Giant Motor Company I T sue is planning the company’s production capacity for the coming year. /Ai issue is the overall evel of capacity and the type of capacity—for ex- ample, the degree of flexibilin in the manufacturing system. The main tool used to aid the company’s planning process in GMC T is 2 mixed integer pro- amming (MIP) mode!. 4. mixed integer program both integer and cyalunuous variables. Ac unuauion of this probie-n, GMC I (at the end of Chapter 10), deals with capacity planning in amul- tiperiod, multiscensrio framework. In GMC the MIP model is extend-d 20 handle the multiperiog stochastic nature of the problem. bis problem deals with strategic planning issues for @ large company. The main is- Probiem Statement The Giant Motor Company (GMC) produces three ines.of carsgor ihe domestic (U.S.) matket: Lyras. ‘Librais,andHip¢ ras. The Lyra is a relatively inexper- sive-subcompect car that appeals mainly to first-time car owners aad to households using it as a second car for comanuting. The Libra is a sporty compact car that is sleeker, faster, and roomier than the Lyra. Without «wy options, the Libis costs slightly "arbre, ‘han the Lyte; additiond qpfigns increase the price ‘furthe: ‘The Hydra is the laxury car of the GAIC Hine it isssignificantly more expensive than the Lyra ‘an¢..Libra, and it has the highest profit margin of the chee cars, Expaaision GMIC has three manufacturing plants in ‘States. Each plant is dedicated to pro- gle line of .cars. In its planning for gFea. GMC is considering the zeto0l- plants would have significatily foreared fion capacities. Although having greater fixed ‘SUMS, the Tetooled plants would be more efficient afid have lower marginal production 334 ‘they would have the capabi ‘than one line of cars, The characteristics of the current plants and the retooled plants are given in Table 6.81. The retooled Lyra and Libre plants are prefaced by the word nev. ‘The fixed costs and capacitiesin Table 6 81 are given 11 an annual basis, A dash in the profit margin sec tion indicates that the plant cannot manufacture that Jine of car. Forexample, the new Lyra plant would be capable of producing both Lyras and Litras but not Hydras. The new Libra plant would be capable of producifig sity of the three Zines of cars. Note, how- ever, that the new Libra plant has (profit margin for producing Hydras than the Hydra plant. The Bexible new Libra plantis capable of Gucing the Jumury Hydre model but is not quite as efficient as the current Hydra plant that is-dedi to Hyatra production, ‘The fixed posts are annual costs thet-arencurres by GMC independent of the number of cars that are produce by the plant. Forthe current plant con- Eoin iieieed ose include i van the, loan that wi E gad s0°6n. Ht e.plant ‘buat ir faced with inoufficiet capacity. Partially oe ting the lak of capavity is the phenomenon of de- mani diversion. if a potential car buyer walks into Chapte: 6 Linear Optimization Models with Ineger Variablesanting to buy « ‘k, frequently the salesper: jomer to purchase. the-berter Li stock. Unsatisfied demand for 2 be diverted to-the Libre. Ont farely in this simation can the the customer to switch to the of unsatisfied demabd-for Lyras' mand fer Lintas and: '5% 10 10% “oF unsatisfied is diverted to demand for Hydras. For the demané for Lyras is 1,400,000: cats, then the unsatisfied demand will be 400,000°if no capacity added. Out of this unsatisfied demand,’ 120,000 400,000 x 0.3) will materialize as demand for” Libras, and 20,000 (= 400,000 x 0.05) will ma- terialize as. demand for Hydras. Similarly, if the demane for Libras is 1,220,000 cars (1,100,000 orig- inal demand plus 120,000 demand diverted from. = 20,000 no capacity is. f this unsat ished demand, 42,000 (= 421 000 x 0.1} will terialize as.demand for Hydras. All-other unsatisfied demand is los io competitors. The partes of de- mand diversion is summarized in Table 6.83, Price 003 Demand Dives GliC wantstodecide whether to retoo! the Lyza ani ‘Libca:plaaii Jateddition, GMC wants to deterine Hoi plas’ at each plant in the coming year. Based om the previous data, formulate « mixed in- teger programming model for solving GMC's ‘pro- duction planning-capacity expansion problem for the coming year: “Acknowledgment: The ides for GMC I and I catae from Eppen et al. (1988), Case 61 Gian Moor Company? 335