Submitted by: Ram.

Ballampalli
Roll.No:PGPJ01015

Report on

GIANT MOTOR COMPANY I

Table of Contents
1. Executive Summary:.................................................................................................. 2
2. Introduction:............................................................................................................ 2
3. Data Required:.......................................................................................................... 3
4. Implementation Phases:............................................................................................... 4
5. Goals and Deliverables:............................................................................................... 5
6. Conclusion:.............................................................................................................. 6

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Executive Summary:
The Giant motor company produces three types of cars for the US market and they are Lyras, Libras and
Hydras. Hydra is the most expensive model whereas Lyra is the cheapest of the three car models. The
company is looking to increase their production so that their profits can increase. In the process to
increase production GMC is looking to retool their plants. So company uses mixed integer programming
model to aid the companys planning process.

The new Lyra plant will be capable of producing both Lyra and Libra but not Hydra whereas the new
Libra plant has slightly lower profit margin for producing Hyrda than the Hydra plant. If a plant is
retooled, fixed cost will include the previous fixed cost plus the renovation cost.

Currently, GMC has insufficient capacity to produce as per the demand. So they often face phenomenon
known as demand diversion, i.e., if a demand of consumer is not met then he might go for another car
model of GMC or he might go to competitor. In this case, if there is unsatisfied demand of Lyra car then
consumer chances of going for Libra model is 30% and for Hydra model is 5%. If there is unsatisfied
demand for Libra model then there is 10% chance of him going for Hydra car model.

Thus, in this case GMC wants to decide whether to retool Lyra and Libra plant or not. They also want to
forecast the production plan at each plant for the next year.

Introduction:
This problem deals with strategic planning issue for a large company. The main issue is planning the
companys production capacity for the coming year. At issue is the overall level of capacity and the type
of capacity- for example the degree of flexibility in manufacturing system. The main tool used to aid the
companys planning process in GMC-I is a mixed integer programming model. A mixed integer program
has both integer and continuous variables.

The giant motor company produces three lines of cars for the domestic market: Lyras, Libras and Hydras.

Lyra is a relatively inexpensive subcompact car that mainly appeals to first time car owners and to
households using it as as a 2nd car for commuting. It is produced in a plant with capacity of 1000000 cars
a year with $2000million fixed cost. Demand for Lyra cars in United States is 14000000 per year. Profit
margin for this plant per car is $2000. GMC is thinking to retool this plant with $3400million to increase
its production capacity to 16000000 as well as increase profit margin to $2500. After retooling,

Libra is a sporty compact car that is sleeker, faster and roomier than Lyra. Without any option it costs
little more than Lyra. It is produced in a plant with capacity of 800000 cars a year with $2000million
fixed cost. Demand for Libra cars in United States is 11000000 per year. Profit margin for this plant per
car is $3000. GMC is thinking to retool this plant with $3700million to increase its production capacity to
18000000 as well as increase profit margin to $3500. After retooling, this plant will also be able to
produce LYra Cars with profit margin of $2300 per car as well as Hydra Cars with profit margin of
$4800.

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Hydra is the luxury car of GMC line. It is significantly more expansive than Lyra and Libra and it has the
highest profit margin of the three cars. It is produced in a plant with capacity of 900000 cars a year with
$2600million fixed cost. Demand for Libra cars in United States is 8000000 per year. Profit margin for
this plant per car is $5000.

From past experiences GMC estimates that 30% of unsatisfied demand of Lyras is diverted to demand for
Libras and 5% to demand for Hydras. Similarly, 10% of unsatisfied demand for Libras is diverted to
demand for Hydras. All other unsatisfied demand is lost to competitors.

GMC wants to decide whether to retool the Lyra and Libras plants. In addition, GMC wants to determine
its production plan at each plant in the coming year.

Data Required:
Plant
Characteristics
new new
lyra libra hydra lyra libra
capacity(1000) 1000 800 900 1600 1800
fixed cost($ million) 2000 2000 2600 3400 3700

demand(1000)

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 lyra 1400
libra 1100
hydra 800

Demand Dversion matrix

lyra libra hydra
lyra na 0.3 0.05
libra 0 na 0.5
hydra 0 0 na

Implementation Phases:
Step 1) Decision variables

Y1(Binary) = plant Lyra open or closed

Y2(Binary) =plant Libra open or closed
Y3(Binary) =plant Hydra open or closed
Y4(Binary) =plant New Lyra open or closed
Y5(Binary) =plant New Libra open or closed
X11= production unit of lyra in Lyra plant
X14=production unit of lyra in New Lyra plant
X22=production unit of libra in Libra plant
X24=production unit of libra in libra plant
X25=production unit of libra in New Libra plant
X33=production unit of hydra in Hydra plant
X34=production unit of hydra in New Lyra plant
X35=production unit of hydra in New Libra plant

Step 2) Constraints

(plant constraints)

X11<=1000y1
X22<=800y2
X33<=900y3
X14+x24<=1600y4
X15+x25+x35<=1800y5

(demand constraints)

Demand Shortage
lyra x11+x14+x15 (ply) <= 1400 MAX(1400-(Ply),0)
libra x22+x24+x25 (plib) <= 1100+0.3(Sly) MAX(1100+0.3(Sly)-

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 (Ply),0)
800+0.1(Sli)
hydra x33+x35 (phy) <= +0.05(Sly)

(Other Constraints)

Y1+y4<=1
Y2+y5<=1

Step 3) Objective function:

Max(2X11+2.5X12+2.3X15+3X22+3X24+3.5X25+5X33+4.8X35-
(2000Y1+2000Y2+2600Y3+3400Y4+3700Y5))

Goals and Deliverables:

1) Decide whether to retool and increase the capacity of Lyra , Libra and Hydra plant to NEW Lyra, New
Libra .

2) To get maximum profit

3) To allocate production in such a way that neither of the plant production exceeds its production
capacity.

Conclusion:

revenue 11140
fixed cost 7100
net profit 4040

The company should expand the capacity of the Lyra and Libra plants. The production plant is to produce
1.4 million Lyras and 0.1 million Libras respectively at the New Lyra and 1.0 million Libras at the New
Libra plant. A total of 0.8 million Hydras should be produced at the New Libra plant. The resulting profit
is 4.04 billion dollars.

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