SECTION A: STRUCTURED QUESTIONS (100 MARKS) ANSWER ALL QUESTIONS

Royal Canin: More than 50 years of health nutrition

Since 1968 Royal Canin has worked to make nutrition cats and dogs first medicine. Jean Cathary, a veterinarian, believe that food could impact the health of animals. In 1968, he created the yellow soup for dogs and the ROYAL CANIN brand was registered.

The Royal Canin company is acquired by the Bienvenue a Le Group Guyomarc'h in 1972, bringing Royal Canin its expertise in nutritional precision and diet formulation. The Guyomarch group gives the Royal Canin teams plenty of autonomy. It provides financial support, R&D resources, and some expertise in strategy and marketing, but decentralisation is also one of its hallmarks.

By the beginning of 1974 Royal Canin products are now sold in eight countries across

Europe - France, Belgium, Denmark, Germany, Italy, Spain, Sweden and the Netherlands. Over the last five decades Royal Canin have put nutritional quality and product safety at the heart of their operations worldwide. This attention to the very smallest details helps them deliver the most precise and effective health nutrition for pets. Royal Canin collaborate with leading scientific, veterinary and behavioural experts, and maintain an ongoing dialogue with cat and dog owners worldwide.

Royal Canin trying to make the most effective use of an organizations resources. Therefore, Royal Canin plan to produces two types of cat biscuits which are chickenflavored and fish-flavored biscuits. Each formula has been created to deliver nutrition tailored to the cat health needs whatever their breed, age or lifestyle. It is costs $25 to make chicken-flavored biscuit and $30 to make fish-flavored. Based on the analysis of current inventory levels and outstanding orders, Royal Canins production manager has specified that at least 300 units of chicken-flavored and at least 200 units of fish-flavored must be produced during the next month. In addition, Royal Canin must produce a total of at least 600 units of the cat biscuits in the next month.

Royal Canin recognized that good inventory management is crucial. On the other hand, Royal Canin can reduce costs by reducing inventory. In addition, production may stop and customers become dissatisfied when an item is out of stock. Royal Canin fixed costs total $205,000 per year, their labor costs are $30 per item and materials costs $20 per item. Royal Canin has relatively stable demand for its product throughout the year, with an annual total of 30,000 items. The cost of placing an order is estimated at $200 and the annual cost of holding inventory is estimated at 30% of any products value. The company purchases the items for $250.

Royal Canin location of a new factory, warehouse or distribution center is a strategic issue with substantial cost implications. Each new potential plant, warehouse or distribution center will require a different allocation of shipments depending on its own production and shipping costs and the costs of each existing facility. The choice of a new location depends on which will yield the minimum cost for the entire system. Royal Canin has three plants located at Des Moines, Evansville and Fort Lauderdale. Des Moines has 76 units of capacity, Evansville 82 units of capacity and Fort Lauderdale 77 units of capacity per period. All three plants supply three warehouses located at Albuquerque, Boston and Cleveland. The warehouse at Albuquerque requires 72 units per period; the warehouse at Boston requires 102 units per period; and the one at Cleveland requires 41 units per period. The costs of transporting each plant to each warehouse are as follows: Des Moines $4, $8, $8; Evansville $16, $24, $16; Fort Lauderdale $8, $16, $24.

In this period of time, there are a lot of uncertainties and concerns among pet parents. Royal Canin priority is to ensure all cats and dogs need are not deprived while ensuring the safety of everyone. At the same time, many of the local small businesses are badly affected.

Based on the case above, answer following questions:

1. Formulate the linear programming problem for Royal Canin.
2. Solve this problem graphically, giving the optimal values of all variables.

c. What is the total cost of the cat biscuit using the optimal mix? How many of the cat biscuits the operation manager must produce?

d. Amira Balqis, the Royal Canin marketing manager, expects to sell 3,0 00 items each year and wants the average price to be $100. Will Royal Canin break even with this strategy?

e. Would it better for Royal Canin to reduce their fixed costs from $205,000 to $130,000 or to reduce their labour costs from $30 to $15?

f. How many items should the Royal Canin order at a time? What is the total cost of this plan?

g. What would be the effect on holding costs and ordering costs if Royal Canin had to order 600 items at a time?

h. Assuming annual demand for items increases from 30,000 to 35,000; the cost of holding stock is recalculated as 35% of the product value; and the cost of placing an order fall to $95, what is the new EOQ?

i. Formulate an initial feasible solution to Royal Canin transportation problem using the northwest corner rule.

j. Use the stepping stone method to find the optimal solution that will minimize transportation cost of this problem.

k. Determine a minimal spanning tree network that will connect all the cities from Royal Canin Main Office (1) that will minimize their cost.