The model we have created will provide you with the lowest cost for the highest amount in coal ordered from each purveyor. It does this by matching lowest coal cost per ton with the quantities available from each purveyor. For clarity, Willis Brothers costs $30.80 (the least expensive available price) and has 2,500 tons of coal available for purchase this month. Our model will select 100% of that availability as long as it still allows you to meet contractual obligations.
Information from each vendor for specific plants. Procurement plan outputs quantity to order.
Coal from Western provides 145 more Btu’s per pound than coal from Foster & Hughes. Western costs 36 cents less than Foster & Hughes per ton.
For example, the Buckeye plants are conveniently listed from left to right so if your company decided to open a new plant adding it would only be a “right click” away.As you know, this model will be turned over to you with a solver optimization already programmed. All pertinent information is labeled so when you open solver it will be easy to read and identify on the model.
Buckeye Power Company - Sales Contract Optimization
Iron MBA’sBuckeye Power & Light CompanyNovember 18, 2008<br />Net Akarapongpisak<br />Chris Serio<br />Velvet Voelz<br />Jia Xu<br />
Approach<br />Our approach was to gain a better understanding of the purveyors, the coal they can provide, and then to match the data to the individual requirements of each plant.<br />
Goals<br />Meet Btu demand at the lowest cost while still fulfilling your quality needs and contractual obligations to purveyors<br />
Constraints<br />Need to stay within limits on moisture, ash and sulfur content<br />Need to maintain minimum contracts<br />Only have so many tons available from each vendor<br />Must purchase 120% of demand in Btu’s<br />
Lower-Cost Alternative Available?<br />This plan provides the lowest cost available given the offerings and current needs <br />If we are able to negotiate price and quantity available, then we could work to lower our costs and maintain plant needs for quality<br />
Long-Term Contracts<br />Western and Foster & Hughes are the only vendors that currently service all three plants<br />These plants are very similar<br />Cancel contract with Foster & Hughes<br />
Contract Negotiations<br />Increase your long-term contract with both Western and Monon. by 10,000 tons per month<br />In exchange negotiate a 10% discount in price<br />
Impact<br />These three moves will save your company:<br />$230,000 <br />
Future Use - What Can Change<br />Vendor monthly offers<br />BTU requirements for each plant<br />Moisture and ash percentages as set by plant management<br />Long-term contracts with vendors<br />
Future Use – Modification for Junior Analyst<br />The model is conveniently designed for an analyst to not only use but also alter with only a modest amount of effort required <br />Will provide clear and concise instructions <br />