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MANAGEMENT SCIENCE (EM 602)

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Question

GROUP PROJECT

 

SOUTHERN MISSISSIPPI PULP & PAPER COMPANY (SMP&P)

 

BACKGROUND

 

SMP&P is a fully integrated paper company with extensive holdings in woodlands, several large

 

mills, and nationwide distribution facilities. The company manufactures a wide variety of paper

 

products under its own brand name, and a more limited product line under contract for private

 

distributors. SMP&P’s oldest mill, Bayou 1, is located in Pass Christian, Mississippi and produces

 

four major products; book paper, coarse paper, container board and food board. The flow of

 

materials through the mill is illustrated below:

 

CHIPPING

 

 

KRAFT

 

PULPING

 

 

BEATING

 

 

MACHINING

 

hardwood

 

BLEACHING

 

 

book paper

 

coarse paper

 

 

softwood

 

SEMI-CHEMICAL PULPING

 

 

container

 

board

 

food board

 

 

PROCESS DESCRIPTION

 

The milling process begins with chipping in which two different grades of hardwood and one type

 

grade of softwood are used as inputs. After chipping, the hardwood outputs enter Kraft pulping or

 

semi-chemical pulping. The softwood and hardwood outputs from chipping enter the Kraft pulping

 

operation. Some of the hardwood outputs from chipping transverse through semi chemical pulping

 

process. No softwood chipping outputs can enter semi chemical pulping. From Kraft pulping, some

 

products enter the bleaching stage while others go directly through beating. Semi-chemical pulping

 

products go directly to the beating stage process. The outputs of the beating process are inputs into

 

machining which produces the four major products, book paper, coarse paper, container board and

 

food board.

 

Hardwood and softwood inputs for chipping are available from internal company sources in limited

 

quantities. Additional quantities can be purchased at a slightly higher cost. The related availability’s

 

and costs are as follows:

 

 

INTERNAL SOURCES

 

IN TONS PER YEAR

 

 

WOOD TYPE

 

 

Hardwood - grade 1 110,000 tons per year

 

Hardwood - grade 2 88, 500 tons per year

 

Softwood

 

160,000 tons per year

 

 

INTERNAL

 

COST

 

 

EXTERNAL

 

COST

 

 

$18 per ton

 

$18.10 per ton

 

$19 per ton

 

 

$18.65 per ton

 

$18.20 per ton

 

$ 20.95 per ton

 

 

When required, up to 15,000 tons per year of softwood Kraft pulp can be purchased. Quantity

 

discounts are available on these purchased quantities so that the first 5000 tons/yr. would cost

 

$57/ton while the second 10,000 tons/yr. cost $53/ton. This purchased pulp cannot be bleached and

 

is used as an input into the beating process.

 

The following process yields (tons output/tons input) and capacities (tons input/year) were provided

 

by the operations manager:

 

PROCESS

 

 

HARDWOOD - 1

 

 

Chipping

 

Kraft Pulping

 

Semi- Chemical Pulping

 

Bleaching

 

Beating

 

Machining

 

 

.969

 

.88

 

.765

 

.90

 

.99

 

.98

 

 

YIELDS

 

HARDWOOD - 2

 

.942

 

.88

 

.755

 

.90

 

.99

 

.98

 

 

SOFTWOOD CAPACITIES

 

.98

 

.88

 

---.825

 

.99

 

.98

 

 

700,000

 

130,000

 

125,000

 

170,000

 

300,000

 

285,000

 

 

MARKET DEMANDS & OTHER REQUIREMENTS

 

The four final products must be composed of at least 25% of grade 1 hardwood and at least 50%

 

softwood. At least 10% of the composition must consist of outputs from the bleaching process. Due

 

to contractual requirements a minimum of 33,400 tons of coarse paper, 117,800 tons of container

 

board and 61,500 tons of food board must be produced in the upcoming year. SMP&P marketing has

 

determined that all of the book paper that can be produced will be sold as well as any excess of the

 

other three products above there minimum requirement.

 

OPERATIONAL COSTS

 

Company records show that variable operating cost ($/ton output) for each process are defined as

 

follows:

 

 

PROCESS

 

Chipping

 

Kraft Pulping

 

Semi- Chemical Pulping

 

Bleaching

 

Beating

 

Machining

 

 

OPERATING COST

 

$ 2.40 per ton

 

$ 13.12 per ton

 

$ 18.98 per ton

 

$ 6.03 per ton

 

$ .77 per ton

 

$ 7.16 per ton

 

 

Book paper sells for $210 per ton, $ 125 per ton for coarse paper, $133 per ton for container board

 

and $128 per ton for food board.

 

QUESTIONS

 

A. Develop and solve a linear programming model to determine output and input requirements

 

which will maximize profits.

 

B. Senior management is considering implementing modifications to the Bayou 1 plant to

 

increase output capacity. Due to budget constraints only one operation or process can be

 

modified. The cost of increasing capacity is approximately the same for each operation and

 

would result an increase of capacity by 10%. Which operation (process) would you

 

recommend to increase capacity. Use sensitivity analysis to support your answer.

 

Paper#17694 | Written in 24-Sep-2016

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