Case Problem : Distribution System design

Abhishek Saxena PGDMA 1101

Case Overview
Darby Company Product : Electric Power Meter
SN

Production Plant Per unit Production Cost

El Paso San Bernardino $10.50 $10.00

Capacity
30,000 20,000

1. 2.

Distribution Centers :
1. Fort Worth 2. Santa Fe 3. Las Vegas

Per unit Shipping Cost (in $) from Production plant to Distribution centers Plant El Paso Fort Worth 3.20 Santa Fe 2.20 3.90 Las Vegas 4.20 1.20

San -----Bernardino

 No shipments are allowed from the San Bernardino to Fort Worth

Quarterly Demand Forecast

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

Shipping Cost ($)

Customer Zones (Distribution Centres)

Fort Worth

Santa Fe 5.2 5.4 4.5 6.0 2.7 4.7 3.4 3.3 2.7

Las Vegas --------5.4 3.3 2.4 2.1 2.5

Dallas 0.3 San Antonio 2.1 Wichita Kansas City Denver Salt Lake City Phoenix Los Angeles San Diego 3.1 4.4 6.0 ---------

 In current distribution system, demand at the Dallas, San Antonio, Wichita, and Kansas City customer zones is satisfied by shipments from the Fort Worth. In same way, the Denver, Salt Lake City and Phoenix customer zones are served by Santa Fe and the Los Angeles and San Diego customer zones are served by the Las Vegas distribution centre.

6. Dallas 3. Ft. Worth 1. El Paso 30,000 4. Santa Fe 2.1 7. San Antonio 8. Wichita

6300 4880 2130

9. Kansas City 10. Denver 11. Salt Lake City 12. Phoenix

1210

6120

2. San Bernar dino 20,000 5. Las Vegas 2.1

4830

2750 8580 4460

13. Los Angeles 14. San Diego

Decision variables
X(1,3) X(1,4) X(1,5) X(2,4) X(2,5) X(3,6) X(3,7) X(3,8) X(3,9) Shipping Cost from 1 to 3 Shipping Cost from 1 to 4 Shipping Cost from 1 to 5 Shipping Cost from 2 to 4 Shipping Cost from 2 to 5 Shipping Cost from 3 to 6 Shipping Cost from 3 to 7 Shipping Cost from 3 to 8 Shipping Cost from 3 to 9

Decision variables
X(4,10) X(4,11) X(4,12) X(5,13) X(5,14) Shipping Cost from 4 to 10 Shipping Cost from 4 to 11 Shipping Cost from 4 to 12 Shipping Cost from 5 to 13 Shipping Cost from 5 to 14

Constraints
X(1,3) + X(1,4) + X(1,5) <=30000 X(2,4) + X(2,5) <= 20000

Supply

X(1,3) -- X(3,6) -- X(3,7) -- X(3,8) -- X(3,9) = 0 X(1,4) + X(2,4) -- X(4,10)-- X(4,11)-- X(4,12) = 0 X(1,5) + X(2,5) -- X(5,13) -- X(5,14) = 0

Shipment

Constraints
X(3,6) = 6300 X(3,7) = 4880 X(3,8) = 2130 X(3,9) = 1210 X(4,10) = 6120 X(4,11) = 4830 X(4,12) = 2750 X(5,13) = 8580 X(5,14) = 4460

Demand

Question .01
If the company does not change its current distribution strategy, what will its costs for the following quarter ?
Objective : To minimize the total cost of shipping

Min. Z = sum product(shipping cost, Units shipped)

Question .02
Suppose that the company is willing to consider dropping the distribution center limitations: that is, customers would be served by any of the following distribution centers which costs are available. Can costs be reduced? By how much?

6. Dallas 3. Ft. Worth 1. El Paso 30,000 4.2 4. Santa Fe 6.0 2.1 7. San Antonio 8. Wichita 9. Kansas City 10.Denver 11.Salt Lake City 12. Phoenix 13. Los Angeles 5. Las Vegas 14. San Diego

6300 4880 2130 1210 6120 4830 2750 8580

2. San Bernar dino 20,000

4460

Constraints
X(3,6) + X(4,6) = 6300 X(3,7) + X(4,7) = 4880 X(3,8) + X(4,8) = 2130 X(3,9) + X(4,9) = 1210 X(3,10) + X(4,10)+X(5,10) = 6120 X(4,11) + X(4,11) = 4830 X(4,12) + X(4,12) = 2750 X(4,13) + X(5,13) = 8580 X(4,14) + X(5,14) = 4460
Distribution Design System.xlsx

Supply

 With the current system of assigning customers to distribution centres, the minimum total cost is $620,770.  Allowing customers to be serviced by any distribution centre reduces total cost to $600,942.This is a 3.19% decrease in total cost.

Question .03
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 .30 per unit from San Bernardino to Los Angeles and $.70 from San Bernardino to San Diego. The cost for direct shipments from El Paso to San Antonio is $3.50 per unit. Can distribution costs be further reduced by considering these direct plant-to-customer shipments?

6. Dallas 3. Ft. Worth 3.5 1. El Paso 30,000 4. Santa Fe

6300 4880 2130 1210 6120 4830 2750 8580 4460

7. San Antonio 8. Wichita 9. Kansas City 10.Denver

2. San Bernar dino 20,000

5. Las Vegas

11.Salt Lake City 12. Phoenix 13. Los Angeles 14. San Diego

Constraints
X(1,3) + X(1,4) + X(1,5) + X(1,7) <= 30000 X(2,4) + X(2,5) +X(2,13)+X(2,14) <= 20000

Supply

X(3,7) + X(4,7) + X(1,7) = 4880 X(4,13) + X(5,13) +X(2,13) = 8580 X(4,14) + X(5,14) +X(2,14) = 4460
Distribution Design System.xlsx

Demand

Question .04
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?

Name

Final Value
21260

Shadow price
0

Constraint Allowable Allowable Decrease R.H. side Increase

30000 1 E + 30 8740

El paso shipment San Berner dino net shipment

20000

-2.5

20000

620

2130

The dual price from problem 3 output indicates that each unit of added capacity will reduce distribution costs by $2.50. However, the range of feasibility shows this dual price is only applicable for the net 620 units of capacity. So Plant expansion for San Bernardino are recommended. By producing 620 units the total cost will be reduced by $1550 (620 * $2.5)

Thank you !