6.1 G IANT M OTOR C OMPANY
his case deals with strategic planning issues for a large company. The main issue is planning the company’s production capacity for the coming year. At issue is the overall level of capacity and the type of capacity—for example, the degree of ﬂexibility in the manufacturing system. The main tool used to aid the company’s planning process is a mixed integer linear programming (MILP) model. A mixed integer program has both integer and continuous variables.
The Giant Motor Company (GMC) produces three lines of cars for the domestic (U.S.) market: Lyras, Libras, and Hydras. The Lyra is a relatively inexpensive subcompact car that appeals mainly to ﬁrst-time car owners and to households using it as a second car for commuting. The Libra is a sporty compact car that is sleeker, faster, and roomier than the Lyra.Without any options, the Libra costs slightly more than the Lyra; additional options increase the price. The Hydra is the luxury car of the GMC line. It is signiﬁcantly more expensive than the Lyra and Libra, and it has the highest proﬁt margin of the three cars.
Retooling Options for Capacity Expansion
Currently GMC has three manufacturing plants in the United States. Each plant is dedicated to producing a single line of cars. In its planning for the coming year, GMC is considering the retooling of its Lyra and/or Libra plants. Retooling either plant would
represent a major expense for the company. The retooled plants would have signiﬁcantly increased production capacities. Although having greater ﬁxed costs, the retooled plants would be more efﬁcient and have lower marginal production costs—that is, higher marginal proﬁt contributions. In addition, the retooled plants would be ﬂexible—they would have the capability of producing more than one line of cars. The characteristics of the current plants and the retooled plants are given in Table 6.16. The retooled Lyra and Libra plants are...