CASE STUDY 2

CHANDPUR ENTERPRISES LIMITED,

STEEL DIVISION

Name: SYED ABDUL RAHMAN BIN SYED AHAMED 816025

KHALIDUL ANWAR BIN ISHAK 818573
NOOR HANIM BINTI MD ISA 818933

Date: 10 JANUARY 2015

UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

Table of Content

Chapter Title Page

1.0 Introduction & Problem Statement 3

2.0 Analysis & Discussion 3-11

3.0 References 11

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

1. INTRODUCTION & PROBLEM STATEMENT

Numerous administration choices include attempting to make the best utilization of a

organization's assets. Assets commonly incorporate hardware, work, cash, time,
warehouse space and crude materials. These assets might be utilized to make items such
as hardware, furniture, sustenance or apparel or benefits, for an occasion, plan for
aircrafts or creation, publicizing arrangements or venture choices.

Linear programming (LP) is a generally utilized scientific demonstrating method

designed to help supervisors in arranging and choice making with respect to asset
allocation. As talked about in Chandpur Enterprises Limited (CEL), Steel Division case
study, and the organization overseeing executive needs to settle on the crude materials
requirement for August creation at his steel plant.

Because of lower and upper limits on the measures of every crude material in a batch
and changing measures of power and time devoured for distinctive crude materials,
Akshay Mittal, overseeing chief of CEL can't just utilize the least expensive crude
material. A linear program and Excel's Solver enhancement capacity will give the ideal
amounts that meet the imperatives.

2. DISCUSSION & ANALYSIS

2.1 There is couple of vital focuses should be breaking down for better choice
making which are;

a) What would be the best batch that could be making for one batch?
b) What is the profit associated with this batch?

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

Decision variables: 𝑥𝑖 = kilograms of raw materials i to order per batch

Related variables: fi = recovery𝑖 * 𝑥𝑖 = finished goods tons of raw material i

The optimization is:

Max [Revenue – Cost of RM – Electricity Cost – Consumables Cost – Salary
Cost]

Where, per batch,

Revenue = 29000 * ∑ 𝑖𝑓𝑖/1000
Cost of RM = ∑ 𝑖(𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 𝑇𝑜𝑛 ∗ 𝑥𝑖 /1000
Electricity Cost = 4.30 * [700 *( ∑ 𝑖𝑥𝑖)/1000 + 1200]
Consumables Cost = 2000 * ∑ 𝑖𝑓𝑖/1000
Salary Cost = 3000

a) Constraint on batch size of 4,000 kg

Figure 1: Solution to the batch model

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

So, to optimize a batch without any constraint related to monthly limits, profit per
batch will be INR5, 421.

b) Batch optimization with limits implied by monthly supply

Figure 2: Solution to a model with batch variables and linear limits implied by
monthly supply

Alternative yields less per batch: INR 5,322. These shows yield more every month by
doing more groups, 328 versus 321. There are more batches every month this
optimization in light of the breaking point on the month to month supply. As a result of
this constraint, Solver now becomes strength to utilize all the more excessive material
rather than less expensive material. This enhances the general proficiency and in a
roundabout way diminishes the time of one bunch.

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

2.2 Second analysis, will the administrative requirement of 4,000 kg for each batch of
finished product hamper the capacity to make benefit? Is it worth to discover
administrative endorsement to expand that point of confinement?

Ideal answers for LP have hitherto been discovered called, deterministic

assumptions. Implies, presumption on complete assurance in information and
relationship of a issue are characterize. On the other hand, conditions are
continuing changing in certifiable just in this contextual analysis. Thus, to handle
the error, significance of seeing just how touchy that arrangement is to model
suspicions and information is essential.

Affectability examination only for the group without month to month

requirements in view of this case study:

Figure 3: Sensitivity analysis for batch model without supply limits

Variable Cells Final Reduced Objective Allowable Allowable
Value Cost Coefficient Increase Decrease
Name
Tasla Raw Material per Batch (Kg) 1391.788450 0 2.67 0.72127846 0.56199723
Rangeen Raw Material per Batch (Kg) 1391.788450 0 3.37 1.E+30 1.00457297
Sponge Raw Material per Batch (Kg) 556.715379 0 2.14 0.56473868 6.98050847
Local Scrap Raw Material per Batch (Kg) 835.073069 0 2.37 0.65316276 4.65367232
Imported Scrap Raw Material per Batch (Kg) 0.000000 0 0.18 2.93138483 1.E+30
HC Raw Material per Batch (Kg) 1113.430760 0 1.24 1.E+30 0.49234907
Pig Iron Raw Material per Batch (Kg) 278.357690 0 2.24 0.80967742 13.9610169

Final Shadow Constraint Allowable Allowable

Constraints Value Price R.H. Side Increase Decrease
Tasla Raw Material per Batch (Kg) 1391.788450 0 0 1.E+30 1391.78845
Rangeen Raw Material per Batch (Kg) 1391.788450 1.03952679 0 1441.96107 1344.98991
Sponge Raw Material per Batch (Kg) 556.715379 0 0 1.E+30 2226.86152
Local Scrap Raw Material per Batch (Kg) 835.073069 ` 0 1.E+30 3618.64997
Imported Scrap Raw Material per Batch (Kg) 0 0 0 1.E+30 4453.72303
HC Raw Material per Batch (Kg) 1113.430760 0.57320807 0 1751.31349 956.36581
Pig Iron Raw Material per Batch (Kg) 278.357690 0 0 1.E+30 278.35769

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

Tasla Raw Material per Batch (Kg) 1391.788450 0 0 1391.78845 1.E+30

Rangeen Raw Material per Batch (Kg) 1391.788450 0 0 1391.78845 1.E+30
Sponge Raw Material per Batch (Kg) 556.715379 -0.56395268 0 1386.96255 557.491289
Local Scrap Raw Material per Batch (Kg) 835.073069 -0.63952679 0 1344.98991 852.878465
Imported Scrap Raw Material per Batch (Kg) 0 -2.93138483 0 1331.55792 0
HC Raw Material per Batch (Kg) 1113.430760 0 0 1113.43076 1.E+30
Pig Iron Raw Material per Batch (Kg) 278.357690 -0.80347947 0 276.243094 280.504909
Total Finished Product per batch (Kg) 4000 3.39526792 4000 1.E+30 4000

Discussion:
i. Batch size is a big constraint on profits
ii. If increase the batch size by 1 kg, profit increase per batch by INR3.40
iii. If increase batch size by ~320 batches per month, profit increase to
~INR109, 000 (~6.25%)
iv. If it requires approximately INR1, 300,000 in capital and time investment
to increase the batch size by just 100 kg, will able to recover that cost in
less than 12 months

2.3 Third analysis, what amount of benefit will Akshay Mittal lose in the event that
he should use in any event one unit of a crude material in a clump given or pick
not to utilize that crude material? This is to stay away from miserable if CEL does
not arrange a specific sort of crude material

From the sensitivity analysis in the case study:

i. Row 13 indicates, Imported Scrap is the only raw material not being used
in the current optimized plan which is the maximum profit per batch
without any monthly limit constraint.
ii. Row 31 shows, CEL would losing INR2.93 per additional kilogram if use
Imported Scrap.
iii. Suggest buying Imported Scrap if necessary and the price must below
INR20, 070 per ton.

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

2.4 Forth analysis, Akshay Mittal must know the suggestions from ideal batch from
question 2.1 on month to month commitment.

At the point when run Solver for boosting the benefit every month, benefit every
month shows INR1, 788,705 which is much higher than the benefit every month
assessed in question 2.1, INR1, 739,245. In the meantime, benefit per clump
INR4, 873 dropped essentially from inquiry 2.1 INR1, 739,245.

Figure 4: Nonlinear model with batch decision variables and a monthly objective

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

The past methodology finishes up a shabby and ease crude material such as HC
great in cluster plan and might incorporated in with the general mish-mash. Be
that as it may, subsequent to this is a nonlinear model, there is probability that this
enhancement may not produce a worldwide most extreme and only one of
numerous nearby maxima. Along these lines, nonlinear model required to check if
worldwide optima have. Nonlinear model need to use at many distinctive
beginning stages to see dependably wind up at same ideal arrangement.

An approach to detail a straight month to month model is to utilize month to

month crude material choice variables and include a choice variable for the
quantity of batches. Month to month enhancement:

𝑦𝑖 = tons of raw material i to order per month

b = number of batches in a month
Revenue = 29000 * ∑ 𝑖𝑔𝑖
Cost of RM = ∑ 𝑖(𝑅𝑎𝑡𝑒 𝑝𝑒𝑟 𝑇𝑜𝑛 ∗ 𝑦𝑖
Electricity Cost = 4.30 * 700 *( ∑ 𝑖𝑦𝑖) + 1200 ∗ 𝑏
Consumables Cost = 2000 * ∑ 𝑖𝑔𝑖
Salary Cost = 3000 * b

Subject to min and max constraint for each i, constraint on batch size of 4,000 kg,
batch size limit and hours available per month.

Monthly optimization:
Max [Revenue – Cost of RM – Electricity Cost – Consumables Cost – Salary
Cost]

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

Figure 5: Linear model with batch decision variables and a monthly objective

Discussion:
i. Profit per month is same as profit per month for nonlinear monthly model.
ii. Nonlinear model did provide a global optimal

2.5 Last analysis, what are the suggestions to improve profits?

Based on sensitivity analysis (Fig 3):

i. Find other sources for Rangeen to increase supply.
ii. Negotiate a deal with supplier and pay an amount up to an additional
INR919 per ton of supply for each ton over the current limit of 500 tons.

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UUM CASE STUDY 2 SQQP 5023 – DECISION ANALYSIS

iii. Improve time per month from 600 hours to higher. Every one hour
increase in time will result profit by INR2, 981. This additional profit
would be applicable for the next 7.7 hours.
iv. Improve the time per month:
a. Hire better maintenance personnel to reduce maintenance time
b. Use better / costlier machinery to reduce breakdown periods
c. Timely supply of consumables and spare parts to reduce waiting
time (emergency)
d. Put in place a better safety plan for workers to reduce time in
related activities.

3. REFERENCES
i. Render B., Stair, R.M., & Hanna, M.E. (2006). Quantitative Analysis for
Management. Prentice Hall.
ii. (2011), Chandpur Enterprises Limited, Steel Division: Teaching Note

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