Chandpur Enterprises Limited, Steel Division

4 Pages Posted: 2 Jun 2017

See all articles by Samuel E. Bodily

Samuel E. Bodily

University of Virginia - Darden School of Business

Akshay Mittal

University of Virginia - Darden School of Business

Abstract

The managing director of a steel plant faces the decision of how much of each raw material to order for the plant for the following month. Due to lower and upper bounds on the amounts of each raw material in a batch and varying amounts of electricity and time consumed for different raw materials, one can't simply use the cheapest raw material. A linear program and the solver optimization function of Excel will provide the optimal amounts that meet the constraints. Interestingly, the best mixture for a batch is not the best mixture for a monthly plan. Shadow prices indicate the value of relaxing constraints. The typical monthly model from a student will be nonlinear, although it can be written as a linear model. This case provides the basis for an introductory class on linear programming and linear versus nonlinear models.

Excerpt

UVA-QA-0761

Apr. 6, 2011

Chandpur Enterprises Limited, Steel Division

On the night of July 11, 2007, Akshay Mittal, managing director of Chandpur Enterprises Limited (CEL), was staring at a sheet of numbers to decide on the raw materials requirement for the August production at his steel plant. He had recently joined his family business after completing his undergraduate degree in engineering. Only two weeks into the job, he had been asked to solve one of the plant's major problems: the plant manager's monthly decision to order the optimum quantity of more than half a dozen raw materials required for the following month's production.

Made before the beginning of every month, it was a critical decision because the prices of raw materials fluctuated continually, and raw materials constituted more than 75% of the total cost of the final product. There was no formal procedure to help decide on the right combination of raw materials, and the plant manager used a rather arbitrary approach to decide the following month's raw materials consumption. Akshay had spent the last week looking at the last few months' information, which the plant manager had used to decide the raw materials order. In the past, the monthly profit had been about (Indian rupees) INR1.5 million. It was not difficult to see that one could increase the company's bottom line by a significant amount each month with a better approach. Akshay was keen to formalize this process once and for all. He had to make his decision for August's inventory today so he could order the required materials from suppliers the next morning. Otherwise, inventories wouldn't be on hand well in advance of the beginning of the following month.

Background

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Keywords: linear programming non-linear

Suggested Citation

Bodily, Samuel E. and Mittal, Akshay, Chandpur Enterprises Limited, Steel Division. Darden Case No. UVA-QA-0761. Available at SSRN: https://ssrn.com/abstract=2975131

Samuel E. Bodily (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4813 (Phone)
434-293-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/bodily.htm

Akshay Mittal

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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