“Decision Analysis : Case Problem 1 :Transportation- Solution PlusSolution Plus is an industrial chemicals company that produces specialized cleaning fluids and solvents for a wide variety of applications. Solution Plus just received in invitation to submit a bid to supply Great North American railroad with a cleaning fluid for locomotives. Great North American needs the cleaning fluid at 11 location (railway stations); it provided the following information to Solution Plus regarding the number of gallons of cleaning fluid required at each location (see Table 10.9).The Solution Plus can produce the cleaning fluid at its Cincinnati plant for $1.20 per gallon. Even though the Cincinnati location is its only plant, Solution Plus has negotiated with an industrial chemicals company located in Oakland, California, to produce and ship up to 50,000 gallons of the locomotive cleaning fluid to selected Solution Plus customer locations. The Oakland company will charge Solution Plus $1.65 per gallon to produce the cleaning fluid, but Solution Plus think that the lower shipping costs from Oakland to some customer locations may offset the added cost to produce the product.The president of Solution Plus , Charlie Weaver, contacted several trucking companies to negotiate shipping rate between the two production facilities (Cincinnati and Oakland) and the location where the railroad locomotives are cleaned. Table 10.10 shows the quotes received in term of dollars per gallon. The—– entries in Table 10.10 identify shipping routes that will not be considered because of the large distances involved. These quotes for shipping rate are guaranteed for one year.To submit the bid to the railroad company, Solution Plus must determine the price per gallon they will charge. Solution Plus will usually sells it cleaning fluids for 15% more than it cost to produce and deliver the product. For this big contract, however, Fred Roedel, the director of marketing, suggested that maybe the company should consider a smaller profit margin. In addition, to ensure that if Solution Plus wins the bid, they will have adequate capacity to satisfy existing orders as well as accept orders for other new business, the management team decided to limit the number of gallons of the locomotive cleaning fluid produced in the Cincinnati plant to 500,000 gallons at most. TABLE 10.9 GALLONS OF CLEANING FLUID REQUIRED AT EACH LOCATIONLocation
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