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Case Problem 3 Truck Leasing Strategy

1. The document presents a linear programming model to determine the optimal truck leasing strategy for Reep Construction over four months. 2. The optimal leasing plan results in a total cost of $151,660. 3. Allowing for the possibility of layoffs and including driver costs changes the optimal leasing plan and results in a lower total cost of $165,410. Maintaining a no-layoff policy increases the total cost to $174,060.

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1K views4 pages

Case Problem 3 Truck Leasing Strategy

1. The document presents a linear programming model to determine the optimal truck leasing strategy for Reep Construction over four months. 2. The optimal leasing plan results in a total cost of $151,660. 3. Allowing for the possibility of layoffs and including driver costs changes the optimal leasing plan and results in a lower total cost of $165,410. Maintaining a no-layoff policy increases the total cost to $174,060.

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Something Chic
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Case Problem 3: Truck Leasing Strategy

1. Let xij = number of trucks obtained from a short term lease signed in month i for a period of j
months

yi = number of trucks obtained from the long-term lease that are used in month i

Monthly fuel costs are 20 ($100) = $2000.

Monthly Costs for Short-Term Leased Trucks

Note: the costs shown here include monthly fuel costs of $2000.

Decision Variables Cost

x11, x21, x31, x41 $4000 + $2000 = $6000 x12, x22, x32 2 ($3700) +
$2000 = $9400 x13, x23 3 ($3225) + $2000 = $11,675 x14 4
($3040) + $2000 = $14,160

Monthly Costs for Long-Term Leased Trucks

Since Reep Construction is committed to the long-term lease and since employees cannot be
laid off, the only relevant cost for the long-term leased trucks is the monthly fuel cost of $2000.

MIN 6000X11 + 9400X12 + 11675X13 + 14160X14 + 6000X21 + 9400X22 +


11675X23 + 6000X31 + 9400X32 + 6000X41 + 2000Y1 + 2000Y2 + 2000Y3
+
2000Y4

S.T.

1) X11 + X12 + X13 + X14 + Y1 = 10


2) X21 + X22 + X23 + X14 + X13 + X12 + Y2 = 12
3) X31 + X32 + X23 + X22 + X14 + X13 + Y3 = 14
4) X41 + X32 + X23 + X14 + Y4 = 8
5) Y1 < 1
6) Y2 < 2
7) Y3 < 3
8) Y4 < 1
Objective Function Value = 151660.000

Variable Value Reduced Costs


-------------- --------------- ------------------
X11 0.000 3515.000
X12 0.000 3725.000
X13 3.000 0.000
X14 6.000 0.000
X21 0.000 2810.000
X22 0.000 210.000
X23 1.000 0.000
X31 1.000 0.000
X32 0.000 915.000
X41 0.000 3515.000
Y1 1.000 0.000
Y2 2.000 0.000
Y3 3.000 0.000
Y4 1.000 0.000

Constraint Slack/Surplus Dual Prices


-------------- --------------- ------------------
1 0.000 -2485.000
2 0.000 -3190.000
3 0.000 -6000.000
4 0.000 -2485.000
5 0.000 485.000
6 0.000 1190.000
7 0.000 4000.000
8 0.000 485.000

OBJECTIVE COEFFICIENT RANGES

Variable Lower Limit Current Value Upper Limit


------------ --------------- ---------------
---------------
X11 2485.000 6000.000 No Upper Limit
X12 5675.000 9400.000 No Upper Limit
X13 10760.000 11675.000
11885.000
X14 13950.000 14160.000
15075.000
X21 3190.000 6000.000 No Upper
Limit
X22 9190.000 9400.000 No Upper
Limit X23 10485.000 11675.000
11885.000
X31 3190.000 6000.000
6915.000
X32 8485.000 9400.000 No Upper
Limit
X41 2485.000 6000.000 No Upper
Limit
Y1 No Lower Limit 2000.000
2485.000
Y2 No Lower Limit 2000.000
3190.000
Y3 No Lower Limit 2000.000 6000.000
Y4 No Lower Limit 2000.000 2485.000 RIGHT
HAND SIDE RANGES
Constraint Lower Limit Current Value Upper Limit
------------ --------------- ---------------
--------------- 1 4.000 10.000
11.000
2 11.000 12.000 13.000
3 13.000 14.000 No Upper Limit
4 2.000 8.000 11.000
5 0.000 1.000 7.000
6 1.000 2.000 3.000
7 0.000 3.000 4.000
8 0.000 1.000
7.000

2. The total cost associated with the leasing plan is $151,660.

3. If Reep Construction is willing to consider the possibility of layoffs, we need to include driver
costs of $3200 per month. Replacing the coefficients for y1, y2, y3, and y4 in our previous linear
program with $5200 and resolving resulted in the following leasing plan:

Length of Lease
(Mon ths)
Month
Leased 1 2 3 4

1 0 0 4 6

2 0 0 2 _

3 0 0 _ _

4 0 _ _ _

In addition, in month 3, two of the trucks from the long-term leases were used. The total cost of this
leasing plan is $165,410.

To see what effect a no layoff policy has, we can set y1 = 1, y2 = 2, y3 = 3, y4 = 1 and


resolve the linear program using objective coefficients of $5200 for y1, y2, y3, and y4. The new
optimal solution forces us to use all the available trucks from the long-term lease; the optimal
leasing plan is shown below.

Length of Lease
(Mon ths)
Month
Leased 1 2 3 4

1 0 0 3 6

2 0 0 1 _

3 1 0 _ _

4 0 _ _ _

The total cost associated with this solution is $174,060. Thus, if Reep maintains their current policy
of no layoffs they will incur an additional cost of $174,060 - $165,410 = $8,650.

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