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Escorts Limited - Agri Machinery Group 18/4, Mathura Road, Faridabad 121007 India

Operations Research & Optimization Techniques


PROJECT REPORT
FINDING THE OPTIMAL PRODUCT MIX FOR ESCORTS AMG
GROUP MEMBERS Anurag Pandey Arpit Khullar Arun Koul Brijendra Chandrabhan Debanjan Das

10FN-127

IMT

Institute of Management Technology Ghaziabad

Acknowledgement
We woul like to express our gratitude towards our facult Ms. Gunjan Malhotra who guided us i ensel during completion of our study. It is because of her kind assistance that

we were able to complete this project successfully. We would also like to thank Mr. Ashbir Singh, plant head ESC R S AGRI B SINESS, Faridabad, for his whole hearted support, in allowing us to collect data from the plant.

Anurag Pandey Arpit Khullar Arun Koul Brijendra Chandrabhan Debanjan Das

Table of Contents
Introduction Objectives of the study Research Methodology Data analysis & Findings
    

4 6 7 8
8 10 11 12 13 14 15

Problem description Problem analysis Linear programming formulation Excel report Solver answer report  Solver sensitivity report  Interpretation of the survey using statistics

Limitations Conclusions Recommendations


REFERENCES

17 18 19 20

INT
About Escorts

TION

The Escorts Group is among India's leading engineering conglomerates operating in the high growth sectors of agro machinery, construction & material handling equipment, railway equipment and auto components. Escorts AMG (Agri Machines Group) has three recogni ed and well accepted tractor brands, which are on distinct and separate technology platforms. Having pioneered farm mechani ation in the country, Escorts has played a pivotal role in the agricultural growth of India for over five decades. One of the leading tractor manufacturers of the country, Escorts offers a comprehensive range of tractors, more than 45 variants starting from 25 to 80 HP.

Products of Escorts AMG


y

Farmtrac: World Class Premium tractors, with single reduction and epicyclical reduction transmissions from 34 to 75 HP.

Powertrac: Utility and Value-for-money tractors, offering straight-axle and hubreduction tractors from 34 to 55 HP. Indias No.1 economy range engineered to give spectacular diesel economy.

Escort: Economy tractors having hub-reduction transmission and twin-cylinder engines from 27 to 35 HP. Pioneering brands of tractors introduced by Escorts with unbeatable advantages.

Most powerful tractor in its range with excellent productivity in terms of output
1.

Most fuel efficient tractor which has best value for money

Reliable and trustworthy with a powerful feel. Low maintenance cost

Objective of our project


y

To implement linear programming model in order to obtain the optimal product mix with an aim of profit maximi ation for Escorts Faridabad plant.

To suggest Escorts Abm some investment strategy so that they can make more profit in future.

Analyse the different factors affecting the profit such as labour hours, production cost, sale price of different tractors and finally find out a way for profit maximi ation.

Research Methodology and tools


PRIMARY RESEARCH
Our group made a visit to ESCORTS FARIDABAD PLANT and gathered information regarding the manufacturing process taking place in the plant. We gathered information regarding product mix, manufacturing cost of the different types of tractors, their respective selling prices, labour hours available for manufacturing and as well as painting.

We have designed Linear programming modeling with MS Excel and analyzed the sensitivity report to find out the optimal mix of tractors that need to be produced for profit maximization.

PROBLEM DESCRIPTION
Escorts Amg manufactures 3 types of tractors. The sale price and manufacturing price of these varieties are as follows:SELLING VARIETY OF TRACTORS Farmtrac Powertrac Escorts PRICE (lacs) 6 3.8 2.6 MANUFACTURING COST (lacs) 4 2.25 1.7

The minimum monthly contract and the maximum monthly demand from the historical data are as follows:
MONTHLY MINIMUM VARIETY OF TRACTORS CONTRACT 4000 1000 400 MAXIMUM MONTHLY DEMAND 5000 3600 800

Farmtrac Powertrac Escorts

The Labour hours required for manufacturing 1 unit and painting 1 unit of the tractor are as follows:LABOUR HOURS VARIETY OF TRACTORS Farmtrac Powertrac Escorts FOR PAINTING 1 UNIT 2 1.5 1 LABOUR HOURS FOR MANUFACTURING 1 UNIT 4 2 1

Now we have a few more constraints

y y

The capacity of plant in a month is 7500 Total number of labours available for painting = 50 and manufacturing = 100 .They work in shifts and each shift lasts for 8 hours. The plant is operational 7 days a week, 24 hours a day. A labour can work for maximum 8 hour a day i.e. 1 shift per day.

We need to find out the mix of tractors that must be manufactured so that the profit is maximized.

PROBLEM ANALYSIS
First we find out the profit for one unit of each variety of tractors. VARIETY SELLING
OF PRICE MANUFACTURING COST (lacs) 6 3.8 2.6 4 2.25 1.7 PROFIT(lacs) 2 1.55 0.9

TRACTORS (lacs) Farmtrac Powertrac Escorts

Next, we find out the total labours available for painting and manufacturing.
PAINTING labours hours/day number of days total hours 12000 50 8 30

MANUFACTURING labours hours/day number of days total hours 100 8 30 24000

LINEAR PROGRAMMING FORMULATION


DECISION VARIABLES: As with all product mix problems, The decision variables
represent the number of units to make of each product. Let F be the number of Farmtrac to make per month P be the number of Powertrac to make per month E be the number of Escorts tractor per month.

OBJECTIVE FUNCTION: Now the objective function is to maximize the profit.


So the objective function is stated as MAXIMIZE PROFIT = 2 F + 1.55 P + 0.9 E.

CONSTRAINTS
P <= 3600 F <= 5000 E <= 800

P >= 1000 F >= 4000 E >= 400

P+F+E<=7500 2P+1.5F+1E <=12000 4P+2F+1E <= 24000 The non-negativity aspect is already taken care of in the above equation.

EXCEL LAYOUT
P Powertrac F Farmtrac E Escorts TOTAL UNITS NUMBER OF UNITS SP Manu cost PROFIT CONSTRAINTS MAXIMUM of Powertrac MAXIMUM of Farmtrac MAXIMUM of Escorts MINIMUM of Powertrac MINIMUM of Farmtrac MINIMUM of Escorts MAXIMUM UNITS MAXIMUM PAINTING LABOUR HOURS MAXIMUM MANUFACTURING LABOUR HOURS 1 1 1 1 1 1 1 1 1 2000 <= 5000 <= 500 <= 2000 >= 5000 >= 500 >= 7500 <= 3600 5000 800 1000 4000 400 7500 2000 3.8 2.25 1.55 5000 6 4 2 500 2.6 1.7 PROFIT 0.9 13550 7500

1.5

12000 <=

12000

18500 <= LHS Sign

24000 RHS

Where target cells: PROFIT EQUAL TO MAX BY CHANGING CELLS: NUMBER OF UNITS CONSTRAINTS: All the 9 constraints given above.

SOLVER ANSWER REPORT


Target Cell (Max) Original Cell $E$33 PROFIT Name Value 13550 Final Value 13550

Adjustable Cells Original Cell Name Value 2000 5000 500 Final Value 2000 5000 500

$B$29 NUMBER OF UNITS Powertrac $C$29 NUMBER OF UNITS Farmtrac

$D$29 NUMBER OF UNITS Escorts

Constraints Cell Name Cell Value Formula Status Not $E$37 $E$38 MAXIMUM of Powertrac MAXIMUM of Farmtrac 2000 $E$37<=$G$37 Binding 5000 $E$38<=$G$38 Binding Not $E$39 MAXIMUM of Escorts 500 $E$39<=$G$39 Binding Not $E$40 MINIMUM of Powertrac 2000 $E$40>=$G$40 Binding Not $E$41 MINIMUM of Farmtrac 5000 $E$41>=$G$41 Binding Not $E$42 $E$43 $E$44 MINIMUM of Escorts MAXIMUM UNITS MAXIMUM PAINTING LABOUR HOURS 500 $E$42>=$G$42 Binding 7500 $E$43<=$G$43 Binding 12000 $E$44<=$G$44 Binding Not $E$45 MAXIMUM MANUFACTURING LABOUR HOURS 18500 $E$45<=$G$45 Binding 5500 100 0 0 1000 1000 300 1600 0 Slack

SOLVER SENSITIVITY REPORT


Adjustable Cells Final Cell Name Value 2000 5000 500 Reduced Cost 0 0 0 Objective Coefficient 1.55 2 0.9 Allowable Allowable Increase 0.25 1E+30 0.65 Decrease 0.65 0.775 0.125

$B$29 NUMBER OF UNITS Powertrac $C$29 NUMBER OF UNITS Farmtrac

$D$29 NUMBER OF UNITS Escorts Constraints

Final Cell $E$37 $E$38 $E$39 $E$40 $E$41 $E$42 $E$43 $E$44 $E$45 Name MAXIMUM of Powertrac MAXIMUM of Farmtrac MAXIMUM of Escorts MINIMUM of Powertrac MINIMUM of Farmtrac MINIMUM of Escorts MAXIMUM UNITS MAXIMUM PAINTING LABOUR HOURS MAXIMUM MANUFACTURING LABOUR HOURS Value 2000 5000 500 2000 5000 500 7500 12000 18500

Shadow Price 0 0.775 0 0 0 0 0.25 0.65 0

Constraint R.H. Side 3600 5000 800 1000 4000 400 7500 12000 24000

Allowable Allowable Increase 1E+30 200 1E+30 1000 1000 100 150 100 1E+30 Decrease 1600 600 300 1E+30 1E+30 1E+30 50 300 5500

INTERPRETING THE RESULTS


Using the solver, we obtain the optimal solution which is to produce
y y y 2000 powertrack, 5000 Farmtrack and 500 Escorts tractor.

This results in a total profit of 13550 L.

The binding constraints are


y y y MAXIMUM of Farmtrac produced MAXIMUM UNITS produced MAXIMUM PAINTING LABOUR HOURS

The non-binding constraints are


y y y y y y MAXIMUM of Powertrac produced MAXIMUM of Escorts produced MINIMUM of Powertrac produced MINIMUM of Farmtrac produced MINIMUM of Escorts produced MAXIMUM MANUFACTURING LABOUR HOURS

Shadow price :- The magnitude of change in the objective function (profit) for unit increase in the RHS of the constraint.
y y y MAXIMUM of Farmtrac production ( shadow price = 0.775 ) MAXIMUM UNITS produced (shadow price = .25 ) MAXIMUM PAINTING LABOUR HOURS (shadow pr ice = .65 )

For example, if we increase maximum allowable labour painting hours by 1, the profit will increase by .65. Similarly, , if we increase MAXIMUM of Farmtrac production by 1, the profit will increase by .775.

And , if we increase MAXIMUM UNITS produced by 1, the profit will increase by .25. But the concept of shadow price holds only till we change the value within the allowable limit. This linear programming model will not be able to provide an accurate analysis if the allowable limits are breached.

Reduced cost: The difference between the marginal contribution of objective function value and marginal worth of resources it consumes. Here the reduced cost of all the 3 tractors is 0. Therefore if production of any type of tractor is increased or decreased within the allowable limits, the profit will not change.

Limitations
 We have considered a few constraints, but these are not all. There may be other constraints which depend on the seasonal demand, the climate, the political environment, legal environment as far as exports are concerned, technological advancement. These factors keep on changing from time to time and are not considered in our model.

 Being Asias largest tractor manufacturing firm, it is the company policy not to reveal any confidential information to an outsider. This was the biggest constraint. But we managed to get valuable information from them, helped them in decision making, and proposed a linear programming model for them which will help them in finding the optimal product mix.

Conclusions
We have found out the optimal mix of tractors to maximize profit. Sometimes the demand is so huge that the number of tractors ordered in a month comes out to be more than the plant capacity of production (7500 per month).

THIS IS WHERE DECISION MAKING IS IMPORTANT.

The company needs to identify the tractors which lead to potential increase in profit. The linear programming model and the sensitivity analysis give different preference to the different tractors and help to find out the increase/decrease in profit for the incremental change in different units of tractors. Apart from that the number of labor hours required for manufacturing is found out to be much less than the amount of labor hours available to the company under the optimal production condition. So the company can think of reducing the available labor hours for manufacturing.

Recommendations
 Using the solver, we obtain the optimal solution which is to produce 2000 powertrack, 5000 Farmtrack and 500 Escorts tractor. This results in a total profit of 13550 L.

y y y

 Total manufacturing labour hours under optimal condition is 18500 per month which is less than the available 24000 hours. So we can reduce some cost by employing less labour.

 The linear programming model and the sensitivity analysis can be used to set different preference to the different tractors and help to find out the increase/decrease in profit for the incremental change in different units of tractors.

REFERENCES
 http://www.escortsagri.com  Escorts AMG manual for quality control (from plant manager)