It Case Solution

Problem Statement

As being a consultant to the Bird light Company we need to find a feasible solution as to where out of those 50 states we need to open the 5 plants so as to minimize our overall transportation cost and also at the same time we need to minimize the risk associated with each capital. Also we need to give the 3 years projections to the company

Solution

First of all we would like to tell you the assumptions made while suggesting a solution

Assumptions

• We have considered that in year on year the demand break would remain same.
• Same cost of transportation as per first year and raw material for all the years as given in the case
• Labour cost to be a fixed cost and does not change as per the demand
• Risk and cost of transportation have been given equal weightage
• As price per barrel was not given so revenue estimation is not done
• Cost is directly proportional to distance of miles and also proportional to per tonne

Analysis

• First of all we considered that distances between all the state capitals to and fro from each other

• Next we tried to eliminate the variables out of the given 50 cities else we had to use advanced version of excel.

• Elimination of cities by the risk weightage is done so cities having a risk probability of 4 or more than it are been discarded

• Next Total production done by a single plant = 37/5= 7.4 million barrels 

• For raw material 100 barrels require 100 lbs. of grains so 7.4 million barrels would require 7.4 million lbs. of grains  which is approx. equal to 3700 tonnes 

• Now as the fixed cost (labour and lease) are quite varying between cities we tried to find the best possible by using the cost estimation method of transportation i.e. per cost of mile * distance between two cities * demand required by that city

• After choosing the 5 cities we calculated distances which have raw materials and min distance of that is been taken and then multiplied by the rate i.e. 3 cents per mile per tonne and it increase proportionally with respect to tonne and mile

• Also we then eliminated by descending order of distances among cities and gave preference to closest city and once that plant capacity is utilized i.e. reached 20 % then that destination would choose the next closest plant to it .and hence all destinations cities are allotted the plants

If a destination demand is not fulfilled by the one plant capacity then the remaining demand is fulfilled by the other plant