How to minimize the cost of raw sunflower seeds

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Reference no: EM131894562

Question: TourneSol is planning to purchase its supply of raw sunflower seeds from three primary growers, Supplier A, Supplier B, and Supplier C. Purchase prices will not set until the orders are actually placed so TourneSol will have to forecast purchase prices for the raw material and sales prices for the refined sunflower oil and mash. The contract is written such that TourneSol is only required to commit to 70% of total capacity up front. Any amounts over that can be purchased only as required for the same price. The forecasted market price for sunflower seeds is $456.67 per short ton, for sunflower oil is $1278.07 per short ton, and for sunflower mash is $216.33 per ton.

Sunflower oil contains a number of fatty acids, some which are desirable in food products and others that are not. One desirable fatty acid is oleic acid. TourneSol produces high oleic oil for the wholesale market, and requires that the oleic acid content be a minimum of 77%. Sunflower oil also contains trace amounts of iodine. The market requires that that iodine content be a minimum of 0.78% and maximum of 0.88%

The oleic acid and iodine content for the sunflower seeds from the three suppliers is given in the table below.

Supplier	Oleic Acid	Iodine
A	72%	0.95%
B	82%	0.85%
C	65%	0.72%

For all three suppliers, it is expected that the average yield of oil from the seeds is 30%. There is no net loss of material, so the yield of mash from the same supply is expected to be 70%.

Because the oleic acid and iodine content varies across the three suppliers, so does the price. It is expected that the cost of supply from the suppliers will be a percentage of the market average price of seeds.

Supplier	Cost as % of Average Market Price of Seed
A	85%
B	100%
C	90%

The company is asking you to provide a recommendation on the amount of raw material it should purchase from each supplier to minimize its cost of feedstock.

Formulate a linear program to minimize the cost of raw sunflower seeds. Use the average price of seeds forecasted in order to determine supplier prices.

Reference no: EM131894562

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