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Page 1 of 4 MGT 674VA – Supply Chain Management – Take-home Quiz 2 Canada One Oil Inc. is an integrated oil company, with interests in upstream and downstream operations in Ontario. It started operations in 2000. Canada One Oil Inc. is well-positioned to source, produce, and distribute crude resources. There are three sources of crude, Light Crude, Med Crude, and Recycled Crude, that Canada One Oil Inc. uses for making its products. Basically, Canada One Oil Inc. purchases these three sources from its suppliers and blends them with certain proportion requirements to produce three lines of engine oil: Standard Oil, Premium Oil, and Green Oil. Sometimes Canada One Oil Inc. may need to purchase Green Oil from an external retailer if there is unexpected demand. Table 1 (in a separate excel file) is the working log that listed the usage amount of each raw material (Light, Med, and Recycled) from 2021-01-01 to 2021-12-31. Raw Material SKU Light Crude R869920 Med Crude R869922 Recycled Crude R505111 Blended Product - Engine Oil SKU Standard Oil P110011 Premium Oil P110024 Green Oil P110035 Green Oil purchased from an external retailer S900011 Part 1: You are the sourcing manager and responsible for ordering raw materials (light crude, med crude, and recycled crude) from different suppliers (information see below Table 2). Table 2 Raw Material Name SKU Supplier Name Price per liter Ordering Cost Lead Time (days) Inventory Tracking System Light Crude R869920 GTA Light $ 12 $ 280 12 days Continuous Med Crude R869922 Petro Med $ 10 $ 150 14 days Continuous Recycled Crude R505111 Chem-environ $ 14 $ 300 25 days Periodic Due to a recent system breakdown, the inventory information was lost. You only know that the distribution of daily demand, for each raw material, follows the normal distribution. Your firm is maintaining a 95% service level at the time. The monthly inventory carrying cost is 1.25% of the purchase price. You need to use the historical data for the year 2021 to find out the order quantity and reorder point for each raw material. Assume that the annual demand for the year 2022 is the same as the year 2021. Note that you check the inventory of Recycled crude every 25 days. Page 2 of 4 Questions For Light Crude and Med Crude, 1. What is the optimal order quantity for each? 2. How many numbers of orders are to place every year for each? 3. What is the average inventory for each? 4. What is the reorder point for each? 5. What is the total inventory cost for each? For Recycled Crude, you examined the inventory on the morning of 2021-12-17 and there were only 24000 liters left in the warehouse. 6. What is the order quantity you place on 2021-12-17? 7. In general, how many orders you should place in a year? 8. If today is 2022-01-01, what kind of problems do you expect to have? Part 2: You are the transportation manager and are responsible for scheduling the daily delivery of the blended oil (Standard Oil, Premium Oil, and Green Oil) to five stations with the minimum total shipping cost. Table 3 summarizes the shipping cost per liter of blended oil. Be aware that each shipment contains one blended oil only. Table 3: Shipping cost per liter of the Standard Oil, Premium Oil, and Green Oil Supply\Demand Station 1 Station 2 Station 3 Station 4 Station 5 Standard Oil $ 2 $ 1.5 $ 3 $ 1.5 $ 1.25 Premium Oil -- $ 2.5 $ 2.5 $ 1.5 -- Green Oil $ 2.5 $ 3 -- $ 2 $ 2 (Note: If a cost is missing in the table, the corresponding route is not available) You need to schedule the delivery for 2021-12-31. The total supply and demand are listed below. Table 4: Total Supply of Engine Oil on 2021-12-31 Product Standard Oil Premium Oil Green Oil Total Supply (liters) 8300 12500 11283 Table 5: Total demand for Engine Oil on 2021-12-31 Stations Station 1 Station 2 Station 3 Station 4 Station 5 Total Demand (liters) 8500 7500 7085 5500 3550 Page 3 of 4 However, when scheduling the delivery, you noticed that the total supply of 2021-12-31 is not enough, so you contacted an engine oil retailer to provide extra Green Oil and ask the retailer to deliver the difference to each station directly. The retailer charges $ 5 per liter for shipping in general. (Here, you are the transportation manager, and you only consider the shipping cost, including those from the retailer to each station). There are several special requirements that you must satisfy: • Station 3 only needs standard oil and premium oil and the amount of premium should be at least twice the standard oil. • Station 4 requires at least 1000 liters of standard oil and 1000 liters of premium. Questions: 1. Draw the LP network diagram for this transportation schedule. Set up an LP model for this and use Solver to solve the problem. 2. What is the total shipping cost? 3. How many units do you need to ask the retailer to deliver and deliver to which station? Part 3: You are the sales manager and are responsible for forecasting the demand for each product. Based on the historical data for each product (saved in Table 1), what insights can you get? Which forecasting method do you recommend using to forecast the demand for each product and why? Page 4 of 4 Optional Question. You are the production manager and are responsible for blending the raw materials (light crude, med crude, and recycled crude) into engine oil products (Standard Oil, Premium Oil, and Green Oil). The maximum availability (in liters) of each raw material and the cost you paid to your supplier for each raw material are listed below in Table 6. Raw Material Availability Cost per liter paid to the supplier Light Crude 27696 $ 12 Med Crude 2378 $ 10 Recycled Crude 1579 $ 14 To make sure appropriate blending, each engine oil (Standard Oil, Premium Oil, and Green Oil) has special pre-determined formulas requirement, as presented in Table 7 with the selling price for each engine oil. Table 7: Blending requirement for each engine oil (Standard Oil, Premium Oil, and Green Oil) Engine Oil Formulas Requirement Selling price per liter Standard Oil At least 50% of light crude No more than 30% of med crude $ 23 Premium Oil At least 40% of light crude No more than 25% of recycled crude $ 20 Green Oil At least 60% of light crude At least 10% of med crude $ 18 Today is 2021-12-30 and the company needs to produce (blend) at least 10000 liters of each engine oil. Your job is to determine the optimal mix of raw materials that will maximize the daily total profit.