Kamdhenu Dairy (A)

Course: Decision Analysis Batch: PGP (2011 2013)

Submitted to:

Prof. Utpal Bhattacharya

Submitted by:

Group 1 (Section B)
1. Rahul Kumar (PGP2011810) 2. Pooja Rani Lodwal (PGP2011781) 3. Karan Singh Rathaur (PGP2011682) 4. 5. 6. 7.

Avik Sinha (2011FPM03) Sourabh A. Sahu (PGP2011893) Ankita Aggarwal (PGP2011517) Aditya Maira (PGP2011516)

Submitted on:

26th

August, 2011

Summer
Variables: Units of FA Milk = Units of SMP = Units of WMP = Units of Baby Food = Units of Cheese = Units of Standardized Milk = Objective function: Maximize Revenue: Z = X1*503 + X2*544 + X3*910 + X4*865 + X5*1833 + X6*759 Constraints: Butter: Milk Powder: Baby Food: Cheese: Total Milk: Optimal Solution: Product WMP Baby Food Cheese Std Milk FA Milk SMP Total Units of Raw Milk 5.09 4.98 1.83 0.00 0.00 0.00 11.90 Qty. In Litres / Kgs. 6001.00 6509.00 2002.00 0.00 0.00 0.00 Butter Kgs. 3084.00 3466.00 1025.00 0.00 0.00 0.00 7575.00 Contribution per day (Rs.) 4632.00 4308.00 3354.00 0.00 0.00 0.00 12294.00 X1*62 + X2*992 + X3*606 + X4*696 + X5*560 + X6*681 X2*813 + X3*1179 X4*1307 X5*1094 X1 + X2 + X3 + X4 + X5 + X6 < = 10000 < = 6000 < = 7000 < = 2000 < = 19 X1 X2 X3 X4 X5 X6

Winter
Variables: Units of FA Milk = Units of SMP = Units of WMP = Units of Baby Food = Units of Cheese = Units of Standardized Milk = Objective function: Maximize Revenue: Z = X1*503 + X2*544 + X3*910 + X4*865 + X5*1833 + X6*759 Constraints: Butter: FA Milk: Milk Powder: Baby Food: Cheese: Total Milk: Optimal Solution: Product WMP Baby Food Cheese Std Milk FA Milk SMP Total Units of Raw Milk 5.09 5.36 1.83 2.81 3.91 0.00 19.00 Qty. In Litres / Kgs. 6001.00 7005.00 2002.00 24377.00 58607.00 0.00 Butter Kgs. 3085.00 3730.00 1025.00 1914.00 243.00 0.00 9997.00 Contribution per day (Rs.) 4632.00 4636.00 3354.00 2132.00 1967.00 0.00 16721.00 X1*62 + X2*992 + X3*606 + X4*696 + X5*560 + X6*681 X1*9874 X2*813 + X3*1179 X4*1307 X5*1094 X1 + X2 + X3 + X4 + X5 + X6 < = 10000 < = 190 < = 6000 < = 7000 < = 2000 < = 19 X1 X2 X3 X4 X5 X6

Solution
Total Contribution if there is no contractual obligation of supplying: FA Milk = Rs. 12294*123 + Rs. 16721*242 = Rs. 55.59 Lakhs Net Contribution (less advertising cost) = Rs. 55.59 lakhs Rs. 8.70 lakhs = Rs. 46.89 lakhs Net Profit = 46.89 17.10 (fixed cost other than advertising) = Rs. 29.79 lakhs It is of interest to point out here how profitability as calculated by using full costs could be misleading if used for determining the optimal product mix. Since profit from FA milk viz., 373 rupees per unit of 10000 litres of raw milk is the highest, it would be worthwhile to produce only FA milk. Net Profit = 503 * 123 * 11.9 + 242 * 19.0 17.10 = Rs. 13.39 lakhs If there is a contractual obligation supplying the same quantity of FA Milk throughout the year, the company has to choose one of the two alternatives: 1. Supplying 3.01 units of FA milk throughout the year: In winter there will be no problem as optimal problem also suggests supply of 3.91 units of FA milk. In summer, FA milk will be supplied at the cost of Baby food. Loss in contribution per unit of milk used for producing FA milk instead of Baby food is Rs. (865 503) i.e. Rs. 362. So, loss in contribution per day = Rs. 362 * 3.91 = Rs. 1415. Since there will not be any problem in winter, contribution that will be lost per year = Rs. 1.74 lakhs. 2. Not supplying FA milk at all: If FA milk is not supplied at all, there will not be any problem in summer. Optimal Programme in winter will be as follows: Product WMP Baby Food Cheese Std Milk Total Units of Raw Milk 5.09 5.36 1.83 3.17 15.45 Contribution per day (Rs.) 4632.00 4636.00 3354.00 2406.00 15028.00

Total milk that will be used is 15.45 units. The rest of the milk, i.e., (19.0 15.45) i.e., 3.55 units of milk will be a waste in winter. Total contribution per day is Rs. 15028. Loss in contribution per day = Rs. 16721 Rs. 15028 = Rs. 1693 Loss per year = Rs. 1693 * 242 = Rs. 4.10 lakhs