Golfer's Link Case Memo

Memo

To: Rick Eldridge

From: Miaochan He

Subject: Determining an optimal production and shipping plan for the coming month

From my linear program analysis, the maximum profit will be $1,304,544. The optimal production and shipping plan are as follow:

In this model, I set up twenty-one decision variables. For example, Mds represents the number of men’s club set produced in Daytona and distributed to Sacramento. Mts represents the number of men’s club set produced in Tempe and distributed to Sacramento, etc.. Also I set up twenty-seven constraints in this case. Then I came up with the objective function: Max Profit=174Mds+215Mts+146Wds+162Wms+186Wts+134Jms+157Jts+197Mdd+182Mtd+168Wdd+173Wmd+153Wtd+144Jmd+125Jtd+189Mdp+169Mtp+161Wdp+182Wmp+141Wtp+153Jmp+113Jtp.

From the answer report and sensitivity report, we can see that the company will use all aluminum in Daytona and Memphis and all rock maple in Tempe. That means the amount of these available resources will limit the maximum profit that Rick wants to get. So he can increase the amount of aluminum in both Daytona and Memphis and rock maple in Tempe.

If TGL’s contract were not required to supply at least 90% of each distributor’s order, the optimal profit would be $1,348,855. And the optimal production and shipping plan are as follow:

If 80% of the demand must be met, the company could earn $1,329,986. This is $25,422 ($1,348,855 - $1,304,544) more than under the original 90% scenario. Thus, after paying the $10,000 penalty, the company would still be $15,422 ahead under the 80% scenario. However, the increased profit may or may not offset the potential goodwill that may be lost if the customers are not happy having less of their desired order quantities met.