Custom Vans
Essay Preview: Custom Vans
Report this essay
In this case a shower manufactures needs to decide where to build two more plants that will be the most cost efficient. Below is the data provided in the case.
Store
CHICAGO
MILWAUKEE
MINNEAPOLIS
DETROIT
CAPACITY
Factory
FORT WAYNE
DETROIT
ROCKFORD
MADISON
DEMAND
The Gary and Fort Wayne factories are the only two factories producing at the current time. Detroit, Rockford, and Madison are the proposed new factory locations. The Detroit and Madison proposed factories have other added benefits. Detroit can acquire fiberglass for $2 less a gallon than the other plants. Madison on the other hand can acquire labor for $1 less an hour than the other plants. The total cost savings are shown below for the Detroit and Madison Plant.
Detroit Plant =
Fiberglass less $2/gal – Total Savings 2gal/shower*-$2gal*150showers= -$600
Madison Plant =
Labor less $1/hr – Total Savings 3hrs/shower*-$1hr*150showers= -$450
1 Shower = 2 gallons of fiberglass + 3 hours of labor
When using the data above and applying it to the “Northwest Corner Rule” the following results would be true.
Optimal cost = $11250
CHICAGO
MILWAUKEE
MINNEAPOLIS
DETROIT
FORT WAYNE
DETROIT
MADISON
Optimal cost = $12000
CHICAGO
MILWAUKEE
MINNEAPOLIS
DETROIT
FORT WAYNE
DETROIT
ROCKFORD
Optimal cost = $11000
CHICAGO
MILWAUKEE
MINNEAPOLIS
DETROIT
FORT WAYNE
ROCKFORD
MADISON
As you can see adding Rockford/Madison would give you the optimal shipping cost and meet your demand at the optimal cost of $11,000. This is $250 less than building the Detroit/Madison plant and $1000 less than building the Detroit/Rockford plant. But because of economic factors described above with Detroits ability to get cheaper fiberglass and Madisons ability to get cheaper labor. The Rockford/Madison plant may not be as favorable.
Factory
Optimal Cost
Less Labor $
Less Fiberglass $
New Cost
Rockford/Madison
$11,000
$10,550
Detroit/Madison
$11,250
$10,200
Detroit/Rockford
$12,000
$11,400
After running the data and taking into account the other savings, Detroit/Madison is the true cost optimizer with a total new cost of $10,200.
Acquiring cheaper materials and labor are always a bonus. But there are other factors not described in this case that would be measured before a decision is made. Here is a list of other factors that should be considered: property cost, taxes, labor skill level, highway accessibility, avg. fuel cost for the area, insurance costs, urban/rural, expansion possibilities, local