Darby Company

CASE ON DISTRIBUTION SYSTEM DESIGN
Presented By: Aakanksha Jain Amit Arora Farhan Aqeel 211001 211016 211045
DARBY COMPANY
Manufactures and distributes meters used to measure electric power consumption. Started with a production plant in El Paso and distribution center in Ft. Worth, Texas. With expansion of business to north, new distribution center opened in Santa Fe, New Mexico. With growth of business in the West Coast, new distribution center opened in Las Vegas and a production plant in San Bernardino, California.
CASE DESCRIPTION
Cost of production per meter at each production plant:

PRODUCTION PLANT COST OF PRODUCTION
El Paso San Bernardino
10.50 10
Quarterly production capacity at each production plant:

PRODUCTION PLANT PRODUCTION CAPACITY
30000 20000

2 PRODUCTION PLANTS
3 DISTRIBUTION CENTERS
Ft. Worth Santa Fe Las Vegas
Dallas San Antonio Wichita Kansas City Denver Salt Lake City Phoenix Los Angeles San Diego
9 CUSTOMER ZONES
Shipping cost per unit from Production plants to distribution centers:

DISTRIBUTION CENTER PLANT El Paso San Bernardino FT. WORTH 3.20 -SANTA FE. 2.20 3.90 LAS VEGAS 4.20 1.20
Shipping cost per unit from the distribution centers to the customer zones: CUSTOMER ZONE
DISTRIBUTION CENTER DALLAS SAN ANTONIO WICHIT A KANSAS CITY DENVER SALT LAKE CITY PHOENIX LOS ANGELES SAN DIEGO
Ft. Worth Santa Fe
0.3 5.2
2.1 5.4 --
3.1 4.5 --
4.4 6.0 --
6.0 2.7 5.4
-4.7 3.3
-3.4 2.4
-3.3 2.1
-2.7 2.5
Las Vegas --
Quarterly demand forecast at the customer zones: CUSTOMER ZONE Dallas San Antonio Wichita Kansas City Denver Salt Lake City Phoenix Los Angeles San Diego DEMAND (meters) 6300 4880 2130 1210 6120 4830 2750 8580 4460
CURRENT DISTRIBUTION SYSTEM
Dallas
Ft. Worth El Paso
San Antonio Wichita Kansas City
Denver Santa Fe San Bernardino Las Vegas Salt Lake City Phoenix Los Angeles San Diego
PART I
If the company does not change its current distribution strategy, what will its manufacturing and distribution costs be for the following quarter?
To calculate the distribution cost from Production plants to the distribution centers we use a transportation model with production plants as sources and distribution centers as destinations. The demand of the distribution centers is calculated by adding the individual demands of the customer zones catered by them. For Ft. Worth, demand = demand from Dallas+ San Antonio + Wichita + Kansas City =6300 + 4880 + 2130 + 1210 =14520 For Santa Fe, demand = demand from Denver + Salt lake city + Phoenix =6120 + 4830 + 2750 =13700 For Las Vegas, demand = demand from Los Angeles + San Diego =8580 + 4460 =13040
MODEL DESCRIPTION
The Transportation table is as follows:

FT. WORTH
EL PASO
SANTA FE
LAS VEGAS
SUPPLY
3.2
2.2 3.9
4.2 1.2
30000 20000
SAN BERNARDI NO DEMAND
14520
13700
13040
As there is a demand-supply gap, i.e. supply exceeds demand by 8740, we insert a dummy demand destination, say, D1
FT. WORTH
EL PASO
SANTA FE
LAS VEGAS
D1
SUPPLY
3.2
2.2 3.9
4.2 1.2
0 0
30000 20000
SAN BERNARDI NO DEMAND
14520
13700
13040
8740
50000
Applying Vogels Approximation Method (VAM)

FT. WORTH
EL PASO
SANTA FE
LAS VEGAS
D1
SUPPLY
3.214520
2.26740
4.2
08740
30000 15480 6740
(2.2) (2.2)
SAN BERNARDI NO
DEMAND
3.96960
1.213040
20000 6960
50000
(1.2) (3.9)
14520 ()
13700 6740 (1.7)
13040 (3)
8740 (0)
Initial Basic Feasible Solution:

FT. WORTH
EL PASO SAN BERNARDINO
SANTA FE
LAS VEGAS
D1
14520 --
6740 6960
-13040
8740 --
Check for non-degeneracy: m+n-1 = 2+4-1=5 which is equal to the number of basic variables. Thus, solution is non-degenerate. Now, to check for optimality, we apply MODI method: Cost for occupied cells:
FT. WORTH
EL PASO
SAN BERNARDINO
SANTA FE
LAS VEGAS
D1
Ui
3.2
-3.2
2.2
3.9 2.2
-1.2 -0.5
0
-0
0
1.7
Vj
Cost for unoccupied cells:

FT. WORTH
SANTA FE
LAS VEGAS
D1
Ui
- 3.2
--2.2
4.20
--0.5
-0 0
0
1.7
Vj
Net Evaluation:
FT. WORTH
SANTA FE
LAS VEGAS
D1
---
4.70 --
--1.70
As all Cij is not equal to or greater than zero, thus solution is not optimal. To obtain an optimal solution, we insert in the solution and form a loop.
FT. WORTH
EL PASO
SAN BERNARDINO
SANTA FE
LAS VEGAS
D1
14520
--
6740+
6960-
-13040
8740-
New Basic Feasible Solution:

FT. WORTH
EL PASO
SANTA FE
LAS VEGAS
D1
14520
13700
--
1780
SAN BERNARDINO
--
--
13040
6960
Check for non-degeneracy: m+n-1 = 2+4-1=5 which is equal to the number of basic variables. Thus, solution is non-degenerate.
Now to check for optimality, we again apply MODI method.

Cost for occupied cells:
FT. WORTH
SANTA FE
LAS VEGAS
D1
Ui
3.2 -3.2
2.2 -2.2
-1.2 1.2
0 0 0
0 0
Vj

FT. WORTH
EL PASO
SAN BERNARDINO
SANTA FE
LAS VEGAS
D1
Ui
- 3.2
-3.9 2.2
4.20
-1.2
--0
0
0
Vj
Net Evaluation:
FT. WORTH
SANTA FE
LAS VEGAS
D1
-1.7
3 --
---
As all Cij is greater than or equal to zero, thus the solution is optimal. Thus, Distribution Cost from production plants to the distribution centers =14520*3.20+13700*2.20+13040*1.20 =$92252
As we are given fixed distribution pattern from distribution center to customer zones, to calculate Distribution Cost from distribution centers to the customer zones we multiply the per meter cost of transportation with the demand at each customer zone. =6300*0.3+4880*2.1+2130*3.1+1210*4.4+6120*2.7+4830*4.7+2750*3.4+858 0*2.1+4460*2.5 =1890+10248+6603+5324+16524+22701+9350+18018+11150 =$101808
Thus, Total distribution cost
=92252+101808 =$194060
For manufacturing cost, we multiply the quantity supplied to each distribution center from a production plant with the production cost at that production plant. Thus, manufacturing cost = 14520*10.50+13700*10.50+13040*10 = $426710 Therefore, Total Cost = 194060+426710 =$620770
PART II
Suppose that the company is willing to consider dropping the distribution center limitations; that is, customers could be served by any of the distribution centers for which costs are available. Can costs be reduced? By how much?
As the distribution center limitations are removed, each distribution center can serve any customer zone for which costs are available. Thus, to calculate the distribution cost we use a transshipment model with distribution centers acting as the transient nodes. The supply and demand for the transient nodes i.e. the distribution centers would be equal to the total available supply or demand i.e. 50000 meters. As there is a demand supply gap, a dummy demand destination is inserted, say, D1 The transshipment model table is now as follows:
DALL AS
EL PASO SAN BERN ARDIN O FT. WORT H SANTA FE LAS VEGAS DEMA ND
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
SUPPLY
4.7 3.3 4830
3.4 2.4 2750
3.3 2.1 8580
2.7 2.5 4460
3.2
2.2 3.9 0 50000
4.2 1.2 0 50000
30000 20000
0.3 5.2 6300
2.1 5.4 4880
3.1 4.5 2130
4.4 6.0 1210
6.0 2.7 5.4 6120
0 0 0 8740
0 50000
50000 50000 50000 200000

D
EL
SA
DE
SLC
LA
SD
D1
FT.
SANT
LAS
SUPPL Y
0.36300
2.14880
3.1
4.4
6.0
3.211180 038820
2.218820 3.9
4.2 1.220000
30000 18820 20000 50000 43700 38820 50000 48790 46660 40540 9360 620 50000 20000 15170 6590 3840 20000 0
(1)(2)( ) (2.7)(2. 7) (0)
SAN
FT.
SAN T
5.2
5.4
4.521
30
6.012
10
2.761
20
4.7
3.4
3.3
2.7620
08740
031180
(0)(0)(0 )(2.7)(0 .6)(0.7) (2.7)
LAS
5.4
3.348
30
2.4275
0
2.18580
2.5384
0
030000
(0)(0)(2 .1)(2.1) (0.3)(0. 1)(2.5)( 2.5)
DE MA ND
6300 (4.9)
4880 (3.3)
213 0 (1.4) ()
1210 (1.6) ()
6120 (2.7) (2.7)
4830 (1.4) (1.4) (1.4) (1.4)
2750 (1) (1) (1) (1)
8580 (1.2) (1.2) (1.2) (1.2)
4460 3840 (0.2) (0.2) (0.2) (0.2) (2.5)
8740 (0) (0) (0) (0)
50000 11180 (3.2) ()
50000 31180 (2.2) (2.2) (2.2) ()
50000 30000 (1.2) (1.2) (4.2)

DALL AS
EL PASO SAN BERN ARDIN O FT. WORT H SANTA FE LAS VEGAS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
---
---
---
---
---
---
---
---
---
11180 --
18820 --
-20000
6300 ---
4880 ---
-2130 --
-1210 --
-6120 --
--4830
--2750
--8580
-620 3840
-8740 --
38820 ---
-31180 --
--30000
Now, to check for optimality, we apply MODI method.

DALL AS
EL PASO SAN BERN ARDIN O FT. WORT H
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
---
---
----
---
---
---
---
---
---
3.2 --
2.2 --
-1.2
2.4 1.2
0.3
2.1
--
--
--
--
--
--
--
--
--
--
-0.8
SANTA FE
LAS VEGAS Vj
--1.1
--2.9
4.5
-4.3
6.0
-5.8
2.7
-2.5
-3.3 3.3
-2.4 2.4
-2.1 2.1
2.7
2.5 2.5
0
--0.2
--0.8
0
--0.2
-0 0
0.2
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
4.2
2.4
SAN BERN ARDIN O

FT. WORT H SANTA FE LAS VEGAS Vj
4.7 -3.3
3.4 -2.4
3.3 -2.1
--2.5
3.9
- -0.2
- -0
1.2
-5.2 1.1
-5.4 2.9
3.1 - 4.3
4.4 - 5.8
6.0 -5.4 2.5
0 -0 -0.2
- 0.8
-0.8 0.2 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
1.8
SAN BERN ARDIN O

FT. WORT H SANTA FE LAS VEGAS
1.2 --
0.8 --
1 --
---
2.9
-
- --
-3.9
-2.3
-0.4 -
-0.6 -
4.3 -2.9
1 -0.2
As all Cij is not equal to or greater than zero, thus solution is not optimal. To obtain an optimal solution, we insert in the solution and form a loop.
DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
---
---
-- 1210 - --
---
---
---
---
---
---
11180 + --
18820 - --
-20000
6300 ---
4880 ---
-2130 --
-6120 --
--4830
--2750
--8580
-620 3840
-8740 --
38820 - ---
-31180 + --
--30000
Here, =1210

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
---
---
---
---
---
---
---
---
---
12390 --
17610 --
-20000
6300 ---
4880 ---
-2130 --
1210 ---
-6120 --
--4830
--2750
--8580
-620 3840
-8740 --
37610 ---
-32390 --
--30000
Now, to check for optimality, we again apply MODI method.

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
---
---
----
---
---
---
---
---
---
3.2 --
2.2 --
-1.2
2.4 1.2
0.3
2.1
--
4.4
--
--
--
--
--
--
--
--
-0.8
SANTA FE
LAS VEGAS Vj
--1.1
--2.9
4.5
-4.3
--5.2
2.7
-2.5
-3.3 3.3
-2.4 2.4
-2.1 2.1
2.7
2.5 2.5
0
--0.2
--0.8
0
--0.2
-0 0
0.2
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
4.2
2.4
SAN BERN ARDIN O

4.7 -3.3
3.4 -2.4
3.3 -2.1
--2.5
3.9
- -0.2
- -0
1.2
-5.2 1.1
-5.4 2.9
3.1 - 4.3
-6.0 5.2
6.0 -5.4 2.5
0 -0 -0.2
- 0.8
-0.8 0.2 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
1.8
SAN BERN ARDIN O

1.2 --
0.8 --
1 --
---
4.1
-
- --
-3.9
-2.3
-0.4 -
-0.6
4.3 -2.9
1 -0.2
As all Cij is not greater than or equal to zero, thus solution is not optimal. To obtain an optimal solution, we again insert in the solution and form a loop.
DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
---
-- 2130 - --
---
---
---
---
---
---
---
12390 + --
17610 - --
-20000
6300 ---
4880 ---
1210
-6120
--4830
--2750
--8580
-620 3840
-8740 --
37610 - ---
-32390 + --
--30000
--
--
Here, =2130

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
---
---
---
---
---
---
---
---
---
14520 --
15480 --
-20000
6300 ---
4880 ---
2130 ---
1210 ---
-6120 --
--4830
--2750
--8580
-620 3840
-8740 --
35480 ---
-34520 --
--30000

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
---
---
----
---
---
---
---
---
---
3.2 --
2.2 --
-1.2
2.4 1.2
0.3
2.1
3.1
4.4
--
--
--
--
--
--
--
--
-0.8
SANTA FE
LAS VEGAS Vj
--1.1
--2.9
--3.9
--5.2
2.7
-2.5
-3.3 3.3
-2.4 2.4
-2.1 2.1
2.7
2.5 2.5
0
--0.2
--0.8
0
--0.2
-0 0
0.2
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
4.2
2.4
SAN BERN ARDIN O

4.7 -3.3
3.4 -2.4
3.3 -2.1
--2.5
3.9
- -0.2
- -0
1.2
-5.2 1.1
-5.4 2.9
-4.5 3.9
-6.0 5.2
6.0 -5.4 2.5
0 -0 -0.2
- 0.8
-0.8 0.2 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
1.8
SAN BERN ARDIN O

1.2 --
0.8 --
1 --
---
2.9
-
- --
-3.9
-2.3
-0.4
-0.6
4.3 -2.9
1 -0.2
As all Cij is greater than or equal to zero, thus solution is optimal.
Optimal Table:
DALL AS
EL PASO SAN BERN ARDIN O FT. WORT H SANTA FE
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
---
---
---
---
---
---
---
---
---
14520 --
15480 --
-20000
6300 --
4880 --
2130 --
1210 --
-6120
---
---
---
-620
-8740
35480 --
-34520
---
LAS VEGAS
--
--
--
--
--
4830
2750
8580
3840
--
--
--
30000
Dallas San Antonio Wichita El Paso Kansas City Denver Santa Fe San Diego
DISTRIBUTION SYSYTEM
Ft. Worth
San Bernardino
Salt Lake City
Las Vegas
Phoenix Los Angeles
To calculate Distribution cost from production plant to the distribution centers we add the corresponding contributed costs from each production plant to a distribution center. We also subtract the cost of shipping 8740 units as they are being shipped to a dummy destination. Thus, the cost of distribution from El Paso to Santa Fe includes the cost of these extra units which needs to be subtracted. =14520*3.2+15480*2.2+20000*1.2-8740*2.2 =46464+34056+24000-19228 =$85292 Distribution cost from distribution centers to the customer zone is calculated by adding the corresponding contributed costs from each distribution center to a customer zone. =6300*0.3+4880*2.1+2130*3.1+1210*4.4+6120*2.7+ 4830*3.3+2750*2.4+8580*2.1+620*2.7+3840*2.5 =1890+10248+6603+5324+16524+15939+6600+18018+1674+9600 =$92420 Thus, Total distribution cost =85292+92420 =$177712
Manufacturing cost
= 14520*10.50+15480*10.50+20000*10-8740*10.5 =152460+162540+200000-91770 =$423230 = 177712+423230 =$600942
Thus, Total cost
In case of a distribution plan without limitations: The total cost would be reduced to $600,942, which is a savings of $19,828 or 3.2% The distribution cost is reduced to $177,712 i.e. a savings of $16,888. The manufacturing cost is reduced to $423230 i.e. a savings of $3480. This new plan allows the company to produce more of its meters at its more cost efficient San Bernardino plant in fact, under this plan it produces at capacity, which is 20,000 units. This plan allows more than one center to supply to a specific zone and the solution shows that this is the case for the San Diego customer zone. This plan allows a different center to service customers if it is cheaper.
CHANGES IN COST
PART III
The company wants to explore the possibility of satisfying some of the customer demand directly from the production plants. In particular, the shipping cost is $0.30 per unit from San Bernardino to Los Angeles and $0.70 from San Bernardino to San Diego. The cost of direct shipments from EI Paso to San Antonio is $3.50 per unit. Can distribution costs be further reduced by considering these direct plant-customer shipments?
Distribution costs for some direct plant-customer shipments: PRODUCTION PLANT El Paso San Bernardino San Bernardino CUSTOMER ZONE San Antonio Los Angeles San Diego COST $3.50 $0.30 $0.70
With an option of direct plant-customer shipments we replace the cells corresponding to these direct shipments with the costs given in place of from the earlier table. The supply of the sources remains the same as production capacity remains the same. The demand of the destinations is also the same. The demand and supply of the transient nodes i.e. the distribution centers is the total supply available.
Modified Transshipment table is as follows:

DALL AS
EL PASO SAN BERN ARDIN O FT. WORT H SANTA FE LAS VEGAS DEMA ND
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
SUPPL Y
3.50
4.7 3.3 4830
3.4 2.4 2750
0.30 3.3 2.1 8580
0.70 2.7 2.5 4460
3.2
2.2 3.9 0 50000
4.2 1.2 0 50000
30000 20000
0.3 5.2 6300
2.1 5.4 4880
3.1 4.5 2130
4.4 6.0 1210
6.0 2.7 5.4 6120
0 0 0 8740
0 50000
50000 50000 50000

D
EL
SA
DE
SLC
LA
SD
D1
FT.
SANT
LAS
SUPPL Y
3.5048
80
3.26300
2.29460
4.29360
30000 23700 18820 9460 20000 11420 6960
(1)(1. 3)(2)( 2.2) (0.4)( 0.4)(0. 4)(0.5 )(2.7) (0)
SA N
0.3085
80
0.704460
3.9
1.26960
FT.
0.36300
2.1
3.1
4.4
6.0
043700
50000 43700
SA NT
5.2
5.4
4.521
30
6.012
10
2.7612
0
4.7
3.4
3.3
2.7
040540
50000 48790 46660 40540

50000 41260 38510 33680
(0)(0)
LA S
5.4
3.348
30
2.4275
0
2.1
2.5
08740
033680
(0)(0)
DE MA ND
6300
4880
2130
1210
6120
4830
2750
8580
4460
874 0 (0) (0) ()
50000 6300 (3.2) ()
50000 9460 (2.2) (2.2) (1.7) (1.7) (2.2)
50000 16320 9360 (1.2) (1.2) (1.2) (3) (4.2)
(4.9)
(1.4) (1.9) ()
(1.4) ()
(1.6) ()
(2.7) (2.7)
(1.4) (1.4) ()
(1) (1) ()
(1.8) (1.8) (1.8) ()
(1.8) (1.8) (1.8) ()

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
---
---
---
---
-8580
-4460
---
6300 --
9460 --
9360 6960
6300 ---
----
-2130 --
-1210 --
-6120 --
--4830
--2750
----
----
--8740
43700 ---
-40540 --
--33680
Now, to check for optimality, we apply MODI method.

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
3.5 --
---
----
---
---
---
-0.3
-0.7
---
3.2 --
2.2 --
4.2 1.2
4.2 1.2
0.3
--
--
--
--
--
--
--
--
--
--
--
SANTA FE
LAS VEGAS Vj
---0.7
---0.7
4.5
-2.5
6.0
-4
2.7
-0.7
-3.3 3.3
-2.4 2.4
---0.9
---0.5
-0 0
---1
0
--2
-0 0
2
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
--
--
4.2
SAN BERN ARDIN O

4.7 -3.3
3.4 -2.4
- 3.3 2.1 -0.9
- 2.7 2.5 -0.5
3.9
- -2
- -0
1.2
-5.2 -0.7
2.1 5.4 -0.7
3.1 - 2.5
4.4 - 4
6.0 -5.4 0.7
0 0 -0
- -1
1 2 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
--
--
SAN BERN ARDIN O

-0.6 --
-1 --
- 2.2 3.0
- 1.2 3.0
4.7
-
- --
-3.9
1.8 4.1
-0.4 -
-0.6 -
4.3 -4.7
-1 -2 --
As all Cij is not greater than or equal to zero, thus solution is not optimal. To obtain an optimal solution, we insert in the solution and form a loop.
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOEN IX
LOS ANGEL ES
SAN DIEGO
D1
FT. WORTH
SANTA FE
LAS VEGAS
--
4880
--
--
--
--
--
--
--
--
6300
9460+ --40540 --
9360 6960 ---
SAN BERNA RDINO FT. WORT H SANTA FE
-6300 --
----
--2130
--1210
--6120
----
----
8580 ---
4460 ---
--
-43700 --
LAS VEGAS
--
--
--
--
--
4830
2750
--
--
8740
--
33680 +
Here = 8740

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
---
---
---
---
-8580
-4460
---
6300 --
18200 --
620 6960
6300 ---
----
-2130 --
-1210 --
-6120 --
--4830
--2750
----
----
-8740 --
43700 ---
-31800 --
--42430

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
3.5 --
---
----
---
---
---
-0.3
-0.7
---
3.2 --
2.2 --
4.2 1.2
4.2 1.2
0.3
--
--
--
--
--
--
--
--
--
--
--
SANTA FE
LAS VEGAS Vj
---0.7
---0.7
4.5
-2.5
6.0
-4
2.7
-0.7
-3.3 3.3
-2.4 2.4
---0.9
---0.5
0
--2
---1
0
--2
-0 0
2
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
--
--
4.2
SAN BERN ARDIN O

4.7 -3.3
3.4 -2.4
- 3.3 2.1 -0.9
- 2.7 2.5 -0.5
3.9
- -2
- -0
1.2
-5.2 -0.7
2.1 5.4 -0.7
3.1 - 2.5
4.4 - 4
6.0 -5.4 0.7
0 -0 -2
- -1
1 2 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
--
--
SAN BERN ARDIN O

-0.6 --
-1 --
- 2.2 3.0
- 1.2 3.0
4.7
-
- --
-3.9
1.8 4.1
-0.4 -
-0.6 -
4.3 -4.7
1 -2
DALL AS
EL PASO SAN BERNA RDINO FT. WORT H SANTA FE LAS VEGAS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOEN IX
LOS ANGEL ES
SAN DIEGO
D1
FT. WORTH
SANTA FE
LAS VEGAS
--6300 ---
4880 -----
---2130 --
---1210 --
---6120 --
----4830
--- 2750
-8580 ----
-4460 ----
---8740 --
6300 -43700 ---
18200 + --31800 --
620- 6960 --42420 +
Here = 620

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
---
---
---
---
-8580
-4460
---
6300 --
18820 --
-6960
6300 ---
----
-2130 --
-1210 --
-6120 --
--4830
-620 2130
----
----
-8740 --
43700 ---
-31180 --
--43050

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
3.5 --
---
----
---
---
---
-0.3
-0.7
---
3.2 --
2.2 --
-1.2
3.2 1.2
0.3
--
--
--
--
--
--
--
--
--
--
--
SANTA FE
LAS VEGAS Vj
--0.3
--0.3
4.5
-3.5
6.0
-5
2.7
-1.7
-3.3 3.3
3.4
2.4 2.4
---0.9
---0.5
0
--1
--0
0
--1
-0 0
1
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
--
4.2
3.2
SAN BERN ARDIN O

4.7 -3.3
--2.4
- 3.3 2.1 -0.9
- 2.7 2.5 -0.5
3.9
- -1
- -0
1.2
-5.2 0.3
2.1 5.4 0.3
3.1 - 3.5
4.4 - 5
6.0 -5.4 1.7
0 -0 -1
- 0
0 1 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
--
SAN BERN ARDIN O

0.4 --
---
- 3.2 3.0
- 2.2 3.0
3.7
-
- --
-3.9
1.8 4.1
-0.4 -
-0.6 -
4.3 -4.7
1 -1
DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
-- 1210 - --
---
---
---
-8580
-4460
---
6300+ --
18820 - --
-6960
6300 ---
----
-2130 --
-6120 --
--4830
-620 2130
----
----
-8740 --
43700 - ---
-31180 + --
--43050
Here =1210

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
---
---
---
---
-8580
-4460
---
7510 --
17610 --
-6960
6300 ---
----
-2130 --
1210 ---
-6120 --
--4830
-620 2130
----
----
-8740 --
42490 ---
-32390 --
--43050

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
3.5 --
---
----
---
---
---
-0.3
-0.7
---
3.2 --
2.2 --
-1.2
3.2 1.2
0.3
--
--
4.4
--
--
--
--
--
--
--
--
SANTA FE
LAS VEGAS Vj
--0.3
--0.3
4.5
-3.5
--4.4
2.7
-1.7
-3.3 3.3
3.4
2.4 2.4
---0.9
---0.5
0
--1
--0
0
--1
-0 0
1
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
--
4.2
3.2
SAN BERN ARDIN O

4.7 -3.3
--2.4
- 3.3 2.1 -0.9
- 2.7 2.5 -0.5
3.9
- -1
- -0
1.2
-5.2 0.3
2.1 5.4 0.3
3.1 - 3.5
-6 4.4
6.0 -5.4 1.7
0 -0 -1
- 0
0 1 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
--
SAN BERN ARDIN O

0.4 --
---
- 3.2 3.0
- 2.2 3.0
3.7
-
- --
-3.9
1.8 4.1
-0.4 -
-0.6
4.3 -4.7
1 -1
DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
-- 2130 - --
---
---
---
---
-8580
-4460
---
7510+ --
17610 - --
-6960
6300 ---
----
1210 ---
-6120 --
--4830
-620 2130
----
----
-8740 --
42490 - ---
-32390 + --
--43050
Here =2130

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
---
---
---
---
-8580
-4460
---
9640 --
15480 --
-6960
6300 ---
----
2130 ---
1210 ---
-6120 --
--4830
-620 2130
----
----
-8740 --
40360 ---
-34520 --
--43050

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
---
3.5 --
---
----
---
---
---
-0.3
-0.7
---
3.2 --
2.2 --
-1.2
3.2 1.2
0.3
--
3.1
4.4
--
--
--
--
--
--
--
--
SANTA FE
LAS VEGAS Vj
--0.3
--0.3
--3.1
--4.4
2.7
-1.7
-3.3 3.3
3.4
2.4 2.4
---0.9
---0.5
0
--1
--0
0
--1
-0 0
1
0

DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
Ui
--
--
--
4.2
3.2
SAN BERN ARDIN O

4.7 -3.3
--2.4
- 3.3 2.1 -0.9
- 2.7 2.5 -0.5
3.9
- -1
- -0
1.2
-5.2 0.3
2.1 5.4 0.3
-4.5 3.1
-6 4.4
6.0 -5.4 1.7
0 -0 -1
- 0
0 1 0
Net Evaluation:
DALL AS
EL PASO
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
--
--
--
SAN BERN ARDIN O

0.4 --
---
- 3.2 3.0
- 2.2 3.0
3.7
-
- --
-3.9
1.8 4.1
-0.4
-0.6
4.3 -3.7
1 -1
As all Cij are greater than or equal to zero, thus it is an optimal solution.
Optimal Table:
DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
---
---
---
---
-8580
-4460
---
9640 --
15480 --
-6960
6300 ---
----
2130 ---
1210 ---
-6120 --
--4830
-620 2130
----
----
-8740 --
40360 ---
-34520 --
--43050
DISTRIBUTION SYSYTEM
Dallas Ft. Worth Wichita Kansas City Santa Fe Denver San Antonio
San Bernardino Las Vegas Los Angeles San Diego Salt Lake City
El Paso
Phoenix
Distribution cost from production plant to the distribution centers =9640*3.2+15480*2.2+6960*1.2-8740*2.2 =30848+34056+8352-19228 =$54028 Distribution cost from distribution centers and production plants to the customer zone =6300*0.3+4880*3.5+2130*3.1+1210*4.4+6120*2.7 +4830*3.3+620*3.4+2130*2.4+8580*0.3+4460*0.7 =1890+17080+6603+5324+16524+15939+2108+5112+2574+3122 =$76276 Thus, Total distribution cost =54028+76276 =$130304 Manufacturing cost = 9640*10.5+15480*10.5+6960*10+4880*10.5+ 8580*10+4460*10-8740*10.5 =101220+162540+69600+51240+85800+ 44600=$423230
91770
Thus, Total cost
= $553534
Darby Companys total cost will be reduced to $553,534 which is a savings of $47,408, or 7.9% from the limitation-free distribution system and a savings of $67,236, or 10.8% from the original distribution system. The manufacturing costs are the same as those in Part II, but it is the cost of shipping in this system that reduces the total cost. Darby should definitely adopt this plan of allowing customer zones to be supplied by numerous distribution centers as well as shipping directly the mentioned customer zones.
CHANGES IN COST
PART IV
Over the next five years, Darby is anticipating moderate growth (5000 meters) to the North and West. Would you recommend that they consider plant expansion at this time?
Optimal Solution from Part III:

DALL AS
SAN ANTO NIO
WICH ITA
KANS AS CITY
DENV ER
SALT LAKE CITY
PHOE NIX
LOS ANGEL ES
SAN DIEG O
D1
FT. WORT H
SANTA FE
LAS VEGAS
---
4880 --
---
---
---
---
---
-8580
-4460
---
9640 --
15480 --
-6960
6300 ---
----
2130 ---
1210 ---
-6120 --
--4830
-620 2130
----
----
-8740 --
40360 ---
-34520 --
--43050
El Paso plant is producing 8740 units below their capacity, which could be used to satisfy increased demand. Thus, if the demand is focused in North there is no need to go for plant expansion at this time.
San Bernardino plant is producing at full capacity i.e. 20000 meters.

The plant should only be expanded if the majority of the demand comes from the West where it is cheaper to produce and ship from the San Bernardino plant. The cost of expanding a plant should of course be weighed against the cost of shipping to determine whether it is worth it.
RECOMMENDATIONS
THANK YOU

Darby Company

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CASE ON DISTRIBUTION SYSTEM DESIGN

Cost of production per meter at each production plant:

El Paso San Bernardino

Quarterly production capacity at each production plant:

El Paso San Bernardino

El Paso San Bernardino

Ft. Worth Santa Fe Las Vegas

Shipping cost per unit from Production plants to distribution centers:

Ft. Worth Santa Fe

6.0 2.7 5.4

CURRENT DISTRIBUTION SYSTEM

Ft. Worth El Paso

San Antonio Wichita Kansas City

The Transportation table is as follows:

SAN BERNARDI NO DEMAND

SAN BERNARDI NO DEMAND

Applying Vogels Approximation Method (VAM)

30000 15480 6740

13700 6740 (1.7)

Initial Basic Feasible Solution:

Cost for unoccupied cells:

New Basic Feasible Solution:

Now to check for optimality, we again apply MODI method.

Cost for unoccupied cells:

Thus, Total distribution cost

SAN ANTO NIO

SALT LAKE CITY

4.7 3.3 4830

3.4 2.4 2750

3.3 2.1 8580

2.7 2.5 4460

2.2 3.9 0 50000

4.2 1.2 0 50000

0.3 5.2 6300

2.1 5.4 4880

3.1 4.5 2130

4.4 6.0 1210

6.0 2.7 5.4 6120

50000 50000 50000 200000

Applying Vogels Approximation Method (VAM)

(1)(2)( ) (2.7)(2. 7) (0)

(0)(0)(0 )(2.7)(0 .6)(0.7) (2.7)

(0)(0)(2 .1)(2.1) (0.3)(0. 1)(2.5)( 2.5)

6120 (2.7) (2.7)

4830 (1.4) (1.4) (1.4) (1.4)

2750 (1) (1) (1) (1)

8580 (1.2) (1.2) (1.2) (1.2)

4460 3840 (0.2) (0.2) (0.2) (0.2) (2.5)

8740 (0) (0) (0) (0)

50000 11180 (3.2) ()

50000 31180 (2.2) (2.2) (2.2) ()

50000 30000 (1.2) (1.2) (4.2)

Initial Basic Feasible Solution:

SAN ANTO NIO

SALT LAKE CITY

Cost for occupied cells:

SAN ANTO NIO

SALT LAKE CITY

Cost for unoccupied cells:

SAN ANTO NIO

SALT LAKE CITY

SAN BERN ARDIN O

= 1452010.50+1548010.50+2000010-874010.5 =152460+162540+200000-91770 =$423230 = 177712+423230 =$600942