Problem
Fabrics and Fall Fashions
From the 10th floor of her office building, Katherine Rally watches the swarms of New
Yorkers fight their way through the streets infested with yellow cabs and the sidewalks
littered with hot dog stands. On this sweltering July day, she pays particular attention to
the fashions worn by the various women and wonders what they will choose to wear in
the fall. Her thoughts are not simply random musings; they are critical to her work since
she owns and manages TrendLines,an elite women’s clothing company.
Today is an especially important day because she must meet with Ted Lawson, the
production manager, to decide upon next month’s production plan for the fall line.
Specifically, she must determine the quantity of each clothing item she should produce
given the plant’s production capacity, limited resources, and demand forecasts.
Accurate planning for next month’s production is critical to fall sales since the items
produced next month will appear in stores during September and women generally buy
the majority of the fall fashions when they first appear in September.
She turns back to her sprawling glass desk and looks at the numerous papers covering
it. Her eyes roam across the clothing patterns designed almost six months ago, the lists
of material requirements for each pattern, and the lists of demand forecasts for each
pattern determined by customer surveys at fashion shows. She remembers the hectic
and sometimes nightmarish days of designing the fall line and presenting it at fashion
shows in New York, Milan, and Paris. Ultimately, she paid her team of six designers a
total of $860,000 for their work on her fall line. With the cost of hiring runway models,
hair stylists, and make-up artists; sewing and fitting clothes; building the set;
choreographing and rehearsing the show; and renting the conference hall, each of the
three fashion shows cost her an additional $2,700,000.
She studies the clothing patterns and material requirements. Her fall line consists of
both professional and casual fashions. She determined the price for each clothing item
by taking into account the quality and cost of material, the cost of labor and machining,
the demand for the item, and the prestige of the TrendLines brand name.
The fall professional fashions include:
Material Pric Labor and
Clothing Item
Requirements e Machine Cost
Tailored wool $30
3 yards of wool $160
slacks 0
2 yards of acetate for
lining
Cashmere
1.5 yards of cashmere 450 150
sweater
Silk blouse 1.5 yards of silk 180 100
Silk camisole 0.5 yard of silk 120 60
Tailored skirt 2 yards of rayon 270 120
1.5 yards of acetate for
lining
Wool blazer 2.5 yards of wool 320 140
1.5 yards of acetate for
lining
The fall casual fashions include:
Material Pric Labor and
Clothing Item
Requirements e Machine Cost
$35
Velvet pants 3 yards of velvet $175
0
2 yards of acetate for
lining
Cotton sweater 1.5 yards of cotton 130 60
Cotton miniskirt 0.5 yard of cotton 75 40
Velvet shirt 1.5 yards of velvet 200 160
Button-down
1.5 yards of rayon 120 90
blouse
She knows that for the next month, she has ordered 45,000 yards of wool, 28,000 yards
of acetate, 9,000 yards of cashmere, 18,000 yards of silk, 30,000 yards of rayon, 20,000
yards of velvet, and 30,000 yards of cotton for production. The prices of the materials
are listed below.
Materi Price per
al Yard
Wool $ 9.00
Acetate 1.50
Cashm
60.00
ere
Silk 13.00
Rayon 2.25
Velvet 12.00
Any material that is not used in production can be sent back to the textile wholesaler for
a full refund, although scrap material cannot be sent back to the wholesaler.
She knows that the production of both the silk blouse and cotton sweater leaves leftover
scraps of material. Specifically, for the production of one silk blouse or one cotton
sweater, 2 yards of silk and cotton, respectively, are needed. From these 2 yards, 1.5
yards are used for the silk blouse or the cotton sweater and 0.5 yard is left as scrap
material. She does not want to waste the material, so she plans to use the rectangular
scrap of silk or cotton to produce a silk camisole or cotton miniskirt, respectively.
Therefore, whenever a silk blouse is produced, a silk camisole is also produced.
Likewise, whenever a cotton sweater is produced, a cotton miniskirt is also produced.
Note that it is possible to produce a silk camisole without producing a silk blouse and a
cotton miniskirt without producing a cotton sweater.
The demand forecasts indicate that some items have limited demand. Specifically,
because the velvet pants and velvet shirts are fashion fads, TrendLines has forecasted
that it can sell only 5,500 pairs of velvet pants and 6,000 velvet shirts. TrendLines does
not want to produce more than the forecasted demand because once the pants and
shirts go out of style, the company cannot sell them. TrendLines can produce less than
the forecasted demand, however, since the company is not required to meet the
demand. The cashmere sweater also has limited demand because it is quite expensive,
and TrendLines knows it can sell at most 4,000 cashmere sweaters. The silk blouses and
camisoles have limited demand because many women think silk is too hard to care for,
and Trend- Lines projects that it can sell at most 12,000 silk blouses and 15,000 silk
camisoles.
The demand forecasts also indicate that the wool slacks, tailored skirts, and wool
blazers have a great demand because they are basic items needed in every professional
wardrobe. Specifically, the demand is 7,000 pairs of wool slacks and 5,000 wool blazers.
Katherine wants to meet at least 60 percent of the demand for these two items to
maintain her loyal customer base and not lose business in the future. Although the
demand for tailored skirts could not be estimated, Katherine feels she should make at
least 2,800 of them.
a. Ted is trying to convince Katherine not to produce any velvet shirts since the demand
for this fashion fad is quite low. He argues that this fashion fad alone accounts for
$500,000 of the fixed design and other costs. The net contribution (price of clothing
item — materials cost — labor cost) from selling the fashion fad should cover these
fixed costs. Each velvet shirt generates a net contribution of $22. He argues that given
the net contribution, even satisfying the maximum demand will not yield a profit. What
do you think of Ted’s argument?
b. Formulate and solve a linear programming problem to maximize profit given the
production, resource, and demand constraints.
Before she makes her final decision, Katherine plans to explore the following questions
independently, except where otherwise indicated.
c. The textile wholesaler informs Katherine that the velvet cannot be sent back because
the demand forecasts show that the demand for velvet will decrease in the future.
Katherine can therefore get no refund for the velvet. How does this fact change the
production plan?
d. What is an intuitive economic explanation for the difference between the solutions
found in parts b and c?
e. The sewing staff encounters difficulties sewing the arms and lining into the wool
blazer since the blazer pattern has an awkward shape and the heavy wool material is
difficult to cut and sew. The increased labor time to sew a wool blazer increases the
labor and machine cost for each blazer by $80. Given this new cost, how many of each
clothing item should TrendLines produce to maximize profit?
f. The textile wholesaler informs Katherine that since another textile customer canceled
his order, she can obtain an extra 10,000 yards of acetate. How many of each clothing
item should TrendLines now produce to maximize profit?
g. TrendLines assumes that it can sell every item that was not sold during September
and October in a big sale in November at 60 percent of the original price. Therefore, it
can sell all items in unlimited quantity during the November sale. (The previously
mentioned upper limits on demand only concern the sales during September and
October.) What should the new production plan be to maximize profit?
Step-by-step solution
1. Step 1 of 15
Person KR needs to develop a production plan for the fall line. She needs
to determine the optimal quantity of each product that would maximize
the total profit of the company.
Comment
2. Step 2 of 15
a)
The fixed design and fashion costs are sunk costs. Therefore, they should
not be considered when setting the production in July. Since the velvet
shirts have a positive contribution towards covering the sunk costs, they
should be produced or at least considered for production according to
the linear programming model.
With a contribution of $22 and a demand of 6000 units, maximum
expected profit will be only $132,000. This amount will not be enough to
cover the $500,000 in fixed costs directly attributable to this product.
Comment
3. Step 3 of 15
b)
Solve the problem using excel spreadsheet as shown below:
Prepare an excel sheet using given values and formulas:
Comment
4. Step 4 of 15
The formulated excel sheet is shown below:
Comment
5. Step 5 of 15
Substitute the following values in “excel solver” window:
Comment
6. Step 6 of 15
Final result is shown below:
Hence, it is concluded that TL should produce 4,200 Wool Slacks, 4,000
Cashmere Sweaters, 7,000 Silk Blouses, 15,000 Silk Camisoles, 8,067
Tailored Skirts, 5,000 Wool Blazers, 40,000 Cotton Minis, 6,000 Velvet
Shirts, and 9,244 Button-Down Blouses.
The total net contribution of all clothing items is $6,862,933. However,
with the total fixed cost of $860,000 + 3($2,700,000) or $8,960,000, TLs
actually loses $2,097,067.
Comment
7. Step 7 of 15
c)
If velvet cannot be sent back to the textile wholesaler, then the whole
quantity will be considered as a sunk cost and therefore added to the
fixed costs. The objective function coefficient of items using velvet will
no longer include the material cost. The net contribution of the velvet
pants and shirts are now $175 and $40, respectively.
The revised spreadsheet model is as follows:
Note that Cells I6 and L6 are kept blank. Formulas used in cells P22: P25
is shown below:
Apart from this, all the cell values and formulas would remain the same.
From the spreadsheet, it is seen that the production plan changes
considerably. TLs should produce 3,178 tailored skirts (down from 8,067),
3,667 velvet pants (up from 0), 60,000 cotton minis (up from 40,000),
and 15,763 button-down blouses (up from 9,244). The production
decisions for all other items are unaffected by the change.
The total net contribution of all clothing items equals $7,085,822. The
sunk costs now include the material cost for velvet and totals
$9,200,000. The loss now equals $2,114,178.
Comment
8. Step 8 of 15
d)
When TLs cannot return the velvet to the wholesaler, the costs for velvet
cannot be recovered. These cost are no longer variable cost but now are
sunk cost. As a consequence the increased net contribution of the velvet
items makes them more attractive to produce. This way the revenues
from selling these items can contribute to the recovery of at least some
of the fixed costs. Instead of zero TLs now produces 3,667 velvet pants.
These pants also require some acetate and thus their production affects
the production plan for all other items. Since it is not optimal to make full
use of the ordered velvet in part (b) it comes as no surprise that the loss
in part (c) is even bigger than in part (b).
Comment
9. Step 9 of 15
e)
The increased labor and machine cost for each wool blazer is $220 ($140
+ $80). Hence, the unit contribution of a wool blazer would be $75.25.
The optimal solution for the revised price would change as shown below:
Note that the value of H5 is changed to 220. Rest of the values is kept
same.
From the calculations, it is seen that TLs should produce 10,067 skirts
(up from 8,067), the minimum of 3,000 wool blazers (down from 5,000),
and 6,578 button-down blouses (down from 9,244). The production
decisions for all other items are unaffected by the change. The total net
contribution of all clothing items is $6,527,933.33. The total loss is
$2,432,067.
Comment
10. Step 10 of 15
f)
When the available acetate changes from 28,000 to 38,000 square
yards, then the resulting spreadsheet is shown below:
TLs should produce 14,733 skirts (up from 8,067) and 356 button-down
blouses (down from 9,244). The production decisions for all other items
are unaffected by the change. The total net contribution of all clothing
items is $7,581,267. The loss is $1,378,733.
Comment
11. Step 11 of 15
g)
In this case include new decision variable representing the number of
clothing items that are sold during November sales. The new
spreadsheet model is shown below:
Prepare an excel sheet using given values and formulas:
Comment
12. Step 12 of 15
Comment
13. Step 13 of 15
The formulated excel sheet is shown below:
Comment
14. Step 14 of 15
Substitute the following values in “excel solver” window:
Comment
15. Step 15 of 15
Final result is shown below:
It only pays to produce 2,000 more Cashmere sweaters. The production
plan for all other items is the same as in part (b). The sale of the
Cashmere sweaters increases the total net contribution by $60,000 to
$6,922,933, and reduces the loss to $2,037,066.67.
Comment
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