Professional Documents
Culture Documents
Fall 2010
Distribution Network
The current distribution network consists of four full product line plants located at
Covington, KY, New York, NY, Arlington, TX, and Long Beach, CA (see Table 1). The
plants are currently producing product at the level of 595,102 cwt. 1, 390,876 cwt., 249,
662 cwt., and 241,386 cwt.
This output is shipped from plants either to field warehouses in the distribution network
or to customers within the local areas of the plant. In the latter case, plants serve as field
warehouses as well as producing centers. Thus, warehousing takes place at the four plant
locations as well as the six public warehouse locations, all shown in Table 2.
Plant
1
2
3
4
Location
COVINGTON,KY
NEW YORK,NY
ARLINGTON,TX
LONG BEACH,CA
X
2684
1423
4034
7870
Y
6223
4993
8436
9218
Total
Current
Capacity (cwt.)
620,000
430,000
300,000
280,000
1,630,000
Variable
Production
Cost
($/cwt.)
21.0
19.9
21.6
21.1
Current
Production (cwt.)
595,102
392,917
249,662
241,386
1,477,026
Table 1: Plants
Warehouse
Location
1
COVINGTON,KY
2
NEW YORK,NY
3
ARLINGTON,TX
4
LONG BEACH,CA
5
PITTSBURGH,PA
6
ATLANTA,GA
7
CHICAGO,IL
8
KANSAS CITY,KS
9
EL PASO,TX
10
SEATTLE,WA
Table 2: Current Warehouses
X
2684
1423
4034
7870
2185
2083
3426
4203
5655
8896
Y
6223
4993
8436
9218
5621
7260
5986
7027
9231
6336
Except for the plants serving as warehouses, the warehouses are supplied in full truckload
quantities. Less-than-truckload shipments serve customers. Customer order processing
takes place at each warehouse location.
In order to support demand growth over the next five years, two potential plant sites are
being considered at Chicago, Illinois, and Memphis, Tennessee (see Table 3). Additional
warehouse sites are being considered in the locations shown in Table 4.
Plant
Location
5
CHICAGO,IL
6
MEMPHIS,TN
Table 3: Potential Plants
X
3426
3125
Warehouse
Location
11
BOSTON,MA
12
MEMPHIS,TN
13
CLEVELAND,OH
14
DAVENPORT,IA
15
NEW ORLEANS,LA
16
S FRANCISCO,CA
Table 4: Potential Warehouses
Y
5986
7471
X
1249
3125
2543
3817
2638
8719
Variable
Production
Cost ($/cwt)
21.0
20.6
Y
4422
7471
5574
6275
8483
8492
Sales Data
Table 5 shows the six major sales territories, with the five year growth factor. The
company has more than 70,000 individual customer accounts, and these are aggregated
into 191 active demand centers. A demand center is a grouping of zip code areas into a
zip sectional center as the focus of the collected demand. It may be assumed that the
demand for a sales territory is averaged at its centroid. The demand at each of the 192
active demand centers is shown in the file Usemore.xls.
Five-Year
Region
Sales
Growth
Number Territory
Factor
1
Northeast
1.3
2
Southeast
1.45
3
Midwest
1.25
4
Northwest
1.2
5
Southwest
1.15
6
West
1.35
Table 5: Five-Year Growth Factor
Warehouse operating costs refer to the combination of storage and handling costs.
Storage costs are given by:
SC i SRi (26)(11.3Di
0.58
) SRi (293.8 Di
0.58
) , where
HC i HRi ( Di
0.58
) , where
Storage
Warehouse
Rate SR
Number
($/$)
1
.0672
2
.0567
3
.0755
4
.0735
5
.0946
6
.1802
7
.0946
8
.2072
9
.1802
10
.1442
11
.0946
12
.1982
13
.0766
14
.1262
15
.1126
16
.0991
Table 6: Warehousing Rates
Handling
Rate HR
($/cwt.)
0.46
0.54
0.38
0.59
0.50
0.75
0.74
1.14
1.62
1.14
1.04
1.06
1.06
1.22
0.82
0.64
Stock Order
Processing
($/Order)
18
18
18
18
18
18
18
18
18
18
18
18
18
18
18
18
Stock Order
Size
(cwt./Order)
400
400
400
400
401
405
405
405
409
410
409
410
400
423
426
433
Customer
Order
Processing
($/Order)
1.79
1.74
2.71
1.74
0.83
3.21
1.23
1.83
4.83
2.74
3.93
3.18
1.08
1.56
1.20
1.78
Customer
Order Size
(cwt./Order)
9.05
10.92
11.59
11.30
9.31
9.00
8.37
13.46
9.69
8.28
10.20
15.00
9.07
11.72
9.35
8.70
There are no effective capacity limits on public warehousing. On the other hand, a
throughput of at least 10,400 cwt. is needed to open a warehouse. Available space is
limited at the current and potential plant sites to 350,000 cwt.
Transportation Costs
The inbound transportation cost to a warehouse from a plant depends on the volume
shipped and the distance between plant and warehouse:
P-W rate ($/cwt.) = 0.92 + 0.0034 d, where d is the distance between a plant and a
warehouse in miles.
Similarly, a warehouses outbound transport cost to customers is given by:
W-C rate ($/cwt.) = 5.45 + 0.0037 d, where d is the distance between a warehouse and a
plant in miles.
The distance dij in miles between two points i and j is roughly given by:
d ij K ( X i X j ) 2 (Yi Y j ) 2
Inventory Costs
Inventory costs depend on the average inventory maintained at a warehouse. Knowing
that the annual cost-to-carry-inventory rate is approximately 12 percent of the average
product value of $26 per cwt., the total cost to carry inventory at each warehouse is given
by:
IC i (0.12)(26)(11.3Di
0.58
) 35.3Di
0.58
, where
Questions
The answers to the following questions are sought:
1. How many plants and warehouses should be operated assuming the demand in five
years?
2. Where should they be located?
3. Which customers should be assigned to which warehouses?
4. Which warehouses should be assigned to which plants?
5. What is the average length of inbound warehouse flows?
6. What is the average length of outbound warehouse flows?