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.
During the past few years, 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 9,000 units, 13,000 units, 11,000 units, 15,000 units, and 8,000 units for warehouses 1 to 5, respectively. The regular time plant capacities (in units per week) are 27,000 units, 20,000 units, and 25,000 units for plants 1 to 3, respectively. The overtime plant capacities (in units per week) are 7,000 units, 5,000 units, and 6,000 units for plants 1 to 3, respectively.
If A-C shuts down any plants any plants, its weekly costs will change, as fixed costs are lower for a non-operating plant. Table 1 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and shut down. Table 2 shows distribution costs from each plant to each distribution center.
Table 1
Fixed Cost
Plant Variable Cost Operating Not Operating
Plant 1, regular time $2.80 $14,000 $6,000
Plant 1, overtime $3.52
Plant 2, regular time $2.78 $12,000 $5,000
Plant 2, overtime $3.48
Plant 3, regular time $2.72 $15,000 $7,500
Plant 3, overtime $3.42
Table 2
Distribution Center
From To Wing 1 Wing 2 Wing 3 Wing 4 Wing 5
Plant 1 $0.50 $0.44 $0.49 $0.46 $0.56
Plant 2 0.40 0.52 0.50 0.56 0.57
Plant 3 0.56 0.53 0.51 0.54 0.35
Now answer the following:
(i) Evaluate the various configurations of operating and closed plants that will meet weekly demand. Determine which configuration minimizes total costs.
(ii) Discuss the implications of closing a plant.
Source: Professor Michael Ballot, University of the Pacific