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Based on Spencer et al. (1990). When you lease 800 phone numbers from AT&T for telemarketing, AT&T uses an optimization model to tell you where you should locate calling centers to minimize your operating costs over a 10-year horizon. To illustrate the model, suppose you are considering seven calling center locations: Boston, New York, Charlotte, Dallas, Chicago, Los Angeles, and Omaha. You know the average cost incurred if a telemarketing call is made from any of these cities to any region of the country. You also know the hourly wage that you must pay workers in each city. This information is listed in the file P06_85.xlsx. Assume that an average call requires four minutes of labor. You make calls 250 days per year, and the average number of calls made per day to each region of the country is listed in the same file. The cost of building a calling center in each possible location is also listed in this file. Each calling center can make up to 5000 calls per day. Given this information, how can you minimize the discounted cost (at 10% per year) of running the telemarketing operation for 10 years? Assume all wage and calling costs are paid at the ends of the respective years.

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Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659
BuyFindarrow_forward

Practical Management Science

6th Edition
WINSTON + 1 other
Publisher: Cengage,
ISBN: 9781337406659

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Chapter
Section
Chapter 6, Problem 85P
Textbook Problem
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Based on Spencer et al. (1990). When you lease 800 phone numbers from AT&T for telemarketing, AT&T uses an optimization model to tell you where you should locate calling centers to minimize your operating costs over a 10-year horizon. To illustrate the model, suppose you are considering seven calling center locations: Boston, New York, Charlotte, Dallas, Chicago, Los Angeles, and Omaha. You know the average cost incurred if a telemarketing call is made from any of these cities to any region of the country. You also know the hourly wage that you must pay workers in each city. This information is listed in the file P06_85.xlsx. Assume that an average call requires four minutes of labor. You make calls 250 days per year, and the average number of calls made per day to each region of the country is listed in the same file. The cost of building a calling center in each possible location is also listed in this file. Each calling center can make up to 5000 calls per day. Given this information, how can you minimize the discounted cost (at 10% per year) of running the telemarketing operation for 10 years? Assume all wage and calling costs are paid at the ends of the respective years.

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Expert Solution
Summary Introduction

To determine: The way to minimize the discounted cost.

Introduction: The variation between the present value of the cash outflows and the present value of the cash inflows are known as the Net Present Value (NPV).

Explanation of Solution

Model:

Here, annual wage cost per year is computed by multiplying calls per day, days per year, minutes per call, hours per minutes, and wage per hour...

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Chapter 6 Solutions

Practical Management Science
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