Politecnico di Milano – School of Industrial and Information

Engineering
Logistics Management
Prof. Alessandro Perego

PRACTICAL LESSON #8
– LOCATION / ALLOCATION

Turbo is a manufacturer that produces and distributes turbo compressors for cars. It’s a first tier
supplier of the main car manufacturers in Europe. The company has decided to redesign its
distribution network in order to achieve all the main service level objectives at the minimum cost.
The product range is made of 5 main product families, depending on the product size and power:
- turbo compressors for cars with low-power engines (T1);
- turbo compressors for cars with mid-power engines (T2);
- turbo compressors for cars with high-power engines (T3);
- turbo compressors for trucks with mid-power engines (T4);
- turbo compressors for trucks with high-power engines (T5).
The company produces the turbo compressors in 5 plants. They are in different European
countries and they are focused on a single product each (as shown in table 1) in order to get the
highest economies of scale.
Turbo’s customers are car and truck manufacturers. We can assume that the most important
customers (i.e. customers that represent more than the 90% of the overall demand) are clustered
in 10 areas, as shown in table 2. In each area the delivery frequency is 1 delivery per day.
Transport is outsourced to a logistic service provider and the transportation fares, which depend
on both the shipped quantity and the traveled distance, are shown in table 3. In table 3 the unit of
measure of the quantities is the “number of T1 equivalent units” and the conversion rates are
shown in table 4.
The warehousing costs per unit (shown in table 5) include the cost of both the storage and the
handling activities. They have been got on the basis of the estimations made by a few logistics
service providers of different European countries.
Table 6 shows the “correction rate” per each country, which takes into account the different labor
and industrial land cost.
You are required to design and assess the following distribution network alternatives by assessing
their costs:
1. Direct shipment from the plants
2. 1 echelon distribution network with 1 European warehouse
3. 1 echelon distribution network with 2 warehouses for Europe

Product
T1 T2 T3 T4 T5
Lione (FRance) 1.760.000 0 0 0 0
Debrecen (Ungheria) 0 1.680.000 0 0 0
Plant Termoli (Italy) 0 0 1.840.000 0 0
Wroclaw(Poland) 0 0 0 1.160.000 0
Barcellona (Spain) 0 0 0 0 1.560.000
Units per year
Table 1 – Localization and annual production of the plants
 Product
T1 T2 T3 T4 T5
Napoli (Italy) 400.000 120.000 40.000 160.000 120.000
Poznan (Poland) 80.000 240.000 0 40.000 120.000
Amburgo (Germany) 240.000 80.000 480.000 80.000 0
Monaco (Germany) 320.000 160.000 560.000 160.000 480.000
Parigi (France) 120.000 360.000 160.000 240.000 320.000
Demand area
Madrid (Spain) 0 240.000 240.000 200.000 120.000
Lisbona (Portugal) 80.000 160.000 40.000 0 120.000
Goteborg (Sweden) 160.000 0 40.000 80.000 40.000
Manchester (UK) 80.000 200.000 240.000 40.000 160.000
Rotterdam (Netherlands) 280.000 120.000 40.000 160.000 80.000
Units per year
Table 2 - Demand split by product and area

T1 Equivalent unit / journey

FARES 500 - 1000 1000 - 1500 1500 - 2000 2000 - 2500
200 - 400 0,00200 0,00160 0,00130 0,00110
400 - 600 0,00160 0,00130 0,00100 0,00080
Distance
600 - 800 0,00130 0,00110 0,00090 0,00070
(km)
800 - 1000 0,00110 0,00100 0,00080 0,00065
>1000 0,00100 0,00090 0,00070 0,00060
N.B.: Fares refer to product T1 equivalent (i.e. volumetric features equivalent to T1)
Table 3 - Transportation fares [Euro/(km unit)] per T1 equivalent

Conv Rate
T1 1
T2 1,1
Product T3 1,3
T4 1,5
T5 1,8
Table 4 - Conversion rate

T1 Equivalent unit / year

<1000000 1000000 - 3000000 3000000 - 5000000 >5000000
Fare 0,1 0,08 0,065 0,05
Table 5 - Warehousing cost (Euro/in transit unit) per T1 equivalent

Table 6 - Warehousing cost conversion rates for the different countries