Dow Chemical U.S.A.: Capacity Expansion

Dow Chemical U.S.A. is faced with the decision of where to locate a new chemical reactor. Three current plants sites are being considered. Economic planner John Lewis has been charged with analyzing the impact of the reactor location on distribution costs. Though not suggested in the case, it is possible to construct a linear programming model to assist him in his analysis. Excerpt UVA-QA-0411 DOW CHEMICAL U.S.A.: CAPACITY EXPANSION John Lewis was an economic planner in the distribution planning and analysis department of Dow Chemical U.S.A. In the mid-1980s, Dow was considering where to locate a new liquid chemical reactor that was ordered to meet expected growth in demand in western Pennsylvania (Exhibit 1). Existing demand in the region was currently being sourced from the Trenton, New Jersey, plant. Three other Dow liquid chemical plants, however, located in Marietta, Ohio, Brownsville, Texas, and Greenville, South Carolina, were also vying for the new reactor. Lewis was given the task of evaluating the relative merits of each potential reactor site in terms of distribution cost. The Company Dow U.S.A. was a diversified manufacturer of basic chemicals, specialty products, and services. Founded in 1897 by Herbert H. Dow in Midland, Michigan, site of its corporate headquarters, by 1988, Dow was the sixth largest chemical company in the world, with net income of $ 2.4 billion on net sales of $ 16.7 billion. In 1988, Dow and its wholly and partly owned subsidiaries employed more than 55,500 people, operated plants at 158 locations in 32 countries, and maintained 190 sales offices worldwide. More than 50% of Dow's sales came from outside the United States. Dow was considered one of the top research companies in the chemical industry. In 1988, Dow spent $ 772 million to support a professional research staff of 5,100 people. Distribution . . .