Societie Raffineur Case

Société Raffineur, a French company that buys nickel ores from variety of mines and process into three grades of pure nickel, was grappling with its complex raw material and production scheduling problem. The old foreman that who responsibilities included planning of the schedule had unfortunately passed away and his successor had been incapable of successfully dealing with this problem, which resulted in a loss of $1 m in July due to the purchase of extra electricity at higher prices. The managing director, Louis Gold, whose job was been threatened by such as expensive mistake, hired an MBA graduate, Jean-Luc, to help them solve the scheduling problem.

The company orders and process two types of ore – sulphide and laterites. The sulphide ore come in a crushed, unrefined state and contained other valuable by-products such as gold, silver, platinum, titanium and copper, while the laterites ore come pre-treated but contains no valuable by-products. The company has ordered and received 1 million pounds of sulphide ore: 800,000 pounds at a cost of $4.20 per pound and 200,000 pounds at a cost of $3.20 per pound. Société Raffineur would receive 2 million pounds of laterites ore, under long term contract agreement it has struck with its suppliers, at a cost of $1.50 per pound.

The company produces Class I, Class II, and Class III grades of refined nickel from sulphide and laterite ores. The Class I grade containing 99.9% pure nickel, Class II is less pure, and Class III is semi-refined. The price of Class I nickel is set by Inco, the world’s largest refined nickel producer. Class II and Class III are offered at a discount, depending on the percentage content of nickel. Class I, II, and III grades of nickel presently sell for $4.00, $3.90, and $3.80 respectively. The company has projected that at these prices, it could sell 10 million pounds of Class I, 1 million pounds of class II, and 2 million pounds of Class III. In addition, the company has entered a long-term contract for electricity supply and is due to receive 18 million units of electricity at $9 million. Under the terms of the electricity contract, Société Raffineur would not receive any rebate for electricity not consumed and the company would need prior permission to consume extra electricity. The contract for extra electricity is negotiated separately from the terms under the long-term electricity contract, and the price charged per unit is higher.

Jean-Luc, the new hire, has been given two days to finalize the production plan for November. Louis Gold wants a plan that would optimize production of the various grades of refined nickel and use up the 18 million units of electricity purchased.