Lo, Rafael

Sabado, Louie Mar

Santos, John Paul

Andrew Carter Case Study

Andrew–Carter, Inc. (A–C), is a major Canadian producer and distributor of outdoor lighting fixtures. Its fixture is
distributed throughout North America and has been in high demand for several years. The company operates three
plants that manufacture the fixture and distribute it to five distribution centers (warehouses).

During the present recession, A–C has seen a major drop in demand for its fixture as the housing market has
declined. Based on the forecast of interest rates, the head of operations feels that demand for housing and thus for its
product will remain depressed for the foreseeable future. A–C is considering closing one of its plants, as it is now
operating with a forecasted excess capacity of 34,000 units per week. The forecasted weekly demands for the
coming year are:

Warehouse 1 9,000 units

Warehouse 2 13,000 units
Warehouse 3 11,000 units
Warehouse 4 15,000 units
Warehouse 5 8,000 units

The plant capacities in units per week are

Plant 1, regular time 27,000 units

Plant 1, on overtime 7,000 units
Plant 2, regular time 20,000 units
Plant 2, on overtime 5,000 units
Plant 3, regular time 25,000 units
Plant 3, on overtime 6,000 units

If A–C shuts down any plants, its weekly costs will change, as fixed costs are lower for a nonoperating plant. Table
9.34 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and
shut down. Table 9.35 shows distribution costs from each plant to each warehouse (distribution center).
Discussion Questions

1. Evaluate the various configurations of operating and closed plants that will meet weekly demand.
Determine which configuration minimizes total costs.

Configuration 1
Operating Non-Operating
Plant 1 x
Plant 2 x
Plant 3 x

Configuration
2
Non-
Operating Operating
Plant 1 x
Plant 2 x
Plant 3 x

Configuration
3
Non-
Operating Operating
Plant 1 x
Plant 2 x
Plant 3 x

The three configurations are in which one of the plants are shut down.
 WH1 WH2 WH3 WH4 WH5

Plant 1 3.3 3.24 3.29 3.26 3.36 27000

Plant 1 OT 4.02 3.96 4.01 3.98 4.08 7000

Plant 2 3.18 3.3 3.28 3.34 3.35 20000

Plant 2 OT 3.88 4 3.98 4.04 4.05 5000

Plant 3 3.28 3.25 3.32 3.26 3.07 25000

Plant 3 OT 3.98 3.95 3.93 3.96 3.77 6000

9000 13000 11000 15000 8000 56,000/90000

These are the computed variable cost of each plant to each specific warehouse:

Example: Plant 1 to WH1 (regular time) has a variable cost of $2.80/unit and a distribution cost of
$0.50/unit, which equals to the sum of $3.3/unit. The same is applied to the rest of the plants (regular
and over time) to the specific warehouses.

Min Z = 3.3C1w1 + 3.24C1w2 + 3.29C1w3 + 3.26C1w4 + 3.36C1w5 + 4.02C1OTW1 +3.96 C1OTW2 + 4.01 C1OTW3 + 3.98
C1OTW4 + 4.08 C1OTW5 + 3.18C2W1 + 3.3 C2W2 + 3.28 C2W3 + 3.34 C2W4 + 3.35 C2W5 + 3.88 C2OTW1 + 4C2OTW2 +
3.98C2OTW3 + 4.04C2OTW4 + 4.05C2OTW5 + 3.28C3W1 + 3.25C3W2 + 3.323W3 +3.26C3W4 + 3.07C3W5 + 3.98C3OTW1 +
3.95C3OTW2 +3.93C3OTW3 +3.96C3OTW4 + 3.77C3OTW5

Plant 1 Capacity C1w1 + C1w2 + C1w3 + C1w4 + C1w5 <= 27000

Plant 1 OT Capacity
Plant 2 Capacity
Plant 2 OT Capacity
Plant 3 Capacity
Plant 3 OT Capacity
WH1 Requirement
WH2 Requirement
Wh3 Requirement
WH4 Requirement
WH5 Requirement
C1otw1 + C1otw2 + C1otw3 + C1otw4 + C1otw5 <= 7000
C2w1 + C2w2 + C2w3 + C2w4 + C2w5 <= 20000
C2otw1 + C2otw2 + C2otw3 + C2otw4 + C2otw5 <= 5000
C3w1 + C3w2 + C3w3 + C3w4 + C3w5 <= 25000
C3otw1 + C3otw2 + C3otw3 + C3otw4 + C3otw5 <= 6000
C1w1 + C1otw1 + C2W1 + C2otW1 + C3W1 + C3otw1 = 9000
C1w2 + C1otw2 + C2W2 + C2otW2 + C3W2 + C3otw2 = 13000
C1w3 + C1otw3 + C2W3 + C2otW3 + C3W3 + C3otw3 = 11000
C1w4 + C1otw4 + C2W4 + C2otW4 + C3W4 + C3otw4 = 15000
C1w5 + C1otw5 + C2W5 + C2otW5 + C3W5 + C3otw5 = 6000
 non negativity Cijk >= 0

i = plant #
j = normal hours or OT hours
k = warehouse#
Configuration 1 – Plant 1 is Shutdown

WH1 WH2 WH3 WH4 WH5

Plant 2 3.18 3.3 3.28 3.34 3.35 20000
Plant 2 OT 3.88 4 3.98 4.04 4.05 5000
Plant 3 3.28 3.25 3.32 3.26 3.07 25000
Plant 3 OT 3.98 3.95 3.93 3.96 3.77 6000
9000 13000 11000 15000 8000

Using Excel Solver:

WH1 WH2 WH3 WH4 WH5

Plant 2 9000 11000 0 0 0 20000 <= 20000
Plant 2 OT 0 0 5000 0 0 5000 <= 5000
Plant 3 0 2000 0 15000 8000 25000 <= 25000
Plant 3 OT 0 0 6000 0 0 6000 <= 6000
9000 13000 11000 15000 8000
= = = = =
9000 13000 11000 15000 8000

Variable Cost Non operating cost for P1 Operating Cost P2 Operating Cost P3 Total Cost
Plant 2 and 3 188360 6000 12000 15000 221,360.00
Configuration 2 – Plant 2 is Shutdown

WH1 WH2 WH3 WH4 WH5

Plant 1 3.3 3.24 3.29 3.26 3.36 27000
Plant 1 OT 4.02 3.96 4.01 3.98 4.08 7000
Plant 3 3.28 3.25 3.23 3.26 3.07 25000
Plant 3 OT 3.98 3.95 3.93 3.96 3.77 6000
9000 13000 11000 15000 8000

Using Excel Solver:

WH1 WH2 WH3 WH4 WH5

Plant 1 0 13000 0 14000 0 27000 <= 27000
Plant 1 OT 0 0 0 0 0 0 <= 7000
Plant 3 9000 0 8000 0 8000 25000 <= 25000
Plant 3 OT 0 0 3000 1000 0 4000 <= 6000
9000 13000 11000 15000 8000
= = = = =
9000 13000 11000 15000 8000

Variable Cost Non operating cost for P2 Operating Cost P1 Operating Cost P3 Total Cost

Plant 1 and 3 183430 5000 14000 15000 217,430.00

Configuration 3 – Plant 3 is Shutdown

WH1 WH2 WH3 WH4 WH5

Plant 1 3.3 3.24 3.29 3.26 3.36 27000
Plant 1 OT 4.02 3.96 4.01 3.98 4.08 7000
Plant 2 3.18 3.3 3.28 3.34 3.35 20000
Plant 2 OT 3.88 4 3.98 4.04 4.05 5000
9000 13000 11000 15000 8000

Using Excel Solver:

WH1 WH2 WH3 WH4 WH5

Plant 1 0 9000 0 15000 3000 27000 <= 27000
Plant 1 OT 0 4000 0 0 0 4000 <= 7000
Plant 3 9000 0 11000 0 0 20000 <= 20000
Plant 3 OT 0 0 0 0 5000 5000 <= 5000
9000 13000 11000 15000 8000
= = = = =
9000 13000 11000 15000 8000

Variable Cost Non operating cost for P3 Operating Cost P1 Operating Cost P2 Total Cost
Plant 1 and 2 188930 7500 14000 12000 222,430.00
 Configuratio
n Variable Cost Non-Operating Cost Operating Cost Operating Cost Total Cost

Plant 2 and 3 $ 188,360.00 $ 6,000.00 $ 12,000.00 $ 15,000.00 $ 221,360.00

Plant 1 and 3 $ 183,430.00 $ 5,000.00 $ 14,000.00 $ 15,000.00 $ 217,430.00

Plant 1 and 2 $ 188,930.00 $ 7,500.00 $ 14,000.00 $ 12,000.00 $ 222,430.00

Based on the calculations, shutting down plant two is the lowest cost among the three configurations.

2. Discuss the implications of closing a plant.

Despite the benefits of closing one of the plants, that could lower operating costs, lower inventory costs,
and maximizing work hours, the company should also be aware that other costs should be considered:
lay off and termination costs, equipment maintenance cost, and lower employee morale.

Plant closures can mean that the company is not performing as well as it was projected that it should,
regardless of whether it is in recession or not. In the public eye, it may be perceived as the company is
getting weaker, thus a negative public image may be observed.

Because of such, the company must take the necessary steps in order to minimize the impact of these
risks to the company. They must take care of the intangible effects that comes with the financial benefit
of shutting down a plant.