Running Header: Custom Vans, Inc.

Case Study: Custom Vans, Inc.

Christopher A. Smiley

OMGT410 – Operations Management II

December 8, 2012

Instructor - Bruce Stephens

Southwestern College Professional Studies

Custom Vans, Inc. 2

The Situation

In this case study, we learn about Tony Rizzo, owner and founder of Custom Vans, Inc.

He started a customization shop for vans, where people spend thousands of dollars to have their

vans customized with unique features and devices. One of his most popular features is the

Shower-Rific, a fiberglass shower unit that attaches to a van. Tony’s business has done so well

in the mid-west, that he has expanded his customization shops to four different U.S. cities,

Chicago, Milwaukee, Minneapolis, and Detroit. The shower units are in such demand that Tony

has had to expand his Shower-Rific production to two different factories, one in Gary, Indiana

and the other in Fort Wayne, Indiana. Unfortunately, the two factories together are no longer

able to meet the increasing demand of his four customization shops.

The Problem(s)

Tony Rizzo is faced with the increasing need to expand his business to include two additional

factories that will produce and ship Shower-Rifics to his four customization shops. Right now,

his factories in Gary and Fort Wayne are able to produce 450 Shower-Rifics a month. This is

three hundred units shy of the company’s need between the four customization shops, Chicago,

Milwaukee, Minneapolis, and Detroit. He has the money to establish two more factories, each

capable of producing an additional 150 Shower-Rific units. This will meet the current demand,

but he still faces the decision as to where to establish the new factories.

Tony has located three potential locations to establish his two new factories, Detroit, MI,

Rockford, IL, and Madison, WI. His decision will be based on shipping costs. Each location
Custom Vans, Inc. 3

provides a different shipping cost to each of the customization shops. Tony and his associates

must determine which two of the three locations will be most cost efficient for his operation.

The Critical Factor(s) Bearing on the Problem(s)

Tony Rizzo must look into the current shipping costs as well as potential shipping costs at

each of the potential factory sites. The current need for Shower-Rifics has reached 750 units per

month. Right now, Tony’s factories are only able to produce 450 units; 300 shy of the monthly

need. Some of his customization shops have been ignored due to high shipping costs, so placing

the new factories close to these areas would be beneficial.

The three potential new factory locations each have different costs associated with shipping

to each of the customization shops. Detroit has an additional variable due to the option of being

able to purchase fiberglass at $2 less per gallon. This added value must be taken into

consideration. In Madison, WI, local college students are willing to work for $1 less per hour

than the average worker. This adds up to savings. Regardless of these two savings

opportunities, Tony must still take all factors into consideration, to include shipping costs.

The Discussion of Possible Solutions

The following transportation models were created by Tony. These models depict the best

case shipping solutions for each of the three possible combinations of two factory sites. In

addition to shipping costs, Tony also took into consideration the money saved in Detroit and

Madison.
Custom Vans, Inc. 4

Gary, IN Fort Wayne, IN Detroit, MI Rockford, IL Madison, WI Discount

Chicago, IL 10/250 20 30 5/50 10 300 $2,750
Milwaukee, WI 20 30 40 10/100 5 100 $1,000
Minneapolis, MN 40 50 60 30 25/150 150 $3,750
Detroit, MI 25/50 15/150 5 35 40 200 $3,500 Madison = $750
300 150 150 150 150 11000 Total = $10250

Gary, IN Fort Wayne, IN Detroit, MI Rockford, IL Madison, WI Discount

Chicago, IL 10/300 20 30 5 10 300 $3,000
Milwaukee, WI 20 30/100 40 10 5 100 $3,000
Minneapolis, MN 40 50 60 30 25/150 150 $3,750 Madison = $750
Detroit, MI 25 15/50 5/150 35 40 200 $1,500 Detroit = $600
300 150 150 150 150 11250 Total = $9900

Gary, IN Fort Wayne, IN Detroit, MI Rockford, IL Madison, WI Discount

Chicago, IL 10/300 20 30 5 10 300 $3,000
Milwaukee, WI 20 30 40 10/100 5 100 $1,000
Minneapolis, MN 40 50/100 60 30/50 25 150 $6,500
Detroit, MI 25 15/50 5/150 35 40 200 $1,500 Detroit = $600
300 150 150 150 150 12000 Total = $11400

The Recommended Solution

As we can see from the transportation models, new factories in Detroit, MI and Madison, WI

would be the best areas for establishing two new factories. The top transportation graph displays

the cheapest shipping scenario, but as we apply both discounts in Detroit and Madison, the

second solution will prove to be most cost effective. In all three alternatives, factories in at

least one location would have to ship Shower-Rifics to two separate locations. This is not

always ideal for bulk shipments, but is a must in order to meet the need for all customization

shops.

The Reason(s) for the Recommended Solution

Building new factories in Detroit, Michigan and Madison, Wisconsin will be the most cost

efficient choice for Custom Vans, Inc. The shipping costs came down to a difference of $1000
Custom Vans, Inc. 5

between the best alternative and the worst alternative. The deal maker came down to the

discounts experienced at the Detroit and Madison factory sites. With the chosen alternative, the

most costly shipping location will be those Shower-Rifics being shipped from Fort Wayne,

Indiana to Milwaukee, Wisconsin at $30 per unit.

The action(s) required

Tony Rizzo should build his new factories in Detroit, Michigan and Madison, Wisconsin.

The key to making this alternative the most efficient is taking advantage of the discounted

fiberglass in Detroit and the cheaper labor in Madison. Without these discounts, this alternative

is $1000 more than the first alternative, Rockford and Madison.

Custom Vans, Inc. 6

References

Heizer J., Render B. (2008). Operations management w/CD & student DVD, 10th edition.
Upper Saddle River, NJ: Prentice Hall.