Agri-Chem Corporation - Business Problem, a Need to Produce Hydrofluoric Acid as cost Effective Product - Case Study Example

Agri-Chem Corporation Introduction The agri-chem cooperation produces various agricultural products which are probably affected by the curtailment of the natural gas supply. The production of Ammonia, Chlorine, Ammonium Phosphate, Ammonium Nitrate Hydrofluoric Acid, Caustic soda, Urea, and Vinyl chloride largely depends on the natural gas. The natural gas is used as a raw material and as a boiler fuel. Marco company is the major supplier of the natural gas to the agri-chem company. This company is the only supplier of natural gas in the Texas Division located in Houston. The problem arises from the fact that the Enarco is planning to reduce the supply of natural gas to the Agri-Chem company. The curtailment of the supply of natural gas will greatly affect the company since the production of most products depends on the supply of natural gas. However, the company has further increased the intensity of the problem by the fact that it has given priority to different users of the natural gas. The priorities are classified according to the following. First Priority: Residential and commercial heating and cooling Second Priority: Commercial and industrial firms that use natural gas as a source of raw material Third Priority: Industrial firms that use natural gas as a boiler fuel According to Enarco, the company will be able to supply their product as per the above priorities. These priorities are highly affecting the Agri-Chem company since the company will not be able to get the first priority in the supply. Business problem The company is experiencing many problems due to the shortages of natural supply. However, they are not the ones directly related to the cause of the shortage. The shortage was caused by the heat wave in 1980. This depleted the available natural gas in the Texas, causing various companies to develop a contingency plan. This plan is the cause of all the problems experienced by the company. The following are some of the major problems experienced by the company; Curtailment of the supply of natural gas Priority of the use of natural gas Lack of alternative supply of natural gas Cost and profit efficiency Customer satisfaction The problems above can be addressed by the company through the adoption of the various solution. This essay will be able to use the quantitative analytical method. Linear programming will be used to optimize the production while maintaining the profits of the company. This method uses the Excel software. It will be able to optimize the profits and the production of various products by the company. The model will be able to ensure that the company can produce its products and maintain its profit margin. Formulating a linear program There are three variables, in this case, the profits, consumption rate, production rate and capacity. Each of these variables is treated to be dependent on the supply of natural gas. When 20 to 40 % curtails the amount of natural gas supply, then the production and profits will be proportional to the gas supply if there will be no other adjustments from the usual production process. Finding the relationship between the variables TABLE 2 Operational data Product Capacity (tons/day) Production Rate (% of capacity Natural Gas Consumption (1,000 cu. ft./ton) Ammonia 1,500 80 8.0 Ammonium phosphate 600 90 10.0 Ammonium nitrate 700 70 12.0 Urea 200 80 12.0 Hydrofluoric acid 800 70 7.0 Chlorine 1,500 80 18.0 Caustic soda 1,600 80 20.0 Vinyl chloride monomer 1,400 60 14.0 TABLE 1 Contribution to profit and overhead Product $/Ton Ammonia 80 Ammonium phosphate 120 Ammonium nitrate 140 Urea 140 Hydrofluoric acid 90 Chlorine 70 Caustic soda 60 Vinyl chloride monomer 90 The consumption rate of natural gas is 85,680 cu. ft. x 103 per day, when it is reduced due to the curtailment, it will reduce to a range of 20 to 40% 40 / 100 * 85,680 = 34,272 cu. Ft x 103 per day 20 / 100 * 85,680 = 17,136 cu. Ft x 103 per day total products per day = 8300 tons/day total profits per ton = 790 per ton total profit per day = $ 717,000 per day the linear equation to relate the amount of natural gas consumed to the to the total products produced and its profit will be as follows Ammonia - X1 Ammonium phosphate- X2 Ammonium nitrate- X3 Urea- X4 Hydrofluoric acid- X5 Chlorine- X6 Caustic soda- X7 Vinyl chloride monomer- X8 Consumption -X1+X2+X3+X4+X5+X6+X7+X8 Read More