New Bedford Steel (NBS) Coking Coal Supply Problem 1

NBS procures 1000 to 1500 kilo tons of coking coal per year , as a necessary raw material in the
production of steel. NBS has solicited and received bids from the following eight suppliers for next year.

Ashley Bedford Consol Dunby Earlam Florence Gaston Hopt

Capacity (ktons) 300 600 510 655 575 680 450 490
Union/ Nonunion U U N U N U N N
Truck/ Rail R T R T T T R R
Volatility (%) 15 16 18 20 21 22 23 25
Price ($/ton) 49.50 50.00 61.00 63.50 66.50 71.00 72.50 80.00

NBS is planning to accept bids for 1,225 kilotons of coking coal. This coal must have an average volatility
of at least 19%. NBS has decided to procure at least 50% of its coking coal from union mines . Finally,
capacity for bringing in coal by rail is limited to roughly 650 ktons per year, and capacity for bring in coal
by truck is limited to 720 ktons per year.

1This case has been prepared and written by Professor Rob Freund, MIT Sloan School of
Management.
Image from Lecture Notes of course # 2.851J on OpenCourseWare (ocw.mit.edu). (c) Stephen
Graves. (CC BY-NC-SA) 4.0
 Excel Spreadsheet for New Bedford Steel
•In the third row are the decision cells, and in the fourth row are the capacity limits.
• Rows 7 - 11 denote constraints on the procurement plan. The second column gives the limit
or target for the constraint. The third column is the value for the constraint for the given
purchase decisions. The rest of the columns denote the coefficients for the constraints.
• Row 14 records the cost for the procurement policy; column 3 will give the total cost, while
columns 4 - 11 give the per ton cost from each supplier.

Ashley Bedford Consol Dunby Earlam FlorenceGaston Hopt

Amount from 0 0 0 0 0 0 0 0
Capacity 300 600 510 655 575 680 450 490

Limit
Supply 1225 0 1 1 1 1 1 1 1 1
Volatility 0.00 0.00 -0.04 -0.03 -0.01 0.01 0.02 0.03 0.04 0.06
Union 0 0 1 1 -1 1 -1 1 -1 -1
Truck 720 0 1 1 1 1
Rail 650 0 1 1 1 1

TOTAL
COST 0 49.50 50.00 61.00 63.50 66.50 71.00 72.50 80.00
 Excel Spreadsheet for New Bedford Steel
Optimal Solution
• The third row gives the optimal values for the decision variables. The optimal value of the
objective function is row 14, column 3: the minimum total cost.
• Rows 7 - 11 denote constraints on the procurement plan. The second column gives the limit
or target for the constraint. The third column now gives the value for the constraint for the
given (optimal) purchase decisions.

Ashley Bedford Consol Dunby Earlam FlorenceGaston Hopt

Amount from 55 600 0 20 100 0 450 0
Capacity 300 600 510 655 575 680 450 490

Limit
Supply 1225 1225 1 1 1 1 1 1 1 1
Volatility 0.00 0.00 -0.04 -0.03 -0.01 0.01 0.02 0.03 0.04 0.06
Union 0 125 1 1 -1 1 -1 1 -1 -1
Truck 720 720 1 1 1 1
Rail 650 505 1 1 1 1

TOTAL
COST 73268 49.50 50.00 61.00 63.50 66.50 71.00 72.50 80.00
 Facility location: what sites to open? And who serves
whom?
Candidates Fixed Cost Capacity
Atlanta 1000 1000
Denver 1000 1000
Memphis 1000 1000
Pittsburg 1000 1000
StLouis 1000 1000

Atl Chi Den Hou LsA Mem NwY Pit StL

demand 100 200 150 300 400 125 500 175 200

Ship Costs Atl Chi Den Hou LsA Mem NwY Pit StL
Atlanta 0.00 5.83 12.03 7.03 19.46 3.49 7.60 5.25 4.73
Denver 12.03 9.15 0.00 8.72 8.37 8.54 16.41 13.04 7.80
Memphis 3.49 4.67 8.54 4.92 15.99 0.00 9.70 6.54 2.27
Pittsburg 5.25 3.95 13.04 11.39 21.41 6.54 3.37 0.00 5.56
StLouis 4.73 2.61 7.80 6.81 15.89 2.27 8.93 5.56 0.00
 Facility location: what sites to open? And who serves
whom?

Atl Chi Den Hou LsA Mem NwY Pit StL

Atlanta 0 0 0 0 0 0 0 0 0 0
Denver 1 0 0 150 0 400 0 0 0 0
Memphis 1 100 0 0 300 0 125 0 0 200
Pittsburg 1 0 200 0 0 0 0 500 175 0
StLouis 0 0 0 0 0 0 0 0 0 0

Cost 11102