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The Case: Distribution System Design The Darby Company manufactures and distributes meters used to measure electric power consumption.

The Case: Distribution System Design

The Darby Company manufactures and distributes meters used to measure electric power consumption. The company started with a small production plant in El Paso, Texas and gradually built a customer base throughout Texas. A distribution center (DC) was established in Ft. Worth, Texas and later as business expanded to the North, a second distribution center was established in Santa Fe, New Mexico.

The El Paso plant was expanded when the company began marketing its meters in Arizona, California, Nevada and Utah. With the growth of the West Coast business, the Darby Company opened a third distribution center in Las Vegas, Nevada and just two years ago opened a second manufacturing plant in San Bernardino, California.

Manufacturing costs differ between the company’s two production facilities. The cost of each meter produced at the El Paso plant is $10.50. The San Bernardino plant is more efficient and produces meters at $10.00 a unit.

Due to the company’s rapid growth, not much attention has been paid to the efficiency of the distribution system, but Darby’s management has decided that it is time to address this issue. The costs of shipping a meter from each of the plants to each of the three distribution centers is shown in Table 1.

Yearly production capacity is 30,000 units at the El Paso plant and 20,000 units at the San Bernardino plant. Note that no shipments are allowed from the San Bernardino plant to the Ft. Worth distribution center.

The company serves nine customer zones from the three distribution centers. The forecast of the number of meters needed in each customer zone for the following year is given in Table 2.

The Unit costs of shipping from each distribution center to each customer zone is given in Table 3. Note that some of the distribution centers can not serve certain customer zones.

In the current distribution strategy demand at the Dallas, San Antonio, Wichita and Kansas City customer zones is satisfied by shipments from the Ft. Worth DC. In a similar manner the Denver, Salt Lake City and Phoenix customer zones are served by the Santa Fe DC. And the Los Angles and San Diego customer zones are satisfied by the Las Vegas DC. To determine how many units to make at each plant, the customer demand forecasts are aggregated at the distribution centers and a transportation model is used to minimize the costs of shipping from the production plants to the distribution centers.


Table 1

Shipping cost per unit from production facilities to distribution centers

Ft. Worth DC

Santa Fe DC

Las Vegas DC

El Paso Plant

$ 3.20

$ 2.20

$ 4.20

San Bernardino Plant

-

$ 3.90

$ 1.20

Table 2

Yearly demand forecast

Customer Zone

Demand in meters

Dallas

6300

San Antonio

4880

Wichita

2130

Kansas City

1210

Denver

6120

Salt Lake City

4830

Phoenix

2750

Los Angles

8580

San Diego

4460

Table 3

Shipping costs from DC’s to customer zones in dollars ($)

Customer Zone

DC

Dallas

San Antonio

Wichita

Kansas City

Denver

Salt Lake City

Phoenix

Los Angles

San Diego

Ft. Worth

.3

2.1

3.1

4.4

6.0

-

-

-

-

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

Issues the company wants you to address

If the company does not change its distribution strategy what will its manufacturing and distribution costs be for the following quarter?

Suppose the company is willing to change its distribution strategy so that customer zones could be served from any distribution center for which costs are available. Would this reduce total costs? If so by how much? Would you make this change? Please be sure to examine all supply chain implications beyond just direct dollars saved.

The company wants to explore the potential of direct shipping from the plants to certain customer zones. Specifically 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. Should the company do direct shipping? If so on which routes?

In 3 years demand is expected to have increased 30% on average across all customers. At that time the company expects to have saturated the markets they presently serve (in other words additional growth will have to come from new markets). It will cost 3 dollars a unit to increase capacity at the El Paso plant and 4 dollars a unit at the San Bernardino plant. How much capacity, if any, would you add to each plant to satisfy future demand?

Top Answer

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Case Study OR-Distribution System Design.pptx

Operation Research Case Study
on
Distribution System
Design Case Problem
The Darby company manufactures and distribute the
meters used to measure electricity power consumption. It has
it’s...

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