hil23453_ch09_318-371.

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■ CASES
CASE 9.1 Shipping Wood to Market In the past the company has shipped the wood by train.
However, because shipping costs have been increasing, the al-
Alabama Atlantic is a lumber company that has three
ternative of using ships to make some of the deliveries is be-
sources of wood and five markets to be supplied. The an-
ing investigated. This alternative would require the company
nual availability of wood at sources 1, 2, and 3 is 15, 20,
to invest in some ships. Except for these investment costs, the
and 15 million board feet, respectively. The amount that can
shipping costs in thousands of dollars per million board feet
be sold annually at markets 1, 2, 3, 4, and 5 is 11, 12, 9,
by rail and by water (when feasible) would be the following
10, and 8 million board feet, respectively.
for each route:

Unit Cost by Rail ($1,000’s) Unit Cost by Ship ($1,000’s)

Market Market

Source 1 2 3 4 5 1 2 3 4 5

1 61 72 45 55 66 31 38 24 — 35
2 69 78 60 49 56 36 43 28 24 31
3 59 66 63 61 47 — 33 36 32 26

The capital investment (in thousands of dollars) in ships re-

quired for each million board feet to be transported annually
by ship along each route is given as follows:

Investment for Ships ($1,000’s)

Market

Source 1 2 3 4 5

1 275 303 238 — 285

2 293 318 270 250 265
3 — 283 275 268 240

Considering the expected useful life of the ships and the Option 3: Ship by either rail or water, depending on which is
time value of money, the equivalent uniform annual cost of less expensive for the particular route.
these investments is one-tenth the amount given in the table.
Present your results for each option. Compare.
The objective is to determine the overall shipping plan that
Finally, consider the fact that these results are based on
minimizes the total equivalent uniform annual cost (includ-
current shipping and investment costs, so the decision on
ing shipping costs).
the option to adopt now should take into account manage-
You are the head of the OR team that has been assigned
ment’s projection of how these costs are likely to change in
the task of determining this shipping plan for each of the
the future. For each option, describe a scenario of future cost
following three options.
changes that would justify adopting that option now.
Option 1: Continue shipping exclusively by rail.
Option 2: Switch to shipping exclusively by water (except where
only rail is feasible).
CASE 9.3 PROJECT PICKINGS
Tazer, a pharmaceutical manufacturing company, entered the pharmaceutical market 12 years ago with the
introduction of six new drugs. Five of the six drugs were simply permutations of existing drugs and therefore
did not sell very heavily. The sixth drug, however, addressed hypertension and was a huge success. Since
Tazer had a patent on the hypertension drug, it experienced no competition, and profits from the hypertension
drug alone kept Tazer in business.
During the past 12 years, Tazer continued a moderate amount of research and development, but it never
stumbled upon a drug as successful as the hypertension drug. One reason is that the company never had the
motivation to invest heavily in innovative research and development. The company was riding the profit
wave generated by its hypertension drug and did not feel the need to commit significant resources to finding
new drug breakthroughs.
Now Tazer is beginning to fear the pressure of competition. The patent for the hypertension drug expires in 5
years1, and Tazer knows that once the patent expires, generic drug manufacturing companies will swarm into the
market like vultures. Historical trends show that generic drugs decreased sales of branded drugs by 75 percent.
Tazer is therefore looking to invest significant amounts of money in research and development this year to
begin the search for a new breakthrough drug that will offer the company the same success as the hypertension
drug. Tazer believes that if the company begins extensive research and development now, the probability of
finding a successful drug shortly after the expiration of the hypertension patent will be high.
As head of research and development at Tazer, you are responsible for choosing potential projects and assigning
project directors to lead each of the projects. After researching the needs of the market, analyzing the
shortcomings of current drugs, and interviewing numerous scientists concerning the promising areas of medical
research, you have decided that your department will pursue five separate projects, which are listed below:
Project Up- Develop an antidepressant that does not cause serious mood swings.
Project Stable- Develop a drug that addresses manic depression.
Project Choice- Develop a less intrusive birth control method for women.
Project Hope- Develop a vaccine to prevent HIV infection.
Project Release- Develop a more effective drug to lower blood pressure.
For each of the five projects, you are only able to specify the medical ailment the research should address,
since you do not know what compounds will exist and be effective without research.
You also have five senior scientists to lead the five projects. You know that scientists are very temperamental
people and will work well only if they are challenged and motivated by the project. To ensure that the senior
scientists are assigned to projects they find motivating, you have established a bidding system for the projects.
You have given each of the five scientists 1000 bid points. They assign bids to each project, giving a higher
number of bid points to projects they most prefer to lead. The following table provides the bids from the five
individual senior scientists for the five individual projects:
_________________
1In general, patents protect inventions for 17 years. In 1995, GATT legislation extending the protection given by
new pharmaceutical patents to 20 years became effective. The patent for Tazer’s hypertension drug was issued
prior to the GATT legislation, however. Thus, the patent only protects the drug for 17 years.
You decide to evaluate a variety of scenarios you think are likely.

(a). Given the bids, you need to assign one senior scientist to each of the five projects to maximize
the preferences of the scientists. What are the assignments?
(b). Dr. Rollins is being courted by Harvard Medical School to accept a teaching position. You
are fighting desperately to keep her at Tazer, but the prestige of Harvard may lure her away. If
this were to happen, the company would give up the project with the least enthusiasm. Which
project would not be done?
(c). You do not want to sacrifice any project, since researching only four projects decreases the
probability of finding a breakthrough new drug. You decide that either Dr. Zuner or Dr. Mickey
could lead two projects. Under these new conditions with just four senior scientists, which
scientists will lead which projects to maximize preferences?
(d). After Dr. Zuner was informed that she and Dr. Mickey are being considered for two projects, she
decided to change her bids. The following table shows Dr. Zuner’s new bids for each of the projects:

Under these new conditions with just four scientists, which scientists will lead which projects to
maximize preferences?
(e). Do you support the assignment found in part (d)? Why or why not?
(f). Now you again consider all five scientists. You decide, however, that several scientists cannot
lead certain projects. In particular, Dr. Mickey does not have experience with research on the
immune system, so he cannot lead Project Hope. His family also has a history of manic-
depression, and you feel that he would be too personally involved in Project Stable to serve as an
effective project leader. Dr. Mickey therefore cannot lead Project Stable. Dr. Kvaal also does not
have experience with research on the immune systems and cannot lead Project Hope. In addition,
Dr. Kvaal cannot lead Project Release because he does not have experience with research on the
cardiovascular system. Finally, Dr. Rollins cannot lead Project Up because her family has a
history of depression and you feel she would be too personally involved in the project to serve as an
effective leader. Because Dr. Mickey and Dr. Kvaal cannot lead two of the five projects, they each have
only 600 bid points. Dr. Rollins has only 800 bid points because she cannot lead one of the five projects.
The following table provides the new bids of Dr. Mickey, Dr. Kvaal, and Dr. Rollins:

Which scientists should lead which projects to maximize preferences?

(g) You decide that Project Hope and Project Release are too complex to be led by only one
scientist. Therefore, each of these projects will be assigned two scientists as project leaders. You
decide to hire two more scientists in order to staff all projects: Dr. Arriaga and Dr. Santos.
Because of religious reasons, the two doctors both do not want to lead Project Choice. The
following table lists all projects, scientists, and their bids.

Which scientists should lead which projects to maximize preferences?

(h) Do you think it is wise to base your decision in part (g) only on an optimal solution for an assignment problem?