PRESENTED BY: CHAWATHAY,

VERSION
SHSHANK
1.0
MS BUSINESS ANALYTICS
BENTLEY UNIVERSITY

Confidential

AUTOMOTIVE ALLIANCE ASSEMBLY PLANT OPTIMIZATION

BUSINESS PROBLEM
The Assembly Plant of Automotive Alliance needs a production schedule for next
month to assemble two car models namely the Family Thrillseeker (FT) and the
Classy Cruiser (CC). This production schedule needs to be optimized to
maximize the profit from the assembly of the two models subject to several
constraints and situations. Each of the section below describes these constraints
and solutions subject to the same.
The Family Thrillseeker (FT) is a four door sedan and is marketed as a smart
buy for the middle-class-families and earns a modest profit of $3600/unit for the
company. Under normal circumstances, it requires 6 labor-hours to complete the
assembly of one FT.
The Classy Cruiser (CC) is a two door luxury sedan and is marketed as a
privilege of affluence to the upper-middle-class-families and earns a comparatively
higher profit of $5400/unit for the company. Under normal circumstances it
requires 10.5 labor-hours to complete the assembly of one CC.
The Assembly Plant has a regular capacity of 48000 labor-hours not including
overtime. Also, since it is only an assembly plant, it is dependent on the
manufacturing capacities around the plant for the supply of parts. For the next
month, the supplier of doors can only provide 20000 doors (10000 for each
side) as it is unable to meet the production schedule due to shutdown caused by a
recent labor strike at the plant. This constraint needs to be incorporated while
designing the optimum model. Both the models, FT and CC need the same door
and hence this can be considered as a single constraint.
OBJECTIVE AND DECISION VARIABLES
We need to know the number of units of each model of car that need to be
assembled in order to optimize the utilization of resources and maximize the profit.
Thus let us consider the following as Decision Variables:
FT- Is the variable which notates the optimum number of Family Thrill Seeker to be
assembled.
CC- Is the variable which notates the optimum number of Classy Cruisers to be
assembled.
ATTRIBUTES TABLE
The table below describes the several attributes that need to be considered for the
problem.
TABLE 1
Resources

Required for
FT

Required for
CC

Availability

Labor Hours (hrs.)

10.5

48000

Doors (Units)

20000

Automotive Alliance Assembly Plant Optimization

Confidential

Resources

Required for
FT

Required for
CC

Availability

Profit ($)

3600

5400

Under normal circumstances, our optimization model would be subject to the

constraints and would yield the profit for each unit as mentioned in Table 1.

Automotive Alliance Assembly Plant Optimization

Confidential

PROBLEM STRUCTURE
This problem can be tackled using Linear Programming techniques to attain the
optimum number of units to be produced to achieve maximum profits subject to
the given conditions. We can observe that the objective function for this problem
can be fairly linear as we need to maximize the profits which is a linear function of
the number of units of each model assembled.
OBJECTIVE FUNCTION
Our objective is to maximize the profit for the month. This can be formulated as
below

PROFIT (Max) = 3600*FT + 5400*CC

CONSTRAINTS
The objective function above would be subjected to the following constraints:

The constraint for labor-hours can be formulated as below

6*FT + 10.5*CC <= 48000 (Due to Max Labor-hour Capcaity)

The constraint for availability of doors can be formulated as below

4*FT + 2*CC<= 20000 (Due to Max Doors Available)

Non Negativity constraints: (Since the number of units assembled cannot be

negative)
FT>=0 (since the company has not put any upper cap on number of FT
units to be assembled)

The company has a forecast for the demand of CC in the market for next
month which is 3500 units and hence this non negativity constraint is
subjected to an upper limit.
3500>= CC >=0

ANALYSIS PLAN
I propose to solve these equations using the Analytic Solver Platform provided by
Frontline for Excel using the Linear programming functionalities. The model can be
subjected to different scenarios and the optimum solution for the same could be
conveniently obtained using this platform.

Automotive Alliance Assembly Plant Optimization

Confidential

OPTIMUM SOLUTION SUBJECT TO DIFFERENT SCENARIOS

A) BUSINESS AS USUAL
This is a business as usual case with the constraints mentioned in TABLE 1 we
need to determine the optimum number of units of each model to be
assembled. We use the objective function described in the above sections
Type

Labor
Door

FT

CC

Resources
Used

Resour
ces
availab
le

6
10.5
48000
48000
4
2
20000
20000
PROFIT (Max) = 3600*FT + 5400*CC

Units
Profit/month

3800
3600

2400
5400

Max Profit

266400
00

Thus the plant can achieve a maximum profit of $26640000 if it assembles 3800
units of Family Thrill Seeker and 2400 units of Classy Cruiser.
B) WITH TARGETED MARKETING CAMPAIGN
According to the Marketing department a targeted marketing campaign costing
$500,000 would increase the demand for Classy Cruiser by 20%. The following
results will allow us to analyze if the marketing campaign is worth the money. This
would increase the demand of CC from 3500 to 4200
Thus we need to subject the Linear programming model to a new constraint while
rest of the constraints remain the same as follows:

4200>= CC >=0
FT

CC

Resour
ces
Used

Resour
ces
availab
le

Labor
6
10.5
48000
48000
Door
4
2
20000
20000
PROFIT (Max) = 3600*FT + 5400*CC500000
Units
3800
2400
Profit/Mo
3600
5400 Max
266400
nth
Prof
00
Market
ing
500000
Expens
e
Automotive Alliance Assembly Plant Optimization

Confidential
Net
Max
Profit

261400
00

Since the Net Profit after the marketing campaign for Classy Cruisers will be
$26140000 which is less than $26640000, it is not worth undertaking the
campaign.

Automotive Alliance Assembly Plant Optimization

Confidential

C) INCREASING THE PLANT CAPACITY BY 25%

It is possible to increase the plants Labor hours capacity by 25% using Overtime
Labor and that would allow assembly of more units of both the models resulting in
increased profits. The following results allow us to analyze how many more units of
each model type can be assembled to increase the overall profit.
FT

CC

Resour
ces
Used

Resour
ces
availab
le

Labor
6
10.5
56250
60000
Door
4
2
20000
20000
PROFIT (Max) = 3600*FT + 5400*CC
Units
3250
3500
Profit/mo
3600
5400
Max
306000
nth
Prof
00
We can observe that the 3250 units of Family Thrill seeker and 3500 units of
Classy Cruiser can now be assembled which would generate a maximum profit of
$30600000.
D) MAXIMUM AFFORDABLE EXPENSE FOR LABOR
It is understood that overtime labor is an expense and it is necessary to find out
how much money can be spent for overtime labor subject to the linear model we
have designed.
The amount which can be considered as an affordable expense can be expressed
as a difference between the max profit with regular labor-hours capacity and max
profit with increased labor capacity.
For this calculation, we consider the results from Sections A and C:
Affordable Expense for Labor = Max Profit (regular capacity) - Max Profit
(increased capacity)
= 26640000 30600000
Affordable Expense for Labor = $3960000

Thus, $3960000 can be considered as an affordable expense for labor overtime to

break-even with the maximum profit that can be achieved without overtime. Any
amount spent over this will be comparatively loss generating and can be considered
as a bad decision.

Automotive Alliance Assembly Plant Optimization

Confidential

E) 25% INCREASED PLANT CAPACITY + TARGETED MARKETING CAMPAIGN

If the Plants capacity is increased by 25% and a targeted marketing campaign are
done together, there might be a chance to increase the maximum profits. The
following results can help us decide if its worth taking this decision
Thus we need to subject the Linear programming model to the constraint below:
4200>= CC >=0
Also the Available labor hours will increase to 60000
FT

CC

Resources
Used

Resour
ces
availab
le

Labor
6
10.5
60000
60000
Door
4
2
20000
20000
PROFIT (Max) = 3600*FT + 5400*CC-500000
Units
3000
4000
Profit/mo
3600
5400
Max Profit
324000
nth
00
TgtMktExp
-500000
Net Max
319000
Profit
00
We can observe that the Net Max Profit is $31900000 which is substantially
higher than what we have got from other scenarios. This combination will allow us
to assemble 3000 FT and 4000 CC.
F) IS 25% INCREASED PLANT CAPACITY + TARGETED MARKETING CAMPAIGN
BETTER DECISION THAN BUSINESS AS USUAL?
We know that the 25% overtime labor is going to cost us $1600000 thus to figure
out if it is a better decision than Business as usual we subtract the Overtime
expense from the max profit obtained in E.
The Resultant Max Profit = $30300000 which is greater than $26640000 and
hence we can say that decision of 25% Increased Plant Capacity with Targeted
Marketing Campaign is a better decision than Business As Usual.

Automotive Alliance Assembly Plant Optimization

Confidential

G) PROFIT SHARING AGREEMENT

Since the dealers of Automotive Assembly are discounting the price of Family Thrill
Seekers, the new profit for each unit of FT is $2800 as compared to $3600.
Pertaining to this condition, we need to assemble the units based on the following
results:
FT

CC

Resourc
es Used

Resource
s
available

Labor
Door

6
10.5
48000
48000
4
2
14500
20000
PROFIT (Max) = 2800*FT + 5400*CC
Units
1875
3500
profit/batch
2800
5400 Max
24150000
Profit
To maximize profits, it would be better to produce 1875 units of FT and
3500 units of CC.
H) ASSEMBLY TIME INCREASE
Due to quality problems regarding sealing of the doors of FT, the floor supervisor
has decided to conduct inspections at the end of the line. This has increased the
assembly time of FT to 7.5hrs. The resulting solution to this problem is as follows:
FT

CC

Resources
Used

Resources
available

Labor
Door

7.5
10.5
48000
48000
4
2
13000
20000
PROFIT (Max) = 3600*FT + 5400*CC
Units
1500
3500
profit/bat
3600
5400 Max Profit
24300000
ch
We can observe from the results that 1500 units of FT and 3500 units of CC need
to assembled to attain maximum profits.

Automotive Alliance Assembly Plant Optimization

Confidential

I) CAPTURING THE LUXURY MARKET

The board of directors want to capture the Luxury Market segment and hence wish
to utilize the full demand of 3500 units for Classy Cruiser. This decision will be
considered as good if the losses incurred will be less than $2000000
FT

CC

Resources
Used

Resources
available

Labor
Door

6
10.5
48000
48000
4
2
14500
20000
PROFIT (Max) = 3600*FT + 5400*CC
Units
1875
3500
profit/ba
3600
5400
Max profit
25650000
tch
Max earlier
26640000
Profit
Difference
990000
Since the losses incurred are less than $2000000, we can meet the full demand for
Classy Cruiser.
J) FINAL DECISION BASED ON F, G AND H
Considering the decisions in F, G, and H we have a tabulated view of the Max Profit
and the number of units to be produced of each model as follows.
F: Targeted Marketing and 25% extra labor
FT
CC
Units
300 400
0
0
profit/bat
360 540 Net Max Profit 3030000
ch
0
0
0
G: Reduction of Profit due to Profit Sharing
FT
CC
Units
187 350
5
0
profit/bat
280 540 Tot. Prof
2415000
ch
0
0
0
H: Increased assembly line time
FT
CC
Units
150 350
0
0
profit/bat
360 540 Tot. Prof
2430000
ch
0
0
0
We can clearly observe that the decision taken in F, which is a combination of
Targeted Marketing campaign and 25% extra labor hours will yield us a maximum
Automotive Alliance Assembly Plant Optimization

Confidential
profit of $30,300,000. Thus following this result, we need to assemble 3000
units of Family Thrill Seekers and 4000 units of Classy Cruisers for optimum
utilization of resources and maximum profit.

Automotive Alliance Assembly Plant Optimization

10