PROTRAC INC.

A Mid-Western American Company

Manufacturers of High-End Agricultural, Construction
& Industrial Implements

STRATEGIC & OPERATIONAL PLANNING

for
COMPETITIVE ADVANTAGE
With thanks for contribution for case study
Mr. SAYED M. IRFAN,
NED University, Karachi
 PROTRAC’S Strategic and Operational Decision-Making

Situation 1 – Profit Maximization Problem Linear Programming

A PRODUCT-MIX DECISION FOR EARTHMOVING & FORESTRY EQUIPMENT
PROTRAC, Inc. produces two lines of heavy equipment. One of these product lines,
termed earthmoving equipment, is essentially for construction applications. The other
line, termed forestry equipment, is destined for the lumber industry. The largest member
of the earthmoving equipment line (the E-9) and the largest member of the forestry
equipment line (the F-9) are produced in the same departments and with the same
equipment. Using economic forecasts for next month, PROTRAC’s marketing manager
has judged that during that period it will be possible to sell as many E-9s or F-9s as the
firm can produce. Management must now recommend a production target for next month.
That is, how many E-9s and F-9s should be produced if PROTRAC’s management
wishes to maximize next months profit contribution (i.e., contribution margin, defined as
revenue minus variable costs)?

PROTRAC Data. Making this decision requires the following major factors be
considered.

1. PROTRAC’s unit contribution margin is $5000 on each E-9 that is sold and $4000 on
each F-9.
2. Each product is put through PROTRAC’s machining operations in both department A
and department B.
3. For next month’s production, these two departments have 150 and 160 hours
available time, respectively. Each E-9 produced uses 10 hours of machining in
department A and 20 hours of machining in department B, whereas each F-9
produced use 15 hours in department A and 10 hours in department B.
4. In order for management to honor an agreement with the union, the total labor hours
used in next month’s testing of finished products cannot fall more than 10% below an
arbitrated goal of 150 hours. This testing is performed in a third department and has
nothing to do with the activities in departments A and B. Each E-9 is given 30 hours
of testing and each F-9 is given 10.

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 PROTRAC’S Strategic and Operational Decision-Making

5. In order to maintain the current market position, senior management has decreed the
operating policy that it is necessary to build at least one F-9 for every three E-9s
produced.
6. A major dealer has ordered a total of at least five E-9s and F-9s (in any combination)
for next month, and so at least that many must be produced.

Given these considerations, management’s problem is to decide how many E-9s and how
many F-9s to produce next month. In modeling terms, management seeks to determine
the optimal product mix, also called the optimal production plan. Let us now see how
this problem can be expressed as an optimization model, in particular as a linear program.
To do so, we must identify the constraints and the objective function.

Situation 2 – Cost Minimization Problem Linear Programming

CRAWLER TREAD ─ A BLENDING EXAMPLE

Iron ore form four different mines will be blended to make treads for a new product at
PROTRAC, a medium-size crawler tractor, the E-6, designed especially to compete in the
European market. Analysis has shown that in order to produce a blend with suitable
tensile qualities, minimum requirements must be met on three basic elements, denoted for
simplicity as A, B, and C. In particular, each ton ore must contain at least 5 pounds of
basic element A, at least 100 pounds of basic element B, and at least 30 pounds of basic
element C. These data are summarized below:

Table 3.1: Requirements of Basic Element

Basic Element Minimum Requirement per Ton of Blend
(pounds of each element)
A 5
B 100
C 30

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 PROTRAC’S Strategic and Operational Decision-Making

The ore from each of the different mines possesses each of the three basic elements , but
in different amounts. These compositions, in pounds per ton, are given in Table 3.2.

Table 3.2: Composition from Each Mine

MINE
(pounds per ton of each element)
Basic Element 1 2 3 4
A 10 3 8 2
B 90 150 75 175
C 45 25 20 37
Since the ore from each mine has a different cost, different blends will also have different
costs. The cost data are given in Table 3.3.

Table 3.3: Cost of Ore from Each Mine

Mine Dollar Cost per Ton of Ore
1 800
2 400
3 600
4 500

The objective of management in the Crawler Tread problem is to discover a least-cost

feasible blend.

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 PROTRAC’S Strategic and Operational Decision-Making

Situation 3: PROTRAC’s Distribution Problem The Transportation Model

SENDING DIESEL ENGINES FROM HARBORS TO PLANTS

PROTRAC has four assembly plants in Europe. They are located in Leipzig,
Germany (1); Nancy, France (2); Liege, Belgium (3); and Tilburg, the Netherlands (4).
The engines used by these plants are produced in the United States, shipped to harbors in
Amsterdam (A), Antwerp (B), and Le Havre (C) and are then sent to the plants for
assembly.

Production plans for the fourth quarter, October through December, have been set. The
requirements (the demand at destinations) for E-4 diesel engines are given in Table 8.1.

Table 8.1: Demand for Diesel Engines

PLANT NUMBER OF ENGINES REQUIRED
(1) Leipzig 400
(2) Nancy 900
(3) Liege 200
(4) Tilburg 500

The available number of E-4 engines at harbors (the supply at origins) in time to be used
in the fourth quarter is shown in Table 8.2. Note that this a balanced model in the sense
that the total supply of engines available equals the total number required. Figure 8.1
illustrates the model. In this figure the numbers above the harbors indicate the supply
available; and the number above the plants indicates the quantity demanded. The lines
indicate the possible delivery routes.

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 PROTRAC’S Strategic and Operational Decision-Making

Table 8.2: Supply of Diesel Engines

H ARB O R NUMBER OF ENGINES AVAILABLE
(A) Amsterdam 500
(B) Antwerp 700
(C) Le Havre 800

PROTRAC must decide how many engines to send from each harbor to each plant. The
engines are transported by common carrier, and charges are on per engine basis. The
relevant costs are given in Table 8.3.

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 PROTRAC’S Strategic and Operational Decision-Making

Table 8.3: Cost to Transport an Engine from an Origin to a Destination ($)

TO DESTINATION
FROM ORIGIN (1) Leipzig (2) Nancy (3) Liege (4) Tilburg
(A) Amsterdam 12 0 130 41 62
(B) Antwerp 61 40 1 00 110
(C) Le Havre 102.50 90 1 22 42

PROTRAC’s goal is to minimize the total cost of transporting the E-4 engines from the
harbors to the plants. Since the transportation cost for any specific harbor-plant
combination is directly proportional to the number of engines sent from the harbor to the
plant, this situation can be modeled as an LP model. However, the specific structure of
this problem lends itself to be solved by a special algorithm known as the Transportation
Model.

Situation 4: PROTRAC’s Assignment Problem The Assignment Model

PROTRAC-EUROPE AUDITING PROBLEM
The PROTRAC-Europe president is confronting a particular problem. PROTRAC’s
European headquarters is in Brussels, Belgium. This year, as part of his annual audit, the
president has decided to have each of the four corporate vice presidents visit and audit
one of the assembly plants during the first two weeks in June. The assembly plants are
located in Leipzig, Nancy, Liege, and Tilburg.

There are a number of advantages and disadvantages to various assignments of the vice-
presidents to the plants. Among the issues to consider are:
1. Matching the vice-presidents’ areas of expertise with the importance of specific
problem areas in a plant.
2. The time the audit will require and the other demands on each vice-president
during the two-week interval.

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 PROTRAC’S Strategic and Operational Decision-Making

3. Matching the language ability of a vice-president with the dominant language

used in the plant.
Attempting to keep all these factors in mind and arrive at a good assignment of vice-
presidents to plants is a challenging problem. The president decides to start by estimating
the cost to PROTRAC of sending each vice-president to each plant. The data are shown
in Table 9.1.

Table 9.1: Assignment Costs in $000’s for

Every Vice-President—Plant Combination
PLANT

V. P . Leipzig Nancy Liege Tilburg

(1 ) (2 ) (3 ) (4 )
Finance (F) 24 10 21 11
Marketing (M) 14 22 10 15
Operations (O) 15 17 20 19
Personnel (P) 11 19 14 13

With these costs, the president can employ the Assignment Model, again a variation or
extension of the LP model as in the case of the transportation model. The assignment
model occurs in many management contexts. In general, it is the problem of determining
the optimal assignment of n “indivisible” agents or objects to n tasks. The agents or
objects to be assigned are indivisible in the sense that no agent can be divided among
several tasks. The important constraint, for each agent, is that he or she be assigned to
one and only one task.