable in improving supply chain management throughout the company. The crisis still occurs,
but the frequent chaos of past years has been eliminated. Karl has a plan for dealing with the current crisis.
This will mean calling on management since once again.

Background
The BMZ Company is European manufacturer of luxury automobiles. Although its cars sell will in all the
develop countries, its exports to the United States are particularly important to the company.
BMZ has a well-deserved reputation for providing excellent service. One key to maintaining this reputation is
having a plentiful supply of automobile replacement parts readily available to the company’s numerous
dealerships and authorized repair shops. These parts are mainly stored in the company’s distribution centers
and then delivered promptly when needed. One of Karl Schmidt’s top priorities is avoiding shortages at this
distribution centers.
The company has several distribution centers in the United States. However, the closest one to the Los
Angeles center is over 1000 miles away in Seattle. Since BMZ cars are becoming especially popular in
California, it is particularly important to keep the Los Angeles center well supplied. Therefore, the fact that
supplies there are currently dwindling is a matter of real concern to BMZ top management –as Karl learned
forcefully today.

Most of the automobile replacement parts are produced at the company’s main factory in Stuttgart, Germany,
along with the production of new cars. It is this factory that has been supplying the Los Angeles center spare
pert. Some of these parts are bulky, and very large numbers of certain parts are needed. So the total volume of
the supplies has been relatively massive-over 300,000 cubic feet of goods arriving monthly. Now a much larger
amount will be needed over the next month to replenish inventory.
The Problem
Karl needs to execute a plan quickly for shipping as possible from the main factory to the distribution center in
Los Angeles over the next month. He already has recognized that this is a maximum flow problem-a problem of
maximizing the flow of replacement parts from the factory to this distribution center.
The factory is producing far more than can be shipped to this one distribution center. Therefore, the limiting
factor on how much can be shipped is the limited capacity of the company’s distribution network.

This distribution network is depicted in figure 1, where the nodes labeled ST and LA are the factory in Stuttgart
and the distribution center in Los Angeles, respectively. There is a rail head at the factory, so shipments first go
by rail to one of three European ports: Rotterdam (node RO), Bordeaux (node BO), and Lisbon (node LI).they
then go by ship to ports in the United States, either New York (node NY) or new Orleans (node NO). Finally
they are shipped by truck from these ports to the distribution center in Los Angeles.

The organizations operating these railroads, ships, and trucks are independently owned companies that ship
goods for numerous firms. Because of prior commitments to their regular customers, these companies are
unable to drastically increase the allocation of space to any single customer on short notice. Therefore, the
BMZ Co. is only able to secure a limited amount of shipping space along each shipping lane over the next
month. The amounts available are also given in figure 1, using units of hundreds of cubic meters.

Figure 1: The Distribution Network

RO

[60]
NY
[50]
[40] [80]

[70]
ST BO LA

[50] [70]
[40]
NO
[30]
LI

The diagram shows the distribution network, where the arc represents the shipping lanes, where the capacity of
each arc (given in square brackets along the arc) is the amount of shipping space available along that shipping
lane. The objective is to determine how much flow to send through each shipping lane to maximize the total
number of units flowing from the factory in Stuttgart to the distribution centre in Los Angeles.
PROBLEM 3:

Aakash has just graduated from IBA and has joined a local company. As a present, his parents have given him
a fund of Tk, 21 lacs to help purchase and maintain a certain five year old used car (Don’t get excited, this is just
a hypothetical situation). Since operating and maintenance costs go up rapidly as the car ages, Aakash’s
parents tell him that he can trade in his car for another five year old car one or more times during the next three
years if he determines that this would minimize his total cost. Aakash plans to buy a new car with his own
money after 4 years.

Purchase price of a five year old car is Tk. 12 lacs. It is assumed that the price of a five year old car will remain
the same over the next 4 years. i.e, if he sells his car after using it for 2 years, he can buy another five year old
car at the same price i,e, Tk. 12 lacs.
The following table gives the relevant data for each time he purchases a used car.
Operation & Maintenance Costs for Trade in Value at End of Ownership Year
ownership year (in lacs) (in lacs)
1st Year 2nd Year 3rd Year 4th Year Year 1 Year 2 Year 3 Year 4
2 3 4.5 6.5 8.5 6.5** 4.5 3
** If he sells the car after using it for 2 years, the selling price would be Tk. 6.5 lacs

Whatever, he does, he won’t be without a reconditioned car during the four year period and he will sell the car
he possesses after the end of year 4 (because he will then have enough money to buy a new car).

Develop the LP model to find out the combination of selling and purchase(s) that will result in expense
minimization for the 4 year period.

_______________________________________________________________________________

Problem 4:

A cargo plane has three compartments for storing cargo: front, centre and rear. These compartments have the
following limits on both weight and space:

Weight capacity Space capacity

Compartment (Tons) (cubic metres)
Front 10 6800
Centre 16 8700
Rear 8 5300

Furthermore, the weight of the cargo in the respective compartments must be the same proportion of that
compartment's weight capacity to maintain the balance of the plane.

The following four cargoes are available for shipment on the next flight:

Weight Volume Profit

Cargo (Tons) (cubic metres/Ton) ($/Ton)
C1 18 480 310
C2 15 650 380
C3 23 580 350
C4 12 390 285

Any proportion of these cargoes can be accepted. The objective is to determine how much (if any) of each
cargo C1, C2, C3 and C4 should be accepted and how to distribute each among the compartments so that the
total profit for the flight is maximized.