Custom Vans, Inc. Custom Vans, Inc., specializes in converting standard vans int

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Custom Vans, Inc.
Custom Vans, Inc., specializes in converting standard vans into campers. Depending on the amount of work and
customizing to be done, the customizing could cost less than $1,000 to more than $5,000. In less than four years, Tony
Rizzo was able to expand his small operation in Gary, Indiana, to other major outlets in Chicago, Milwaukee,
Minneapolis, and Detroit.
Innovation was the major factor in Tony’s success in converting a small van shop into one of the largest and most
profitable custom van operations in the Midwest. Tony seemed to have a special ability to design and develop unique
features and devices that were always in high demand by van owners. An example was Shower-Rific, which was
developed by Tony only six months after Custom Vans, Inc., was started. These small showers were completely selfcontained,
and they could be placed in almost any type of van and in a number of different locations within a van.
Shower-Rific was made of fiberglass and contained towel racks, built-in soap and shampoo holders, and a unique
plastic door. Each Shower-Rific took 2 gallons of fiberglass and 3 hours of labor to manufacture.
Most of the Shower-Rifics were manufactured in Gary in the same warehouse where Custom Vans, Inc., was founded.
The manufacturing plant in Gary could produce 300 Shower-Rifics in a month, but this capacity never seemed to be
enough. Custom Van shops in all locations were complaining about not getting enough Shower Rifics, and because
Minneapolis was farther away from Gary than the other locations, Tony was always inclined to ship Shower-Rifics to
the other locations before Minneapolis. This infuriated the manager of Custom Vans at Minneapolis, and after many
heated discussions, Tony decided to start another manufacturing plant for Shower-Rifics at Fort Wayne, Indiana. The
manufacturing plant at Fort Wayne could produce 150 Shower-Rifics per month.
The manufacturing plant at Fort Wayne was still not able to meet current demand for Shower-Rifics, and Tony knew
that the demand for his unique camper shower would grow rapidly in the next year. After consulting with his lawyer
and banker, Tony concluded that he should open two new manufacturing plants as soon as possible. Each plant would
have the same capacity as the Fort Wayne manufacturing plant. An initial investigation into possible manufacturing
locations was made, and Tony decided that the two new plants should be located in Detroit, Michigan; Rockford,
Illinois; or Madison, Wisconsin. Tony knew that selecting the best location for the two new manufacturing plants
would be difficult. Transportation costs and demands for the various locations should be important considerations.
The Chicago shop was managed by Bill Burch. This Custom Van shop was one of the first established by Tony, and
it continued to outperform the other locations. The manufacturing plant at Gary was supplying 200 Shower-Rifics
each month, although Bill knew that the demand for the showers in Chicago was 300 units. The transportation cost
per unit from Gary was $10, and although the transportation cost from Fort Wayne was double that amount, Bill was
always pleading with Tony to get an additional 50 units from the Fort Wayne manufacturer. The two additional
manufacturing plants would certainly be able to supply Bill with the additional 100 showers he needed. The
transportation costs would, of course, vary, depending on which two locations Tony picked. The transportation cost
per shower would be $30 from Detroit, $5 from Rockford, and $10 from Madison.
Wilma Jackson, manager of the Custom Van shop in Milwaukee, was the most upset about not getting an adequate
supply of showers. She had a demand for 100 units, and at the present time, she was only getting half of this demand
from the Fort Wayne manufacturing plant. She could not understand why Tony didn’t ship her all 100 units from
Gary. The transportation cost per unit from Gary was only $20, while the transportation cost from Fort Wayne was
$30. Wilma was hoping that Tony would select Madison for one of the manufacturing locations. She would be able
to get all of the showers needed, and the transportation cost per unit would only be $5. If not Madison, a new plant in
Rockford would be able to supply her total needs, but the transportation cost per unit would be twice as much as it
would be from Madison. Because the transportation cost per unit from Detroit would be $40, Wilma speculated that
even if Detroit became one of the new plants, she would not be getting any units from Detroit.
Custom Vans, Inc., of Minneapolis was managed by Tom Poanski. He was getting 100 showers from the Gary plant.
Demand was 150 units. Tom faced the highest transportation costs of all locations. The transportation cost from Gary

was $40 per unit. It would cost $10 more if showers were sent from the Fort Wayne location. Tom was hoping that
Detroit would not be one of the new plants, as the transportation cost would be $60 per unit. Rockford and Madison
would have a cost of $30 and $25, respectively, to ship one shower to Minneapolis.
The Detroit shop's position was similar to Milwaukee’s—only getting half of the demand each month. The 100 units
that Detroit did receive came directly from the Fort Wayne plant. The transportation cost was only $15 per unit from
Fort Wayne, whereas it was $25 from Gary. Dick Lopez, manager of Custom Vans, Inc., of Detroit, placed the
probability of having one of the new plants in Detroit fairly high. The factory would be located across town, and the
transportation cost would be only $5 per unit. He could get 150 showers from the new plant in Detroit and the other
50 showers from Fort Wayne. Even if Detroit was not selected, the other two locations were not intolerable. Rockford
had a transportation cost per unit of $35, and Madison had a transportation cost of $40.
Tony pondered the dilemma of locating the two new plants for several weeks before deciding to call a meeting of all
the managers of the van shops. The decision was complicated, but the objective was clear—to minimize total costs.
The meeting was held in Gary, and everyone was present except Wilma.
Tony: Thank you for coming. As you know, I have decided to open up two new plants at Rockford, Madison, or
Detroit. The two locations, of course, will change our shipping practices, and I sincerely hope that they will supply
you with the Shower-Rifics that you have been wanting. I know you could have sold more units, and I want you to
know that I am sorry for this situation.
Dick: Tony, I have given this situation a lot of consideration, and I feel strongly that at least one of the new plants
should be located in Detroit. As you know, I am now only getting half of the showers that I need. My brother, Leon,
is very interested in running the plant, and I know he would do a good job.
Tom: Dick, I am sure that Leon could do a good job, and I know how difficult it has been since the recent layoffs by
the auto industry. Nevertheless, we should be considering total costs and not personalities. I believe that the new plants
should be located in Madison and Rockford. I am farther away from the other plants than any other shop, and these
locations would significantly reduce transportation costs.
Dick: That may be true, but there are other factors. Detroit has one of the largest suppliers of fiberglass, and I have
checked prices. A new plant in Detroit would be able to purchase fiberglass for $2 per gallon less than any of the other
existing or proposed plants.
Tom: At Madison, we have an excellent labor force. This is due primarily to the large number of students attending
the University of Madison. These students are hard workers, and they will work for $1 less per hour than the other
locations that we are considering.
Bill: Calm down, you two. It is obvious that we will not be able to satisfy everyone in locating the new plants.
Therefore, I would like to suggest that we vote on the two best locations.
Tony: I don’t think that voting would be a good idea. Wilma was not able to attend, and we should be looking at all
of these factors together in some type of logical fashion.

1. Where would you locate the two new plants?

Explanation / Answer

data tablulated in to excel:

data above

Detroit would be the best choice as it reduces the per gallon price by $2 and with $5 transportation cost, they could get the shower units

Custom Vans minimum Cost of cusomization < Maximum cost of customization > period in years Gary Indiana (Fort Wayne) Chicago Milwaukee Minneapolis Detroit (Michigan) Illinois (Rockford) Wisconsin (Madison) 1000 5000 4 manufacture most of the shower rifics; 300 per month; was supplying 200 shower rifics each month 150 shower rifics per month Manager Bill Burch; Chicago unit demands 300 units Manager Wilma Jackson; gets 50 units from Fort Wayne Manager Tom Poanski, demands 150, gets 100 from Gary Plant Shower Rific 2 gallons fiber glass 3 hours labor Transportation costs Wilma prefers Madison as a manufacturing location with just $5 per unit of transportation cost From Gary to Chicago: $10 per unit As a Second choice, RockFord can supply her at $10 per unit From Fort Wayne to Chicago $20 per unit From Detroit $30 per unit From ROckFord $5 From Madison $10 From Detroit to Miluwake $40 per unit From Gary to Minneapolis $40 per unit From Fort Wayne to Minneapolis $50 per unit From Detroit to Minneapolis $60 per unit From RockFord to

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