Bes Elektronik Makina Müh. Danş. Turizm Tic. San. Ltd. Şti.

Cost Minimization LP Model For The Production of Transformers

 

 

 

 

By

M. Emre CİVELEK

 

 

 

 

 

 

 

 

 

 

At

Yeditepe University

PHD – Management Major

Dec, 2003

 

 

 

I.Definition of  the Problem:

 

 

a-      Company Profile:

 

Bes Elektronik Makina Müh. Danş. Turizm Tic. San . Ltd. Şti. Founded in 1974 and is a producer of  transformers and wound components including four main types which are Standard Type transformer (220v/16,5.s.Transformer) , Special Type Transformer (220v/s.Spc.Transformer) , Triphases transformers and Harmonic Filter Coils. Products are manufactured in the factory placed in Yayalar Mevkii Pendik.  Bes Elektronik Makina Müh. Danş. Turizm Tic. San . Ltd. Şti.  attach importance to produce first quality products. Therefore first quality raw materials are used in production process and detailed test process is implemented on products. Mission of the company is to produce first quality products in competitive price and satisfy the customers’ needs by delivering goods on time.    

 

 

b-     Product Types:

 

Product I:

220v/16,5.s.Transformer which is called as standard type     (P-I).

 

Poduct II:

220v/s.Spc.Transformer which is called as special type

(P-II).

 

Poduct III:

220v/s.Triphases Transformer (P-III).

 

Poduct IV:

Harmonic Filter Coil (P-IV).

 

 

 

 

 

c-      List of the Symbols:

   

   

SYMBOL

DEFINATION

UNIT

Xit

= Amount of P-I , P-II , P-III and P-IV to produce in the period t (i=1,2,3,4 ; t=1,2,3,4).

Pieces

CR i

=  Cost of raw material for producing one unit P-I , P-II , P-III and P-IV (i=1,2,3,4).

TRL

SR i

=1 month raw material storage cost for one unit P-I , P-II , P-III and P-IV (i=1,2,3,4).

TRL

S i

= 1 month storage cost for one unit P-I , P-II , P-III and P-IV (i=1,2,3,4).

TRL

CL i

= Labor cost per unit of P-I , P-II , P-III and P-IV (i=1,2,3,4).

 

Tr i

= Cost of  transportation per 50 Km  for transporting 1 unit P-I , P-II , P-III and P-IV. (Avarage distance of customers 50 km and 1 regular shipment cotains 100 units for P-I and P-II , 1 regular shipment cotains 50 units for P-III and P-IV).

TRL

PCG i

= Packaging Cost per unit P-I , P-II , P-III and P-IV (i=1,2,3,4).

TRL

UVC i

= Variable cost per unit P-I , P-II , P-III and P-IV (i=1,2,3,4).

TRL

SP i

= Selling price of P-I , P-II , P-III and P-IV (i=1,2,3,4).

TRL

TR

= Total revenue generated after sales of P-I , P-II , P-III and P-IV.

TRL

FC

= Monthly total fix cost of the company.

TRL

RMSP i

= Raw Material Supplying Period for P-I , P-II , P-III and P-IV (i=1,2,3,4).

 

IP it

= Inventory level of last product at the beginning of period t for P-I , P-II , P-III and P-IV (i=1,2,3,4)

 

PR i

= Profit generated after sales of P-I , P-II , P-III and P-IV (i=1,2,3,4).

TRL

 

 

 

 

 

 

 

        

d-     Business  Process:

 

-          Receiving order from the customer:

Orders are send by phone , fax or e-Mail.

 

-          Presenting samples to the customer:

                        Samples are send to the customers by special courier.

 

-          Purchasing and preparation of raw material:

Raw materials are transported to the factory by suppliers. Therefore transportation cost for the raw materials is zero , but gathering raw material as follows :

 

Product Types

Raw Matrl. Supplying Period

Product I

4 Days

Product II

12 Days

Product III

14 Days

Product IV

10 Days

 

Gathered raw material should be stored until the beginning of the production. Therefore inventory cost has been generating until beginning of the production. 

 

In the raw material prices there is not seasonal changes. Raw material prices are determined by exchange rates and international markets.   

 

-          Production process:

 

1.      Coiling machine wrap primary copper wire around the carcass.

2.      Primary isolation.

3.      Wrapping secondary copper wire.

4.      Secondary isolation

5.      Mounting silicious iron sheet on carcass.

6.      Assemblage feets, screws, nuts, pins, fuses and cables etc.

7.      Voltage test.

8.      Isolation test.

9.      Varnishing.

 

-          Packaging:

      Nylon bags and carton boxes.

 

-          Transportation:

      Delivery vans are used for transportation.

 

-          Collection the proceeds:

      Usually 1 month deferred payment.

 

 

e-      Raw Materials Used in Production:

 

-          Copper Wire

-          Carcass

-          Pressband , band

-          Feet , screws ,nuts , pins etc.

-          Varnish

-          Cable

-          Fuses

-          Silicious iron sheet

 

 

f-       Definitation of Cost Minimization Problem:

 

Main objective of this model to minimize the cost of production and inventory for  the production seasons in 2004 by using following figures.

 

 

                    g1-Demand Figures per customer:

 

Customers

Monthly Demand (Unit)

Product I

Product II

Product III

Product IV

Security Companies

250

-

-

-

Various Producers

200

300

2

2

Elevator Producers

200

-

2

-

Various Machine Producers

-

150

1

1

Special Productions

-

21

5

2

Ontrol

-

67

-

-

Teknodinamik

-

50

-

-

Total:

650

588

10

5

 

 

 

                    g2-Sales Figures in 2003:

 

 

Seasons

Demand (Unit)

Product I

Product II

Product III

Product IV

Winter

2.730,

3.705,

70,

20,

Spring

1.365,

882

20,

15,

Summer

975

529

10,

5,

Fall

2.730,

1.940,

20,

20,

Total:

7.800,

7.056,

120,

60,

 

 

 

                    g3-Sales Forcasts for 2004:

 

 

Seasons

Demand (Unit)

Product I

Product II

Product III

Product IV

Winter

3.003,

4.075,

77,

22,

Spring

1.501,

970,

22,

16,

Summer

1.072,

582,

12,

6,

Fall

3.003,

2.134,

22,

22,

Total:

8.579,

7.761,

133,

66,

 

 

 

 

 

 

                    g4-Fix Costs of The Company:

 

Items of Expenses

Monthly Expenditure in TRL

Rent

200.000,

Electricity

80.000.000,

Water

25.000.000,

Accounting (outsourced)

150.000.000,

Insurance

9.500.000,

Phone

55.000.000,

Amortization

170.000.000,

Total:

689.500.000,

 

 

 

 

 

                    g5-Production capacity:

 

      i) Machine Hour Production Capacity and per unit/product machine hour requirements:

 

Total seasonal production capacity is 3 x 2 x 174 =1.044 ,hour= 62.640, min  machine minutes.  The table below shows the required machine minutes to produce one unit of Pi.

 

 

 

P1

P2

P3

P4

Machine Hour (Min/unit)

14

16

25

46

 

 

 

 

 

 

 

 

 

      ii) Man Hour Capacity:

 

Total seasonal production capacity is 3 x 4 x 174 =2.088 ,hour= 125.280, min  man minutes.  The table below shows the required man minutes to produce one unit of Pi.

 

 

P1

P2

P3

P4

Man Hour

(Min/unit)

28

32

50

92

 

 

                   g6-Invetory Capacity:

 

Inventory Type

Inventory Capacity (Seasonal)

Raw Material

Total raw material inventory for producing 2000 unit of P-I,P-II,P-III or P-IV

Last Product

2000 for the total inventory of P-I,P-II,P-III and P-IV

 

 

                   g7-Packaging Cost:

 

 

 

P1

P2

P3

P4

Packaging Cost Per Unit

(TRL)

75.000,

75.000,

150.000,

150.000,

 

 

 

 

 

 

 

 

 

 

 

                    g8-Distribution of the Costs per Unit Product:

 

 

Cost (TRL)

P-I

P-II

P-III

P-IV

CR i

2.416.000,

3.200.000,

16.000.000,

22.000.000,

SR i

60.296,

60.296,

60.296,

60.296,

S i

53.087,

67.505,

65.000,

80.000,

CL i

1.449.600,

1.920.000,

9.600.000,

13.200.000,

Tr i

66.650,

66.650,

133.300,

133.300,

UVC i

4.015.289,

5.285.768,

25.911.438,

35.503.398,

SP i

5.250.000,

11.800.000,

45.000.000,

60.000.000,

               (Not: UVC i  = CR i  + (SR i * RMSP i / 30) +  CL i  + Tr i  + PCG i )

 

 

 

 

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