QUESTION 1 The ASC is a buyer and distributor of seafood products that are sold

Question

QUESTION 1 The ASC is a buyer and distributor of seafood products that are sold to restaurants and specialty seafood outlets throughout the Northeast. ASC has a frozen storage facility in New York City that serves as the primary distribution point for all products. One of the ASC products is frozen sizeable black shrimp. Each Saturday ASC can purchase more tiger shrimp or sell the tiger shrimp at the existing New York City warehouse market price. The ASC goal is to buy tiger shrimp at a low weekly price and sell it later at a higher price. ASC currently has 100 pounds of tiger shrimp in storage. Space is available to store a maximum of 600 pounds of tiger shrimp each week. Also, ASC developed following estimates of tiger shrimp prices for the next two weeks Week1 Price $ 10.00 9.00 $9.00 ASC would like to determine the optimal buying-storing-selling strategy for the next two weeks. The cost to store a pound of shrimp for one week is $10, and management indicated that at least 200 pounds of tiger shrimp must be in storage at the end of week 2. a) Define the decision variables. (3 points) b) Define the objective function. (2 points) ) Define the constraints (5 points)

Explanation / Answer

In the context of the given question,

1. The decision variables are the market pricing and also the consumer demand. Because both these variables determine how much quantity of shrimp ASC should buy every week, and also depending on the available warehouse storage, ASC buys optimum quantity of shrimp so that the consumer hotels and seafood chains buy them and there is not much of inventory holding of the left over shrimp, because there are holding costs of $10 per pund of shrimp which is high if the shrrimp is stored in larger quantities. So ASC needs to balance its decision of buying shrimp based on the above two decision variables.

2. The objective function, as inferred from the given case, is the optimum quantity of procurement of shrimp and maximising its earnings when ASC sells this at a higher market price during the week such that its procurements costs are low and can sell it at a higher price, while maintaining optimum quantities to balance the demand-supply curve and minimise any shrimp being held in the inventory because the inventory holding costs are very high.

3. The constraints here are the ASC has a very restricted market segment to sell its shrimp every week. This also naroows down the demand from the consumers.

Another constraint is the unpredictability of cost of procurement every saturday when ASC buys shrimp.

Thirdly, the constraint is to balance the wastage of shrimp/holding it in inventory which is really uncertain too.

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