Problem $2$: Network distribution problem with integer decision variables:

Topics:

Recommended Preparation:

Difficulty:

Transportation problem with plant open$/$close decisions

LP formulation with binary integer decisions

Medium

Refer to the GlobChem example discussed in class $($Module $4-$ Lecture Slides starting from Slide $18$ and

the Excel file is also available in Module $4).$ In the original problem setup, it is assumed that each of the

four plants has an annual fixed cost which is incurred regardless of the production volume. Since

GlobChem's total demand is only about $78\%$ of its worldwide capacity, senior management wants to

explore the possibility of downsizing capacity. Shutting down a plant will save the annual fixed operating

expenses of the plant $($which are incurred in full if the plant is open, regardless of the production

volume$).$

Question: The Company needs to determine which plants they should continue to operate and

subsequently decide the annual production and transportation schedule to maximize their net annual

profit $($with all costs considered$),$ ensuring that plant capacity and market demand limits are not