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 MGT1107 MANAGEMENT SCIENCE
CASE 3: CAPACITY CONCERNS
DATE • TIME

TOPICS
• X
• X
• x
ANSWER TO CASE
A) With this approach, we need to formulate an integer program for each month and optimize each
month individually.

In the FIRST month, Emily does not buy any servers since none of the departments implement the
intranet in the first month.

In the SECOND month she must buy computers to ensure that the Sales Department can start the
intranet. Emily can formulate her decision problem as an integer problem (the servers purchased must
be integer. Her objective is to minimize the purchase cost. She has to satisfy to constraints. She cannot
spend more than $9500 (she still has her entire budget for the first two months since she didn't buy any
computers in the first month) and the computer(s) must support at least 60 employees. She solves her
integer programming problem using the Excel solver.
Note, that there is a SECOND optimal solution to this integer programming
problem. For the same amount of money Emily could buy two mini desktop
servers that would also support 60 employees. However, since Emily knows
that she needs to support more employees in the near future, she decides to
buy the desktop server since it supports more users.

For the THIRD month Emily needs to support 260 users. Since she has
already computing power to support 80 users, she now needs to figure out
how to support additional 180 users at minimum cost. She can disregard the
constraint that the Manufacturing Department needs one of the three larger
servers, since she already bought such a server in the previous month. Her
task leads her to the following integer programming problem and solution.
Emily decides to buy one workstation server in month 3. The network is
now able to support 280 users.
In the fourth month Emily needs to support a total of 290 users. Since she has
already computing power to support 280 users, she now needs to figure out
how to support additional 10 users at minimum cost. This task leads her to the
following integer programming problem:

Emily decides
to buy a mini
desktop server
in the fourth
month. The
network is
now able to
support 310
users.
Finally, in the fifth and last month Emily needs to support the entire company
with a total of 365 users. Since she has already computing power to support 310
users, she now needs to figure out how to support additional 55 users at
minimum cost. This task leads her to the following integer programming
problem and solution.
Emily decides to buy another
desktop server in the fifth month.
(Note that again she could have also
bought two mini desktop servers,
but clearly the desktop server
provides more room for the
workload of the system to grow.)
The entire network of CommuniCorp
consists now of 1 mini desktop
server, 2 desktop servers, and 1
workstation server and it is able to
support 390 users. The total
purchase cost for this network is
$22,500.
b) Due to the budget restriction and discount in the first two months Emily
needs to distinguish between the computers she buys in those early months
and in the later months. Therefore, Emily uses two variables for each server
type.

Emily essentially faces four constraints. First, she must support the 60 users in
the sales department in the second month. She realizes that, since she no
longer buys the computers sequentially after the second month, that it suffices
to include only the constraint on the network to support the all users in the
entire company. This second constraint requires her to support a total of 365
users. The third constraint requires her to buy at least one of the three large
servers. Finally, Emily has to make sure that she stays within her budget during
the second month.
Emily should purchase a discounted workstation server in the second month, and
another regular priced one in the third month. The total purchase cost is $19,000.
c) Emily's second method in part (b) finds the cost for the best overall purchase
policy. The method in part (a) only finds the best purchase policy for the given
month, ignoring the fact that the decision in a particular month has an impact
on later decisions. The method in (a) is very short-sighted and thus yields a
worse result that the method in part (b).

d) Installing the intranet will incur a number of other costs. These costs include:
• Training cost,
• Labor cost for network installation,
• Additional hardware cost for cabling, network interface cards, necessary
hubs, etc.,
• Salary and benefits for a network administrator and web master,
• Cost for establishing or outsourcing help desk support.
e) The intranet and the local area network are complete departures from
the way business has been done in the past. The departments may
therefore be concerned that the new technology will eliminate jobs. For
example, in the past the manufacturing department has produced a greater
number of pagers than customers have ordered. Fewer employees may be
needed when the manufacturing department begins producing only enough
pagers to meet orders. The departments may also become territorial about
data and procedures, fearing that another department will encroach on
their business. Finally, the departments may be concerned about the
security of their data when sending it over the network.