1. Formulate a Lingo model and obtain a solution that maximizes profit. According to the case, each mill must operate at least six days out of seven. How does your solution differ from the original allocation given in Exhibit 4? What are the benefits of this optimization?

2. What strategic alternatives should Northwest consider with respect to the current newsprint capacity? Should a 58,000 ton/year machine at Naomee Mills be converted to groundwood specialties? Why or why not?

Exhibit 4 THE ORIGINAL 1995 ALLOCATION (tonnes delivered) Producing Mill Naomee Mills 40,727 27,704 92,680 22,401 52,960 Distribution Center Seattle Chicago Dallas New Orleans Denver Los Angeles San Francisco Vancouver Calgary Spruce Mills 55,608 64,976 23,832 Duchesne 189,440 32,581 8,145 Mill Spruce Mills Naomee Mills Duchesne Transportation costs ($US/ton) Mill Spruce Mills Naomee Mills Duchesne Demand (tons) Seattle Chicago Dallas New Orleans Denver Los Angeles San Francisco Vancouver Calgary Capacity Cost 166,320 272,340 265,077 Seattle 46.68 52.80 Projected 40,727 55,608 92,680 92,680 23,832 211,841 52,960 32,581 8,145 Min Util 390.00 0.85714286 415.00 0.85714286 415.00 0.85714286 Dallas Chicago Distribution Center 151.77 162.83 142.82 New Orleans Denver 89.77 162.24 166.18 128.82 204.13 195.08 97.17 210.42 200.62 Optimistic Pessimistic Delivered price 45,028 29,557 750 61,481 45,518 750 102,468 75,863 750 102,468 75,863 750 26,349 19,507 750 234,213 173,401 750 58,553 43,350 750 36,022 23,646 700 9,006 5,911 700 Los Angeles 147.46 150.14 San Francisco Vancouver Calgary 151.11 115.49 72.42 124.83 42.17 77.50 87.94