Use of Transportation Problem in Iron and Steel Plant to Minimize Raw Material Costs
Keywords:
Raw material cost minimization, Northwest corner rule, Least cost method, Vogel’s approximation method, What’s Best SolverAbstract
It is very important to optimize costs in any industry to increase profit margins, so as to sustain in the long run as one can not drastically increase the demand for its products but can work towards optimizing its cost structure internally. Hence the research paper is aimed at finding the optimal cost for transportation of raw material from various sources to plants.
We chose the iron and steel industry as it comprises of one of the major contributors of GDP of any economy.
The data for transportation costs, demand at plants and supply at sources has been collected from the company.
We will be using Northwest Corner Rule, Least Cost Method and Vogel’s Approximation Method to find out the feasible transportation costs. Then, we shall use What’s Best Solver to find the optimum transportation cost.
We then find the variations in costs between 3 feasible and the optimal solution to know which method is the most accurate to gauge the optimality of a solution. In our case, Least Cost method gives the solution closest to optimal solution.
We further compare the actual costs with the optimum solution to determine the amount of cost cutting needed. In our case, costs must be reduced by 1.5% of its actual costs.
At the end we analyze the sensitivity report, which gives us the maximum cost which should be incurred on each additional unit of raw material purchased within an allowable range.
Hence the suggestions in our research paper can help enhance the production process in the iron and steel industry.
Lastly, the limitations of the study have been highlighted so that the following factors can be incorporated while putting the proposed plan into use.
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