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Aire Solutions:

Aire Solutions is a mature company that has supplied industrial air handlers for nearly 20 years
to 5 major HVAC specialist in North America. Recent improvements in their manufacturing
process have resulting in increased capacity at all of their production facilities. However, no
demand growth is expecting in their market.

Currently they operate 6 manufacturing plants and 4 warehouses to supply their 5 customers.
They have determined they no longer need to operate all of their facilities to effectively meet
demand and they wish to capitalize on the increased production at each plant by reducing the
number of both plants and warehouses that they operate. Create a spread sheet to determine
which plants and warehouses they should operate in order to meet demand in the most effective
manor. The company has offered all displaced employees the opportunity to relocate to any of
the plants which will remain open with a COLA indexed to the new city (if they do not wish to
move they may accept a generous pension). The necessary data are provided below.

Table 1. Cost of manufacturing and shipping from each plant to each warehouse, monthly fixed
cost of operating each plant and capacity.
Warehouse 1 Warehouse 2 Warehouse 3 Warehouse 4 Fixed Cost Capacity
Plant 1 $700 $1,000 $900 $1,200 $55,000 300
Plant 2 $800 $500 $600 $700 $40,000 200
Plant 3 $850 $600 $700 $500 $45,000 300
Plant 4 $600 $800 $500 $600 $50,000 250
Plant 5 $500 $600 $450 $700 $42,000 350
Plant 6 $700 $600 $750 $500 $40,000 400

Table 2. Per unit cost of shipping from each warehouse to each customer along with the monthly
fixed cost of operating each warehouse.
Customer 1 Customer 2 Customer 3 Customer 4 Customer 5 Fixed Cost
Warehouse 1 $40 $80 $60 $90 $50 $40,000
Warehouse 2 $60 $50 $75 $40 $35 $50,000
Warehouse 3 $55 $40 $65 $60 $80 $35,000
Warehouse 4 $80 $30 $80 $50 $60 $60,000

Table 3.Monthly demand for each customer

Customer 1 Customer 2 Customer 3 Customer 4 Customer 5


Demand 200 300 200 150 250