Facilities Expansion Model

Abstract

The Operations Research Department was requested by the Tubular Products Division to assist in determining the production capabilities for their new facilities. This was a crucial management decision not only because substantial capital had to be committed but the production capability of the new facilities would greatly affect the division's ability to compete in the expanding specialty tubing industry. A linear programming model of the existing and the proposed facilities was developed to evaluate alternative facilities. The forecasted annual shipments for seven major material grades were broken down into six hundred product categories based upon historical size mix patterns. The model assigned these product categories to existing and proposed facilities taking into consideration the operating capabilities, efficiencies, and capacities of the facilities in order to minimize the total operating costs. Eighteen proposed facilities were evaluated under varying market forecasts. In addition, the model was used to evaluate phasing out older facilities, different locations for new facilities, and different startup dates for the new facilities. The production capabilities for the new facility chosen by division management was identified by the model. Division management felt that the new facilities would substantially increase their ability to compete in the specialty tubing industry plus reduce annual operating costs by several million dollars.