FILATOI RIUNITI
The Italian textile industry

FILATOI RIUNITI
The Italian textile industry

PIEMONTE : Italy

FILATOI RIUNITI
The Italian textile industry

Step of Cotton Yarn Production
Preparation Opening / Loosening Carding Drawing Roving Spinning Winding Re-spooling Texturizing

Spinning Finishing

FILATOI RIUNITI
The Italian textile industry

Filatoi Riuniti
Family-owned spinning mill in Italy. The company has limited machine capacity and have to outsource for spinning product from six local mills. Milan Consulting Group Inc. hired by the company to solve the optimal solution to meet their customers need and also minimize their cost.

FILATOI RIUNITI
The Italian textile industry

Ambrosi Giuliani Bresciani

Fialtoi Riuniti

Estensi De Blasi

Castri

FILATOI RIUNITI
The Italian textile industry

Ambrosi Giuliani Bresciani

Fialtoi Riuniti

Estensi De Blasi

Castri

FILATOI RIUNITI
The Italian textile industry

(a-b)

Cost of Production Output x Cost per Unit

Cost of Transportation Output x Cost per kg.

Total Cost

FILATOI RIUNITI
The Italian textile industry

(a-b)

COST OF PRODUCTION ($/Kg) Size Supplier Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani Extrafine 17.40 17.40 17.50 18.25 19.75 Fine 13.00 14.10 14.22 14.30 13.80 13.90 13.90 Medium 10.65 11.20 11.00 11.25 11.40 11.40 10.75 Coarse 9.60 9.45 9.50 9.60 9.60 8.90 9.40 Supplier Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani

COST OF TRANSPORTATION ($/Kg) Size Extrafine 0.30 0.40 0.80 0.70 0.70 0.50 Fine 0.30 0.40 0.80 0.70 0.70 0.50 Medium 0.45 0.60 1.20 1.05 1.05 0.75 Coarse 0.45 0.60 1.20 1.05 1.05 0.75

FILATOI RIUNITI
The Italian textile industry

(a-b)

PRODUCTION ALLOCATION
DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Coarse Ambrosi Bresciani 28,000 28,000 Castri 26,000 25,000 De Blasi Estensi Filatoi R. Giuliani Demand to Meet 25,000 26,000 28,000 28,000

MACHINE HOUR REQUIRED
MACHINE HOURS REQUIRED FOR PRODUCTION (Hours/Kg) Actual Production Capacity Size hours / month hours / month Extrafine Fine Medium Coarse 0.400 0.375 0.250 2,500 0.700 0.500 0.350 0.250 3,000 0.675 0.450 0.400 0.250 2,500 0.450 0.350 0.200 2,600 0.650 0.450 0.400 0.250 2,500 0.625 0.500 0.425 0.425 38,000 0.700 0.450 0.350 0.400 2,500

Supplier Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani

Prodcution time Output x Machine hours required

Formula =sumproduct(Output, Hours required)

FILATOI RIUNITI
The Italian textile industry
DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Coarse Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani MACHINE HOURS REQUIRED FOR PRODUCTION (Hours/Kg) Size Supplier Extrafine Fine Medium Coarse Ambrosi 0.400 0.375 0.250 Bresciani 0.700 0.500 0.350 0.250 Castri 0.675 0.450 0.400 0.250 De Blasi 0.450 0.350 0.200 Estensi 0.650 0.450 0.400 0.250 Filatoi R. 0.625 0.500 0.425 0.425 Giuliani 0.700 0.450 0.350 0.400

(a-b)
Set-up Formula on TargetPRODUCTION Cell
(hours per month) 2,500 3,000 2,500 2,600 2,500 38,000 2,500

sumproduct(Output, Production Cost) + sumproduct(Output, T.Cost per kg.)

Supplier Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani

COST OF PRODUCTION ($/Kg) Size Extrafine Fine Medium 13.00 10.65 17.40 14.10 11.20 17.40 14.22 11.00 14.30 11.25 17.50 13.80 11.40 18.25 13.90 11.40 19.75 13.90 10.75 DEMAND TO MEET (Kg/month) Fine Medium 26,000 28,000

Coarse 9.60 9.45 9.50 9.60 9.60 8.90 9.40

Supplier Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani ($/Kg/Km)

COST OF TRANSPORTATION ($/Kg) Size Extrafine Fine Medium 0.30 0.30 0.45 0.40 0.40 0.60 0.80 0.80 1.20 0.70 0.70 1.05 0.70 0.70 1.05 0.50 0.50 0.75 0.010 0.010 0.015

Round trip distance Coarse 0.45 0.60 1.20 1.05 1.05 0.75 0.015 (Km) 30 40 80 70 70 50

Extrafine 25,000

Coarse 28,000

FILATOI RIUNITI
The Italian textile industry
Constraints of Demand
Extrafine Fine Medium Coarse Actual ? ? ? ? sign = = = = Demand to Meet 25,000 26,000 28,000 28,000

(a-b)

Set-up Formula

Constraints of Capacity
Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani Actual ? ? ? ? ? ? ? sign ≤ ≤ ≤ ≤ ≤ ≤ ≤ Production Capacity 2,500 3,000 2,500 2,600 2,500 38,000 2,500

Set-up Constraint

Additional Constraints
Ambrosi De Blasi Actual Extrafine Extrafine sign = = Production Capacity -

Solver Tool Analysis

FILATOI RIUNITI
The Italian textile industry

(a-b)

TOTAL COST Cost of Production + Cost of Transportation 1,365,801 + 16,743 1,382,544

DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Coarse Ambrosi 6,250 Bresciani 4,286 Castri 3,704 De Blasi 2,040 Estensi 3,846 Filatoi R. 13,164 19,750 18,817 28,000 Giuliani 7,143 -

FILATOI RIUNITI
The Italian textile industry
RENTING FOR EXTRA CAPACITY Additional Capacity = 600 hours for Filatoi Riuniti Rental Cost = 1,500 Dollars

(c)

Constraints
Additional Capacity ≤ 867.05 Shadow Price = -2.1176

Decision
Efficiency Saving = 600 x -2.1176 = -1270

NO: Efficiency Saving

< Rental Cost

FILATOI RIUNITI
The Italian textile industry

RENTING ANOTHER SPINNING MACHINE

Additional Capacity: 300 hours of medium size yarn at 50% lower production cost Rental Cost = 3,000 Dollars
MACHINE HOURS REQUIRED FOR PRODUCTION (Hours/Kg) Size Supplier Extrafine Fine Medium Coarse Ambrosi 0.400 0.375 0.250 Bresciani 0.700 0.500 0.350 0.250 Castri 0.675 0.450 0.400 0.250 De Blasi 0.450 0.350 0.200 Estensi 0.650 0.450 0.400 0.250 Filatoi R. 0.625 0.500 0.425 0.425 Giuliani 0.700 0.450 0.350 0.400 PRODUCTION (hours per month) Supplier 2,500 Ambrosi 3,000 Bresciani 2,500 Castri De 2,600 Blasi 2,500 Estensi 38,000 Filatoi R. 2,500 Giuliani

DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Coarse Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani -

(d)

e

COST OF PRODUCTION ($/Kg) Size Extrafine Fine Medium 13.00 10.65 17.40 14.10 11.20 17.40 14.22 11.00 14.30 11.25 17.50 13.80 11.40 18.25 13.90 11.40 19.75 13.90 10.75 DEMAND TO MEET (Kg/month) Extrafine Fine Medium 25,000 26,000 Unit: 11.40 x 0.5028,000 = 5.70

Coarse 9.60 9.45 9.50 9.60 9.60 8.90 9.40

COST OF TRANSPORTATION Round trip ($/Kg) distance Size Per Machine Capacity ÷ Machine Hours Required e Supplier Extrafine Fine Medium Coarse (Km) ÷ kg. 0.45 9.60 Ambrosi 300 0.300.425 = 706 0.45 0.30 30 Total: 9.45 Bresciani 0.40 0.40 0.60 0.60 40 9.50 Castri 0.80 0.80 1.20 1.20 80 9.60 De Blasi 0.70 0.70 1.05 1.05 70 9.60 Estensi 0.70 0.70 1.05 1.05 70 8.90 Filatoi R. -

Productivity

Cost Reduction
Coarse 28,000 dollars 5.70 x 706 = 4,024 dollars

Decision

YES: Cost Reduction >

Rental Cost

FILATOI RIUNITI
The Italian textile industry
INCREASNG OF DEMAND Additional Demand: 6,000 kg./month of medium size yarn
Constraints of Demand
Extrafine Fine Medium Coarse Actual sign = = = = Demand to Meet 25,000 26,000 34,000 28,000 28,000

(e)

Change Constraint
Set a new demand to meet Medium size yarn 28,000 » 34,000

Re-optimize Model
Total Cost = 1,457,238

Constraints of Capacity
Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani Actual sign ≤ ≤ ≤ ≤ ≤ ≤ ≤ Production Capacity 2,500 3,000 2,500 2,600 2,500 38,000 2,500

Net Changed
1,457,238 - 1,382,544 Additional Cost = 74,694

Additional Constraints
Ambrosi De Blasi Actual Extrafine Extrafine sign = = Production Capacity -

Minimum Price per kilogram
74,694 ÷ 6,000 Price per unit= 12.45 dollars

FILATOI RIUNITI
The Italian textile industry
Additional Demand: 6,000 kg./month of medium size yarn
Name Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani Extrafine Fine Medium Coarse Final Value Shadow Price 2,500 3,000 2,500 714 2,500 38,000 2,500 25,000 26,000 28,000 28,000 -4.1471 -2.5336 -2.0349 0.0000 -2.1131 -2.1176 -2.2857 19.5735 14.9588 12.3000 9.8000 SENSITIVITY REPORT Constraint Allowable Increase Allowable Decrease R.H. Side 2500 693.64 1,832.07 3000 971.10 2,564.90 2500 936.42 2,473.30 2600 1,000,000,000,000,000,000,000,000,000,000.00 1,885.96 2500 901.74 2,381.69 38000 867.05 2,290.09 2500 714.04 1,885.96 25000 3,664.14 1,387.29 26000 4,580.18 1,734.11 28000 5,388.45 2,040.13 28000 5,388.45 2,040.13

(e)

Additional Questions
Exact demand
12.30 dollars 5,388.45 kg. 12.45 dollars Higher Price 6000 kg.

FILATOI RIUNITI
The Italian textile industry
INTERNAL PRODUCTION COST Filatoi Riuniti’s internal production cost could vary within a 5% range
COST OF PRODUCTION ($/Kg) Size Extrafine Fine Medium 0.00E+00 13.00 10.65 17.40 14.10 11.20 17.40 14.22 11.00 0.00E+00 14.30 11.25 17.50 13.80 11.40 18.25 13.90 11.40 19.75 13.90 10.75 NEW COST OF PRODUCTION

(f)

Supplier Ambrosi Bresciani Castri De Blasi Estensi Filatoi Riuniti Giuliani

Coarse 9.60 9.45 9.50 9.60 9.60 8.90 9.40

Change Cost of Production ($/Kg)
Supplier Extrafine Fine Medium NEW COST OF PRODUCTION Filatoi Riuniti + 5% 17.34 13.21 10.83 ($/Kg) Filatoi Riuniti - 5% 19.16 14.60 11.97 Supplier Extrafine Fine Medium Filatoi Riuniti - 5% 17.34 13.21 10.83 Filatoi Riuniti + 5% 19.16 14.60 11.97 Coarse 8.46 9.35 Coarse 8.46 9.35

Then
Re-optimize model

FILATOI RIUNITI
The Italian textile industry
INTERNAL PRODUCTION COST Filatoi Riuniti’s internal production cost could vary within a 5% range
DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Coarse Ambrosi 6,250 Bresciani 4,286 Castri 3,704 De Blasi 2,040 Estensi 3,846 Filatoi R. 13,164 19,750 18,817 28,000 Giuliani 7,143 -

(f)

Re-optimize Model of Cost + 5%
Total Cost = 1,431,468.82

Re-optimize Model of Cost - 5%
Total Cost = 1,333,619.84

Recommendation
NO CHANGE: in the extreme cases,
5% changed of production cost is not significant enough

FILATOI RIUNITI
The Italian textile industry
DE BLASI’s PRODUCTION CAPACITY De Blasi’s internal production capacity could vary within a 20% range
Name Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani Extrafine Fine Medium Coarse Final Value Shadow Price 2,500 3,000 2,500 714 2,500 38,000 2,500 25,000 26,000 28,000 28,000 -4.1471 -2.5336 -2.0349 0.0000 -2.1131 -2.1176 -2.2857 19.5735 14.9588 12.3000 9.8000 SENSITIVITY REPORT Constraint Allowable Increase Allowable Decrease R.H. Side 2500 693.64 1,832.07 3000 971.10 2,564.90 2500 936.42 2,473.30 2600 1,000,000,000,000,000,000,000,000,000,000.00 1,885.96 2500 901.74 2,381.69 38000 867.05 2,290.09 2500 714.04 1,885.96 25000 3,664.14 1,387.29 26000 4,580.18 1,734.11 28000 5,388.45 2,040.13 28000 5,388.45 2,040.13

(g)

Recommendation
20% changed of De Blasi’s production capacity is not significant enough NO CHANGE PRODUCTION ALLOCATION

FILATOI RIUNITI
The Italian textile industry
ONE-TIME SET-UP SHARING TO AMBROSI MILL Ambrosi Mill presently can only produce medium and coarse yarn
Constraints of Demand
Extrafine Fine Medium Coarse Actual sign = = = = Demand to Meet 25,000 26,000 28,000 28,000

(h)

Constraints of Capacity
Ambrosi Bresciani Castri De Blasi Estensi Filatoi R. Giuliani Actual sign ≤ ≤ ≤ ≤ ≤ ≤ ≤ Production Capacity 2,500 3,000 2,500 2,600 2,500 38,000 2,500

DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Coarse Ambrosi 6,250 Bresciani 4,286 Castri 3,704 De Blasi 2,040 Estensi 3,846 Filatoi R. 13,164 19,750 18,817 28,000 Giuliani 7,143 -

Additional Constraint
Ambrosi Mill cannot produce fine size yarn Ambrosi’s fine size yarn = 0

Additional Constraints
Ambrosi De Blasi Ambrosi Actual Extrafine Extrafine Fine sign = = = Production Capacity 0 0 0

Then
Re-optimize model

FILATOI RIUNITI
The Italian textile industry

ONE-TIME SET-UP SHARING TO AMBROSI MILL

Ambrosi can produce fine size yarn
DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Ambrosi 6,250 Bresciani 4,286 Castri 3,704 De Blasi 2,040 Estensi 3,846 Filatoi R. 13,164 19,750 18,817 Giuliani 7,143 DECISION = 1,382,544 Total Cost VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Ambrosi 6,667 Bresciani 4,286 Castri 3,704 De Blasi 2,726 Estensi 3,846 Filatoi R. 13,164 26,000 11,464 Giuliani 7,143

Ambrosi cannot produce fine size yarn
DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Ambrosi 6,667 Bresciani 4,286 Castri 3,704 De Blasi 2,726 Estensi 3,846 Filatoi R. 13,164 26,000 11,464 Giuliani 7,143

DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Ambrosi 6,250 Bresciani 4,286 Castri 3,704 De Blasi 2,040 Estensi 3,846 Filatoi R. 13,164 19,750 18,817 Giuliani 7,143

(h)
Coarse 28,000 -

Coarse 28,000 -

Coarse 28,000 -

Total Cost = 1,384,912
Coarse Differentiation 28,000 -

1,333,620 - 1,382,544 = 2,368 Maximum one-time set-up sharing is 2,368 dollars

FILATOI RIUNITI
The Italian textile industry
RUNNING AN OVERTIME OF THE GIULIANI MILL Overtime Shift
Productivity Increased 2,500 » 5,000

(i)

Overtime Worker’s Salary
Additional Worker’s Salary: 13%

Cost Structure
Other Cost: 50% Worker’s Salary: 50%

Calculation for Overtime Cost of Production
(Cost of Production x 0.50) + [(Cost of Production x 0.50) x 1.13]
COST OF PRODUCTION ($/Kg) Supplier Extrafine Fine Medium Giuliani 19.75 13.90 10.75 Giuliani (Overtime) 21.03 14.80 11.45

Coarse 9.40 10.01

FILATOI RIUNITI
The Italian textile industry
RUNNING AN OVERTIME OF THE GIULIANI MILL
DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Ambrosi 6,250 Bresciani 4,286 Castri 3,704 De Blasi 2,040 Estensi 3,846 Filatoi R. 13,164 19,750 18,817 Giuliani 7,143

(i)

Increase Giuliani Overtime Mill
Coarse 28,000 -

Set a new available mill

Re-optimize Model
Total Cost = 1,382,337.77

DECISION VARIABLES Product bought from each supplier (Kg/month) Size Supplier Extrafine Fine Medium Ambrosi 6,250 Bresciani 4,286 Castri 3,704 De Blasi Estensi 3,846 Filatoi R. 13,164 19,750 18,817 Giuliani 7,143 Giuliani (Overtime) 2,040

Net Changed
Coarse 28,000 -

1,382,338 - 1,382,544 Cost Reduction = 206 dollars

Recommendation
CHANGE SOLUTION

FILATOI RIUNITI
The Italian textile industry

Tony

Tat
Yvonne

Midas