Hillier Cases
ADDITIONAL CASES CASE 8.4 CONTINUATION OF THE TEXAGO CASE STUDY
Reconsider the case study presented in the supplement to Chap. 8 (on the CD-ROM) involving the Texago Corp. site selection problem.
Texago management has tentatively chosen St. Louis as the site of the new refinery. However, management now is addressing the question of whether the capacity of the new refinery should be made somewhat larger than originally planned.
While analyzing the site selection problem, the task force had been told to assume that the new refinery would have the capacity to process 120 million barrels of crude oil per year. As indicated in Table 3, this then would increase the total capacity of all the corporation’s refineries from 240 million barrels to 360 million barrels. According to marketing forecasts, Texago would be able to sell all its finished product once this new capacity becomes available, but no more. Therefore, the choice of 120 million barrels as the capacity of the new refinery would enable all the corporation’s refineries to operate at full capacity while also fully meeting the forecasted demand for Texago’s products.
However, to prepare for possible future increases in demand beyond the current forecasts, management now wants to also consider the option of enlarging the plans for the new refinery so that it would have the capacity to process 150 million barrels of crude oil annually. Although this would force the corporation’s refineries collectively to operate below full capacity by 30 million barrels for awhile, the extra capacity then would be available later if Texago continues to increase its market share. This might well be worthwhile since the capital and operating costs incurred by enlarging the plans for the new refinery would be far less (perhaps 40 percent less) than constructing and operating another refinery later to process only 30 million barrels of crude oil per year. Furthermore, management feels that this extra capacity might be needed
Reconsider the case study presented in the supplement to Chap. 8 (on the CD-ROM) involving the Texago Corp. site selection problem.
Texago management has tentatively chosen St. Louis as the site of the new refinery. However, management now is addressing the question of whether the capacity of the new refinery should be made somewhat larger than originally planned.
While analyzing the site selection problem, the task force had been told to assume that the new refinery would have the capacity to process 120 million barrels of crude oil per year. As indicated in Table 3, this then would increase the total capacity of all the corporation’s refineries from 240 million barrels to 360 million barrels. According to marketing forecasts, Texago would be able to sell all its finished product once this new capacity becomes available, but no more. Therefore, the choice of 120 million barrels as the capacity of the new refinery would enable all the corporation’s refineries to operate at full capacity while also fully meeting the forecasted demand for Texago’s products.
However, to prepare for possible future increases in demand beyond the current forecasts, management now wants to also consider the option of enlarging the plans for the new refinery so that it would have the capacity to process 150 million barrels of crude oil annually. Although this would force the corporation’s refineries collectively to operate below full capacity by 30 million barrels for awhile, the extra capacity then would be available later if Texago continues to increase its market share. This might well be worthwhile since the capital and operating costs incurred by enlarging the plans for the new refinery would be far less (perhaps 40 percent less) than constructing and operating another refinery later to process only 30 million barrels of crude oil per year. Furthermore, management feels that this extra capacity might be needed