Reference no: EM133174908
Description
Case studies are used to enable you to apply new concepts, use the tools you have mastered, and improve your technical skills you have attained. Through the individual case studies, you will discover for yourself the usefulness of quantitative problem solving methods, how to apply them in practice, and their benefit to organizational decision-makers.
In this case study, you will act as a consultant for a company that crushes sunflower seeds to produce high quality refined sunflower oil for sale in the wholesale market. The company is looking for you to make a recommendation on the optimal blend of raw materials required for its next production cycle. You will use a number of decision analysis tools including time series forecasting, linear programming, and cost-profit-volume analysis to make the recommendation and provide analysis on the profitability of the company.
You will be required to submit a written report to management, and to include the spreadsheet models you used to generate price forecasts, optimize the raw material, and a perform the break-even analysis. All analysis should be done using Excel and the various models should be implemented on separate worksheets or in separate workbooks.
Scenario
Turnsol Canada, Ltd. is a producer of high quality sunflower oil. The company buys raw sunflower seeds directly from large agricultural companies, and refines the seeds into sunflower oil that it sells in the wholesale market. As a by-product, the company also produces sunflower mash (a paste made from the remains of crushed sunflower seeds) that it sells into the market as base product for animal feed.
The company has a maximum input capacity of 150 short tons of raw sunflower seeds every day (or 54,750 short tons per year). Of course the company cannot run at full capacity every day as it is required to shut down or reduce capacity for maintenance periods every year, and it experiences the occasional mechanical problem. The facility is expected to run at 90% capacity over the year (or on average 150 x 90% = 135 short tons per day).
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. Historical prices for the last 15 years are in the table below (note that year 15 is the most current year).
|
Historical Price Data
|
|
Marketing Year
|
Seed
Average Price Index
$/short ton
|
Oil
Average Price Index
$/short ton
|
Mash
Average Price Index
$/short ton
|
|
1
|
127.7
|
317.8
|
63
|
|
2
|
192.4
|
465
|
87
|
|
3
|
242
|
662.2
|
105
|
|
4
|
242
|
668.2
|
111
|
|
5
|
274
|
791.3
|
124
|
|
6
|
242
|
732
|
108
|
|
7
|
290
|
951
|
134
|
|
8
|
347.2
|
1123
|
153
|
|
9
|
436
|
1297.3
|
193
|
|
10
|
422.8
|
1312
|
187
|
|
11
|
466
|
1416
|
193
|
|
12
|
582
|
1664
|
247
|
|
13
|
508
|
1317.4
|
242
|
|
14
|
428
|
1182.4
|
197
|
|
15
|
434
|
1334.4
|
210
|
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%
|