Case Analysis: Kamdhenu Dairy

Decision Analysis - I PGP1 Section B Group 4

Group Members
AMARENDRA SAHOO PGP2011533 BHAWNA GOKANI PGP2011595 CHATARKAR ANURAG MAHADE PGP2011600 C.LALRUATSANGA 2011FPM06 RUPSA CHAKRAVARTY PGP2011837 SAARANG K. MEHTA PGP2011841 UTKARSH SINGH PGP2011923

Case Analysis Kamdhenu Dairy (A)

Decision Variables Let x1, x2, x3, x4, x5, x6, x7, x8, x9, x10, x11, x12 be the 12 combinations of Main and By-Products as given in the table. Table 1: Decision Variables
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Product Mix (Variables) FA Milk + Butter (x1) FA Milk + Ghee (x2) SMP + Butter (x3) SMP + Ghee (x4) WMP + Butter (x5) WMP + Ghee (x6) Baby Food + Butter (x7) Baby Food + Ghee (x8) Cheese + Butter (x9) Cheese + Ghee (x10) Std Milk + Butter (x11) Std Milk + ghee (x12)

In this case our Objective is to maximize the Contribution (Z) as given in the table Z = Total Revenue Total Direct Cost Total Direct Cost = Milk Cost + Processing and Packaging Cost

Total Revenue = Revenue from Main Product + Revenue from By- product Revenue from Main Product = Revenue per unit Main Product (from Exhibit 3) * Quantity of Main Product Revenue from By-Product = Revenue per unit By-Product * Quantity of By- Product Since Ghee are produced from Butter churns we will have to convert the Ghee into Corresponding Butter Units so that constraint for Butter is taken into Consideration. Question 2.a Case 1: Summer without contract

Table 2: Constraints are as given in the following table

Constraints Limiting values F.A Milk Butter Constraint Total SMP Total WMP SMP (x3)*813 + SMP from (x4)*813 +WMP (x5)*1179 + WMP(x6)*1179<=6000 Ghee Constraints Butter + Ghee<10 X7+X8<5.36(Baby Food) X9+X10<1.83(Cheese) Total raw milk 0 10 7.38 5.09 6000 2.5 10 5.36 1.83 11.9

Table 3: Solution for summer without contract

Decision Variables Optimum Values Objective Function Butter + Ghee Ghee Milk Powder(SMP) Baby Food Cheese Summer without Contract x1 0 503 0.062 x2 0 448 0.062 0.048 x3 0 544 0.992 1 x4 0 355 0.992 0.756 1 x5 5.09 910 0.606 1.45 x6 0 756 0.606 0.448 1.45 x7 4.98 865 0.696 x8 0 633 0.696 0.529 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 x9 1.83 1833 0.56 x10 0 1610 0.56 0.43 x11 0 759 0.681 x12 0 632 0.681 0.519 VALUES 12293.97 7.575451 0 7.38 4.980345 1.83 11.9

<= <= <= <= <= <=

10 2.5 7.38 5.36 1.83 11.9

Table 4: Sensitivity Report for summer without contract

Variable Cells Final Reduced Value Cost 0 -362 0 -417 0 -352.034483 0 -541.034483 5.089655172 0 0 -154 4.980344828 0 0 -232 1.83 0 0 -223 0 -106 0 -233

Name Optimum Values x1 Optimum Values x2 Optimum Values x3 Optimum Values x4 Optimum Values x5 Optimum Values x6 Optimum Values x7 Optimum Values x8 Optimum Values x9 Optimum Values x10 Optimum Values x11 Optimum Values x12

Objective Coefficient 503 448 544 355 910 756 865 633 1833 1610 759 632

Allowable Increase 362 417 352.034483 541.034483 1E+30 154 45 232 1E+30 223 106 233

Allowable Decrease 1E+30 1E+30 1E+30 1E+30 45 1E+30 106 1E+30 223 1E+30 1E+30 1E+30

Name Ghee VALUES Butter + Ghee VALUES Milk Powder(SMP&WMP) VALUES Cheese VALUES Summer without Contract VALUES

Constraints Final Shadow Value Price 0 0 7.575451034 0 7.38 31.03448276 1.83 968 11.9 865

Constraint R.H. Side 2.5 10 7.38 1.83 11.9

Allowable Increase Infinity Infinity 7.2215 4.98034483 3.48354736

Allowable Decrease 2.5 2.424548966 7.38 1.83 4.980344828

Suggestions: Cheese should be produced as it contributes to the profits of the dairy. In fact, the production of cheese should be increased to 1.83 units (2000 Kg). In the optimal mix, there will be a redistribution of the fixed overhead costs, which will make the production of cheese profitable. Profit earned at summers without contract is Rs. 12293.97

Case 2: Winter without contract The only change in the constraint is the quantity of milk procured during the winter.

Milk procured during winter = 19 units

Table 5: Constraints for winter without contract

Constraints Limiting values F.A Milk Butter Constraint Total SMP Total WMP SMP (x3)*813 + SMP from (x4)*813 +WMP (x5)*1179 + WMP(x6)*1179<=6000 Ghee Constraints Butter + Ghee<10 X7+X8<5.36(Baby Food) X9+X10<1.83(Cheese) Total raw milk 0 10 7.38 5.09 6000 2.5 10 5.36 1.83 19

Table 6: Solution for winter without contract

Decision Variables Optimum Values Objective Function Butter + Ghee Ghee Milk Powder(SMP) Baby Food Cheese Winter without Contract x1 3.903 503 0.062 x2 0 448 0.048 0.048 x3 0 544 0.992 1 x4 0 355 0.756 0.756 1 x5 5.09 910 0.606 1.45 x6 0 756 0.448 0.448 1.45 x7 5.36 865 0.696 x8 0 633 0.529 0.529 1 1 1 1 1 1 1 1 x9 1.83 1833 0.56 x10 0 1610 0.43 0.43 x11 2.817 759 0.681 x12 0 632 0.519 0.519 VALUES 16723.83 10 0 7.38 5.36 1.83 19

1 1 1 1 1 1 1 1

<= <= <= <= <= <=

10 2.5 7.38 5.36 1.83 19

Table 7: Sensitivity Report for winter without contract

Variable Cells Reduced Objective Cost Coefficient 0 503 -49.21001616 448 -469.1498524 544 -560.5472676 355 0 910 -88.65589661 756 0 865 -162.9337641 633 0 1833 -167.5815832 1610 0 759 -60.00161551 632 Constraints Shadow Price 0 413.5702746 125.529497 99.79644588 1124.042003 477.358643

Name Optimum Values x1 Optimum Values x2 Optimum Values x3 Optimum Values x4 Optimum Values x5 Optimum Values x6 Optimum Values x7 Optimum Values x8 Optimum Values x9 Optimum Values x10 Optimum Values x11 Optimum Values x12

Final Value 3.903466659 0 0 0 5.089655172 0 5.36 0 1.83 0 2.816878168 0

Allowable Increase 256 49.21001616 469.1498524 560.5472676 1E+30 88.65589661 1E+30 162.9337641 1E+30 167.5815832 97.43533123 60.00161551

Allowable Decrease 48.12164297 1E+30 1E+30 1E+30 88.65589661 1E+30 99.79644588 1E+30 167.5815832 1E+30 81.27133479 1E+30

Name Ghee VALUES Butter + Ghee VALUES Milk Powder(SMP) VALUES Baby Food VALUES Cheese VALUES Winter without Contract VALUES

Final Value 0 10 7.38 5.36 1.83 19

Constraint R.H. Side 2.5 10 7.38 5.36 1.83 19

Allowable Increase 1E+30 2.416245862 4.647590074 2.750232786 3.501300374 28.12334816

Allowable Decrease 2.5 1.743647586 7.38 5.36 1.83 3.548084966

Suggestions: In this case also, cheese should be produced as it contributes to the profits of the dairy. In fact, the production of cheese should be increased to 1.83 units (2000 Kg). In the optimal mix, there will be a redistribution of the fixed overhead costs, which will make the production of cheese profitable.

Profit earned at winter without contract is Rs. 16723.83 Question 2.b: Case 3: Summer with contract There is an additional constraint of contract with government for minimum quantity of supply of FA Milk. Minimum amount of milk to be supplied = 75000 litres = 75000 / 9874 = 7.60 units

Table 8: Constraints for summer with contract

Constraints Limiting values F.A Milk Butter Constraint Total SMP Total WMP SMP (x3)*813 + SMP from (x4)*813 +WMP (x5)*1179 + WMP(x6)*1179<=6000 Ghee Constraints Butter + Ghee<10 X7+X8<5.36(Baby Food) X9+X10<1.83(Cheese) Contract Total raw milk 0 10 7.38 5.09 6000 2.5 10 5.36 1.83 7.6 11.9

Table 9: Solution for summer with contract

Decision Variables Optimum Values Objective Function Butter + Ghee Ghee Milk Powder(SMP) Baby Food Cheese Contract with Govt. Summer with Contract x1 7.596 503 0.062 x2 0 448 0.048 0.048 x3 0 544 0.992 1 x4 0 355 0.756 0.756 1 x5 2.474 910 0.606 1.45 x6 0 756 0.448 0.448 1.45 x7 0 865 0.696 x8 0 633 0.529 0.529 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 x9 1.83 1833 0.56 x10 0 1610 0.43 0.43 x11 0 759 0.681 x12 0 632 0.519 0.519 VALUES 9426.638 2.995156 0 3.587726 0 1.83 7.595706 11.9

<= <= <= <= <= >= <=

10 2.5 7.38 5.36 1.83 7.595706 11.9

Table 10: Sensitivity Report for summer with contract

Name Optimum Values x1 Optimum Values x2 Optimum Values x3 Optimum Values x4 Optimum Values x5 Optimum Values x6 Optimum Values x7 Optimum Values x8 Optimum Values x9 Optimum Values x10 Optimum Values x11 Optimum Values x12

Variable Cells Final Reduced Objective Value Cost Coefficient 7.595705894 0 503 0 -55 448 0 -366 544 0 -555 355 2.474294106 0 910 0 -154 756 0 -45 865 0 -277 633 1.83 0 1833 0 -223 1610 0 -151 759 0 -278 632

Allowable Increase 407 55 366 555 923 154 45 277 1E+30 223 151 278

Allowable Decrease 55 1E+30 1E+30 1E+30 45 1E+30 1E+30 1E+30 223 1E+30 1E+30 1E+30

Name Contract with Govt. VALUES Cheese VALUES Baby Food VALUES Milk Powder(SMP) VALUES Butter + Ghee VALUES Summer with Contract VALUES Ghee VALUES

Constraints Final Shadow Value Price 7.595705894 -407 1.83 923 0 0 3.587726453 0 2.995155994 0 11.9 910 0 0

Constraint R.H. Side 7.595705894 1.83 5.36 7.38 10 11.9 2.5

Allowable Increase 2.474294106 2.474294106 1E+30 1E+30 1E+30 2.615361067 1E+30

Allowable Decrease 2.615361067 1.83 5.36 3.792273547 7.004844006 2.474294106 2.5

Suggestions: In this case also, cheese should be produced as it contributes to the profits of the dairy. In fact, the production of cheese should be increased to 1.83 units (2000 Kg). In the optimal mix, there will be a redistribution of the fixed overhead costs, which will make the production of cheese profitable. If we want to negotiate the contract with government for the supply of FA Milk, the maximum quantity that can be supplied in summer is 75000 litres Profit earned at summer with contract is Rs. 9426.63 Case 4: Winter with contract There is an additional constraint of contract with government for minimum quantity of supply of FA Milk. Minimum amount of milk to be supplied = 75000 litres = 75000 / 9874 = 7.595706 units

Table 11: Constraints for winter with contract

Constraints Limiting values F.A Milk Butter Constraint Total SMP Total WMP SMP (x3)*813 + SMP from (x4)*813 +WMP (x5)*1179 + WMP(x6)*1179<=6000 Ghee Constraints Butter + Ghee<10 X7+X8<5.36(Baby Food) X9+X10<1.83(Cheese) Contract Total raw milk 0 10 7.38 5.09 6000 2.5 10 5.36 1.83 7.6 19

Table 12: Solution for winter with contract

Decision Variables Optimum Values Objective Function Butter + Ghee Ghee Milk Powder(SMP) Baby Food Cheese Contract with Govt. Winter with Contract x1 7.596 503 0.062 x2 0 448 0.048 0.048 x3 0 544 0.992 1 x4 0 355 0.756 0.756 1 x5 5.09 910 0.606 1.45 x6 0 756 0.448 0.448 1.45 x7 4.485 865 0.696 x8 0 633 0.529 0.529 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 x9 1.83 1833 0.56 x10 0 1610 0.43 0.43 x11 0 759 0.681 x12 0 632 0.519 0.519 VALUES 15685.83 7.701373 0 7.38 4.484639 1.83 7.595706 19

<= <= <= <= <= >= <=

10 2.5 7.38 5.36 1.83 7.595706 19

Table 13: Sensitivity Report for winter with contract

Name Optimum Values x1 Optimum Values x2 Optimum Values x3 Optimum Values x4 Optimum Values x5 Optimum Values x6 Optimum Values x7 Optimum Values x8 Optimum Values x9 Optimum Values x10 Optimum Values x11 Optimum Values x12

Final Value 7.595705894 0 0 0 5.089655172 0 4.484638933 0 1.83 0 0 0

Variable Cells Reduced Cost 0 -55 -352.0344828 -541.0344828 0 -154 0 -232 0 -223 -106 -233

Objective Coefficient 503 448 544 355 910 756 865 633 1833 1610 759 632

Allowable Increase 362 55 352.0344828 541.0344828 1E+30 154 45 232 1E+30 223 106 233

Allowable Decrease 55 1E+30 1E+30 1E+30 45 1E+30 106 1E+30 223 1E+30 1E+30 1E+30

Name Winter with Contract VALUES Ghee VALUES Butter + Ghee VALUES Milk Powder(SMP) VALUES Baby Food VALUES Cheese VALUES Contract with Govt. VALUES

Final Value 19 0 7.701373498 7.38 4.484638933 1.83 7.595705894

Constraints Shadow Price 865 0 0 31.03448276 0 968 -362

Constraint R.H. Side 19 2.5 10 7.38 5.36 1.83 7.595705894

Allowable Increase 0.875361067 1E+30 1E+30 6.502726453 1E+30 4.484638933 4.484638933

Allowable Decrease 4.484638933 2.5 2.298626502 1.269273547 0.875361067 0.875361067 0.875361067

Suggestions: In this case also, cheese should be produced as it contributes to the profits of the dairy. In fact, the production of cheese should be increased to 1.83 units (2000 Kg). In the optimal mix, there will be a redistribution of the fixed overhead costs, which will make the production of cheese profitable. If we want to negotiate the contract with government for the supply of FA Milk, the maximum quantity that can be supplied in winter is 75000 litres Profit earned at winter with contract is Rs. 15685.83

Table 14: Comparison of quantity of milk under different scenarios

Max No. of units of FA Milk 0 7.596 3.903 7.596 Max amount of FA to be supplied (Litre) 0 75000 36288.34 75000

Sl. No. 1 2 3 4

Scenario Summer without contract Summer with contract Winter without contract Winter with contract

Profit 12293.97 9426.63 16723.83 15685.83

As evident from the above analysis, the dairy makes a loss whenever it is under a contact.

Question 2.c In order to find the increase in profit, we remove the constraint on butter and milk powder production capacity. The following tables show the solutions for the 4 possible scenarios when the constraints have been removed.

Table 15: Solution with no constraints for Butter and Milk powder products (summer without contract condition)
Decision Variables Optimum Values Objective Function Ghee Baby Food Cheese Summer without Contract x1 0 503 x2 0 448 0.048 x3 0 544 x4 0 355 0.756 x5 10.07 910 x6 0 756 0.448 x7 0 865 1 x8 0 633 0.529 1 x9 1.83 1833 x10 0 1610 0.43 1 1 1 1 x11 0 759 x12 0 632 0.519 VALUES 12518.09 0 0 1.83 11.9

1 1 1 1 1 1 1 1 1 1

<= <= <= <=

2.5 5.36 1.83 11.9

Table 16: Solution with no constraints for Butter and Milk powder products (winter without contract condition)
Decision Variables Optimum Values Objective Function Ghee Baby Food Cheese Winter without contract x1 0 503 x2 0 448 0.048 x3 0 544 x4 0 355 0.756 x5 17.17 910 x6 0 756 0.448 x7 0 865 1 1 1 1 1 1 1 1 x8 0 633 0.529 1 1 x9 1.83 1833 x10 0 1610 0.43 1 1 x11 0 759 x12 0 632 0.519 VALUES 18979.09 0 0 1.83 19

1 1

<= <= <= <=

2.5 5.36 1.83 19

Table 17: Solution with no constraints for Butter and Milk powder products (summer with contract condition)
Decision Variables Optimum Values Objective Function Ghee Baby Food Cheese Contract with Govt. Summer with Contract x1 7.596 503 x2 0 448 0.048 x3 0 544 x4 0 355 0.756 x5 2.474 910 x6 0 756 0.448 x7 0 865 1 1 1 1 1 x8 0 633 0.529 1 x9 1.83 1833 x10 0 1610 0.43 1 1 1 1 x11 0 759 x12 0 632 0.519 VALUES 9426.638 0 0 1.83 7.595706 11.9

1 1 1 1 1 1 1 1

<= <= <= >= <=

2.5 5.36 1.83 7.595706 11.9

Table 18: Solution with no constraints for Butter and Milk powder products (winter with contract condition)
Decision Variables Optimum Values Objective Function Ghee Baby Food Cheese Contract with Govt. Winter with Contract x1 7.596 503 x2 0 448 0.048 x3 0 544 x4 0 355 0.756 x5 9.574 910 x6 0 756 0.448 1 1 1 1 1 x7 0 865 x8 0 633 0.529 1 x9 1.83 1833 x10 0 1610 0.43 1 1 1 1 1 x11 0 759 x12 0 632 0.519 VALUES 15887.64 0 0 1.83 7.595706 19

1 1 1 1 1 1 1

<= <= <= >= <=

2.5 5.36 1.83 7.595706 19

Table 19: Comparison of profits before and after removing constraints

Sl. No. 1 2 3 4 Scenario Summer without contract Winter without contract Summer with contract Winter with contract Before removing Constraints 12293.97 16723.83 9426.64 15685.83 After Removing Constraints 12518.09 18979.09 9426.64 15887.64 Additional Profit per day 224.12 2255.26 0 201.81 1578.21 (avg) 134.54 (avg)

Table 19 shows the change in profits when the constraints for Butter and Milk Powder have been removed. 1. When there is no government contract, the profit of the dairy increases by Rs. 1578.21 per day. Hence the additional investment for expansion should not exceed this amount i.e., Rs. 1578.21/day on average 2. When there is government contract, the profit of the dairy increases by Rs. 134.54 per day. Hence the additional investment for expansion should not exceed this amount i.e., Rs. 134.54/day on average

Question 1: As evident from the table 3, table 6, table 9 and table 12, production of cheese is profitable from the dairy. Hence it should not be dropped from production. In all the 4 different possible scenarios, the dairy should produce cheese to its maximum capacity : 2000Kg (1.83 units) of cheese