Logistics Management

Prof. Wei

Warehouse and Location Decisions I

Logistics Management Prof. Wei University at Buffalo Slide 1
 Location Decisions

Logistics Management Prof. Wei University at Buffalo Slide 2

 Location Overview
• What's located?
– Sourcing points
• Plants
• Vendors
• Ports

– Sink points
• Retail outlets
• Customers/Users

– Intermediate points
• Warehouses
• Distribution centers

Logistics Management Prof. Wei University at Buffalo Slide 3

 Nature of Location Analysis
• Sourcing points
– Manufacturing: decisions are driven by economics. Relevant costs such as
transportation, inventory, labor, and taxes are considered to find good
locations.

• Sink points
– Service: decisions are driven by service factors. Response time, accessibility,
and availability are key dimensions for locating in the service industry.
– Retail: decisions are driven by revenue. Traffic flow and resulting revenue are
primary location factors, cost is considered after revenue.
– Competition: Locating to split the market / to capture largest market share

Bo
à
1– b – a 1+ b – a If p
d1 = a + and d 2 = sh
2 2

Logistics Management Prof. Wei University at Buffalo Slide 4

 Location Overview (Cont.)
• The location decision is important:
– Facility requires large investment that can not be recovered.
– Location decisions affect the competitive capacity of the company.
• All areas of the company are affected by locations: Operations, but also Business
Development, Human Resources, Finance, etc.
– Regarding costs, facility location affects a great variety of them:
• Land costs.
• Labor costs.
• Raw materials.
• Transportation and distribution.
– The facility location decisions affect not only costs but the company’s income:
• For a service business, market proximity is critical to determine the capacity to attract
customers and their service level.
• For a manufacturing business, facility location affects product delivery time and level of
customer service, which affects sales.

• How many facilities should there be and what size should they be?

• Where should they be located?

Logistics Management Prof. Wei University at Buffalo Slide 5

 Number of Facilities

¨ There are trade-

offs:
¤ Amazon has high
variety and “low”
response rate
¤ B&N has the
opposite
¨ Big differences in
capacity:
¤ Amazon has 20
facilities with high
capacity
¤ B&N has hundreds
of stores with low
capacity
Logistics Management Prof. Wei University at Buffalo Slide 6
 Number of Facilities
0/17/11 8:03 PM Page 72
FIGURE 4-2 Relationship Between Number of Facilities and Inventory Costs

Number of Facilities (Cont.)

To decrease inventory costs, firms try to consolidate and limit the number of facilities in Chapter 4 • Designing Distribution Networks andNumber
Applications to Onlin
Distribution Networks and Applications to Online Sales of Faciliti
their supply chain network. For example, with fewer facilities, Amazon is able to turn its
inventory about 10 times a year, whereas Barnes & Noble, with hundreds of facilities, achieves FIGURE 4-4 Relationship Between Number of Facilities and Facility Co
Facility Costs Inventory
only about 3 turns per year.
Inbound transportation costs are the costs incurred in bringing material into Costsa facility.
Consolidation
Outbound transportation costs are of
thefacilities
costs of sending material out of a facility. Outbound Facility costs decrease as the number of facilities is reduced, as show
transportation costsallows economies
per unit tend to be of scalethan inbound costs because inbound lotbecause
higher sizes a consolidation of facilities allows a firm to exploit economies of scal
are typically larger. For example, an Amazon warehouse receives full truckload shipments of a property, plant, and equipment turnover
achieved
B&N (PPET) of 19 in 2009, Barn
books on the inbound side, but ships out small packages with only a few books per customer PPET of just over 7.
Total logistics costs are the sum of inventory, transportation, and facility
on the outbound side. Increasing the number of warehouse locations decreases the average Amazon turns its inventory
chain network. As the number of facilities increases, total logistics costs first
outbound distance to the customer and makes outbound transportation distance a smaller
increase as shown in Figure 4-5. 10 Each
timesfirm/ year,
should whereas … the number
have at least
fraction of the total distance traveled by the product. Thus, B&N
as long as inbound transportation
minimizes total logistics costs.B&N Amazon(withhas100’s of facilities)
more than one warehouse prima
economies of scale are maintained, increasing the number of facilities decreases total trans-
portation cost, as shown in Figure 4-3. If the number of facilities is increased to a pointcustomers
where further, it may have turns it 3 times / year to reduce the res
logistics costs (and improve response time). If a firm wants
Amazon Amazon to increase the number of facilities beyon
inbound lot sizes are also very small and result in a significant loss of economies of scale in logistics costs. A firm should add facilities beyond the cost-minim
minimizes
inbound transportation, increasing the number of facilities increases total transportation cost,
if managers are confident that the increase in revenues because of better respon
as shown in Figure 4-3. Number of Facilities than the increase in costs because of Number
the additional facilities.
of Facilities
FIGURE 4-4 Relationship Between Number of Facilities and Facility Costs
FIGURE 4-2 Relationship Between Number of Facilities and Inventory Costs
Transportation Response Time
Facility costs decrease as the number of facilities is reduced, as shown in Figure 4-4,
Cost of facilities allows a firm to exploit economies of scale. While Amazon
ecause a consolidation
chieved a property, plant, and equipment turnover (PPET) of 19 in 2009, Barnes & Noble had a To decrease inventory costs, firms try Balance theandresponse
to consolidate timeofand
limit the number facilities in
PET of just over 7. their supply chain network. For example, total with fewer facilities, Amazon is able to turn its
Total logistics costs are the sum of inventory, transportation, and facility costs for a supply
logistics cost
hain network. As the number of facilities increases, total logistics costs first decrease and then
inventory about 10 times a year, whereas Barnes & Noble, with hundreds of facilities, achieves
ncrease as shown in Figure 4-5. Each firm should Amazon
have at least the number of facilities that only about 3 turns per year.
Total Logistics Cost
minimizes total logistics costs. Amazon has more than one warehouse primarily to reduce its Inbound transportation costs are the costs incurred in bringing material into a facility.
ogistics costs (and improve response time). If a firm wants to reduceB&N the response time to its
Outbound transportation costs are the costs of sending material out of a facility. Outbound
ustomers further, it may have to increase the number of facilities beyond the point that
minimizes logistics costs. A firm should add facilities beyond the cost-minimizing point only transportation costs per unit tend to be higher than inbound costs because inbound lot sizes
managers are confident that the increase in revenues because of better responsiveness is greater are typically larger. For example, an Amazon warehouse receives full truckload shipments of
han the increase in costs because of the additional facilities. books on the inbound side, but ships out small packages with only a few books per customer
on the outbound side. Increasing the number of warehouse locations decreases the average
Response Time FIGUREoutbound distance to the customer and makes outbound transportation distance a smaller
4-3 Relationship FIGURE 4-5 V
fraction
Between of theoftotal
Number distance traveled by the product. Thus, as long as inbound transportation
Facilities Logistics Cost a
Number of Facilities and Transportation Cost Number of Facilities
economies of scale are maintained, increasing the number of facilities decreases total trans- with Number o

Logistics Management portation

Prof. Weicost, as shown in Figure 4-3. If the number of facilities is at
University increased
Buffaloto aSlide
point where
7
inbound lot sizes are also very small and result in a significant loss of economies of scale in
Total Logistics Cost
 Broad Geographic and Site-Specific Locational
Determinants

Global/National/ Site-Specific
Regional Determinants Determinants

Ù Labor climate Ù Transportation access

Ù Availability of workforce and needed § Truck
skill sets § Air
Ù Transportation services and § Rail
infrastructure § Water
Ù Proximity to markets and customers Ù Inside/outside
Ù Quality of life metropolitan area
Ù Taxes and industrial development Ù Land costs and taxes
incentives Ù Utilities
Ù Supplier networks
Ù Land costs and utilities
Ù IT infrastructure
Logistics Management Prof. Wei University at Buffalo Slide 8
 Trends Governing Site Selection

Growing use of
and need for
strategically
located cross-
Greater use of Greater emphasis on
“Customer-direct” docking facilities
access to major airports
delivery from and/or ocean ports for
manufacturing import and export
shipments

Strategic
positioning of
inventories
Greater use of
(fast-moving, Site providers of third-
profitable items party-logistics
vs. slower-moving, Selection
services
less-profitable
items)

Logistics Management Prof. Wei University at Buffalo Slide 9

 The Challenge of Supply Chain Complexity

Logistics Management Prof. Wei University at Buffalo Slide 10

 Types of Modeling Approaches

Designed to find the “best,” or

optimum solution, while
Modeling Approaches
Optimization Models recognizing relevant
constraints.

Designed to develop a
computer representation of
supply chain network &
Simulation Models observe changes as cost
structures, constraints, and
other factors are varied.

Designed to reduce a problem

to a manageable size and
Heuristic Models search automatically through
various alternatives in an
attempt to find a better
solution.

Logistics Management Prof. Wei University at Buffalo Slide 11

 Location by Simulation
• Can include more variables than typical algorithmic methods

• Cost representations can be precise so problem can be more

accurately described than with most algorithmic methods

• Mathematical optimization usually is not guaranteed, although

heuristics can be included to guide solution process toward
satisfactory solutions

• Data requirements can be extensive

• Has limited use in practice

Logistics Management Prof. Wei University at Buffalo Slide 12

 Popular Location Models
• Popular procedures for evaluation location alternatives:

• Continuous location methods

– Center-of-gravity method
– Exact Center-of-gravity method

• Discrete location methods

– Factor rating method
– Load-distance model
– Break-even analysis
– Integer programming based location model

Logistics Management Prof. Wei University at Buffalo Slide 13

 Location Decision

Discrete location methods

Logistics Management Prof. Wei University at Buffalo Slide 14

 Factor Rating Method

• Good where many subjective factors are involved

• Quantifies the comparison among alternate locations

Logistics Management Prof. Wei University at Buffalo Slide 15

 Factor Rating Method (Cont.)
• Retail Location selection example
– contrasts with plant location; revenue rather than cost driven; factors other
than costs such as parking, nearness to competitive outlets, and nearness to
customers are dominant.

Logistics Management Prof. Wei University at Buffalo Slide 16

 Load-Distance Model
• Matrix Manufacturing is considering where to locate its warehouse in order to
service its four Ohio stores located in Cleveland, Cincinnati, Columbus, Dayton.
Two sites are being considered; Mansfield and Springfield, Ohio. Use the load-
distance model to make the decision.
n Calculate the rectilinear distance: ,-. = +* ! )* + '* ! )( = '(&&!"#AB

n Multiply by the number of loads between each site and the four cities
Logistics Management Prof. Wei University at Buffalo Slide 17
 Load-Distance Model (Cont.)
!"#$%CD()*C+,*-".LM1D2C.(3,*43"5,*S"5*4$5D()SD,TL
!DC8 -".L 1D2C.(3, TL
!T,9,T.(L :; <=>; ?=@>;
!"T%#A%2 := B>; B;
!D(3D((.CD :< @>; C=
1.8C"( B ?>; :B
a"C.T *-".LM1D2C.(3,*43"5,bB;c>;d***

!"#$%CD()*C+,*-".LM1D2C.(3,*43"5,*S"5*e.(2SD,TL
!DC8 -".L 1D2C.(3, TL
!T,9,T.(L :; f :<=
!"T%#A%2 := f f=
!D(3D((.CD :< <= <B=
1.8C"( B :c cB
a"C.T **-".LM1D2C.(3,*43"5,b;=Bd*****

The load-distance score for Mansfield is higher than for

Springfield. The warehouse should be located in Springfield.

Logistics Management Prof. Wei University at Buffalo Slide 18

 Break-Even Analysis
• Break-even analysis computes the amount of goods required to be
sold to just cover costs

• Break-even analysis includes fixed and variable costs

• Break-even analysis can be used for location analysis especially

when the costs of each location are known

Step 1: For each location, determine the fixed and variable costs
Step 2: Plot the total costs for each location on one graph
Step 3: Identify ranges for which each location has the lowest total cost
Step 4: Solve algebraically for the break-even points over the identified ranges

Logistics Management Prof. Wei University at Buffalo Slide 19

 Break-Even Analysis (Cont.)
• Clean-Clothes Cleaners is considering four possible sites for its new
operation. They expect to clean 10,000 garments. The table and
graph below are used for the analysis.

!"#ABCDEF*+E,-.L0E12D#34!5DLE6L#CT-.-
UV:#;.VL <."D=E>V-; ?#2.#@CDE>V-; AV;#CE>V-;
6 BCabcbbb BEadebcbbbI Bgbbcbbb
1 BeKbcbbb BiadebcbbbI Bgibcbbb
> Bebbcbbb BgbdebcbbbI Babbcbbb
M Biabcbbb BibdebcbbbI Bgabcbbb

Logistics Management Prof. Wei University at Buffalo Slide 20

 Transportation Model and Network Design Model .

• Recall the transportation models we have discussed in the

Transportation Module:

– The transportation model is typically used to find optimal shipping and

distribution schedules in logistics systems to minimize the total cost.

– The applications of the transportation model can be viewed as tactical

problems, in the sense that the time interval of interest is usually short, say a
week or a month.

– Over that time period, the supply capacities and locations are unlikely to
change at all, and the demands can be predicted with reasonable precision.

Logistics Management Prof. Wei University at Buffalo Slide 21

 Transportation Model and Network Design Model (Cont.)
• Over a longer time frame, a strategic version of the problem arises. In this
setting, the decisions relate to the selection of supply locations as well as
the shipment schedule.

• These decisions are strategic in the sense that, once determined, they
influence the system for a relatively long time interval.

• The basic model for choosing supply locations is called the Network
Design Model.
– Alternatively, it is also directly referred to as the facility location model.
– In Hardgrave Machine Company example (in the Transportation model), we
implicitly discussed the facility location selection problem in which we build
models and evaluate total costs for all possible facility selection choices; then
select the facility choice with the least cost.
– In this session, we will present how to select the optimal facility location over all
choices via a single unified model.

• Network design model is a type of discrete location methods, in which a

pool of facility location candidates is given ex ante.
Logistics Management Prof. Wei University at Buffalo Slide 22
 The Network Design Problem
• Conceptually, we can think of the network design problem as having
two stages.

• In the first stage, decisions must be made about how many

warehouses to open and where they should be.

• Then, once we know where the warehouses are, we can construct a

transportation model to optimize the actual shipments.

• The costs at stake are also of two types: fixed costs associated with
keeping a warehouse open and variable transportation costs
associated with shipments from the open warehouses.

Logistics Management Prof. Wei University at Buffalo Slide 23

 Levinson Foods Company
• Levinson Foods is in the process of expanding its distribution
system. After some planned acquisitions, the company will have ten
distribution centers, with monthly demand volumes (in cartons) as
listed below.

Center Volume Center Volume

Albuquerque (W) 3200 Oklahoma City 3500
Boise 2500 Phoenix (W) 5000
Dallas (W) 6800 Salt Lake City 1800
Denver (W) 4000 San Antonio (W) 7400
Houston (W) 9600 Wichita 2700

• Six of these sites will be able to support warehouses, in terms of the

infrastructure available, and are designated by (W)

Logistics Management Prof. Wei University at Buffalo Slide 24

 Levinson Foods Company (Cont.)
• If Levinson Foods were to open warehouses at these sites, their
potential capacities (in Cartons) and monthly operating costs are
summarized in the following table:

Warehouse Capacity Operating Cost

Albuquerque (W) 16000 $ 140,000
Dallas (W) 20000 $ 150,000
Denver (W) 10000 $ 100,000
Houston (W) 10000 $ 110,000
Phoenix (W) 12000 $ 125,000
San Antonio (W) 10000 $ 120,000

Logistics Management Prof. Wei University at Buffalo Slide 25

 Levinson Foods Company (Cont.)
• The transportation costs from potential warehouses to distribution
centers are given in the following table:

Oklahoma Salt Lake San

Albuquerque Boise Dallas Denver Houston Phoenix Wichita
City City Antonio

Albuquerque 0.0 47.0 32.0 22.0 42.5 27.0 23.0 30.0 36.5 29.5
Dallas 32.0 79.5 0.0 39.0 12.5 10.5 50.0 63.0 13.5 17.0
Denver 21.0 42.0 39.0 0.0 51.5 31.5 40.5 24.0 47.5 26.0
Houston 42.5 91.0 12.5 51.5 0.0 23.0 58.0 72.0 10.0 31.0
Phoenix 23.0 49.0 50.0 40.5 58.0 49.0 0.0 32.5 50.0 52.0
San Antonio 36.5 83.5 13.5 47.5 10.0 24.0 50.0 66.5 0.0 32.0

• Levinson could open warehouses at any of these six designated

locations to minimize total cost, including fixed operating costs and
variable shipment costs.
• If we consider all possibilities to select warehouses and build model
for every possibility, then we will need 64 models in total.

Logistics Management Prof. Wei University at Buffalo Slide 26

 Levinson Foods Company: Decision Variables
• Decision variables:
– Shipping schedule:

𝑥!,# : quantity shipped from warehouse i to distribution center j;

– Warehouse choices:

1; if warehouse 𝑖 is open
𝑦! = #
0; if warehouse 𝑖 is NOT open

Integer (binary) value

Logistics Management Prof. Wei University at Buffalo Slide 27

 Levinson Foods Company: Objective
• Objective:
– Monthly operating costs for warehouses:
• Let’s use 𝑓! to represent monthly operating costs for warehouse i
)
140000 / 𝑦$ + 150000 / 𝑦% + 100000 / 𝑦&
. 𝑓! / 𝑦! =
+110000 / 𝑦' + 125000 / 𝑦( + 120000 / 𝑦)
!.$

– Shipping costs:
• E.g., from Albuquerque to other distribution centers
0𝑥$,$ + 47𝑥$,% + 32𝑥$,& + 22𝑥$,' + 42.5𝑥$,(
+27𝑥$,) + 23𝑥$,* + 30𝑥$,+ + 36.5𝑥$,, + 29.5𝑥$,$-

• Let’s use 𝑐!,# to represent the shipping costs from warehouse i to

distribution center j; so, the total shipping costs can be represented as
) $-

. . 𝑐!,# / 𝑥!,#
!.$ #.$

Logistics Management Prof. Wei University at Buffalo Slide 28

 Levinson Foods Company: Constraints
• Constraints:
– Supply constraints: total shipments out of each warehouse is no larger than
that warehouse’s capacity.
• Let’s use 𝐾! to represent the monthly capacity at warehouse i
#'

= 𝑥!,& ≤ 𝐾! C 𝑦! for 𝑖 = 1,2, … , 6

&"#

Ensure that the shipment 𝑥!,# can be positive

only when warehouse i is open (i.e., 𝑦! = 1)
– Demand constraints: total shipments to each distribution center is no less
than that distribution center’s demand.
• Let’s use 𝐷# to represent the monthly demand at distribution center j
$

= 𝑥!,& ≥ 𝐷& for 𝑗 = 1,2, … , 10

!"#
Logistics Management Prof. Wei University at Buffalo Slide 29
 Levinson Foods Company: Optimization Model

$ $ #'

min = 𝑓! C 𝑦! + = = 𝑐!,& C 𝑥!,&

(/ ,)/,0
!"# !"# &"#

Subject to
#'

= 𝑥!,& ≤ 𝐾! C 𝑦! , for i=1,2,…,6.

&"#
$

= 𝑥!,& ≥ 𝐷& , for j=1,2,…,10.

!"#

𝑦! = 0 or 1 , for i=1,2,…,6.
Binary Constraint
Logistics Management Prof. Wei University at Buffalo Slide 30
 Mixed Integer Programming
• The optimal solution of a linear program may contain fractional
decision variables, even when it does not make sense from a
practical standpoint.
– E.g., open 0.8 warehouse.
– E.g., sending 19.5 products from New York to St. Louis.

• In some cases, this is appropriate, or at least tolerable. In other

cases, however, it may be necessary to ensure that some or all of
the decision variables take on integer values.

• The Mixed Integer Programming (MIP) is a mathematical

optimization in which some or all of the variables are restricted to
be integers.

Logistics Management Prof. Wei University at Buffalo Slide 31

 Mixed Integer Programming (Cont.)
• Can we first solve the Mixed Integer Programming problem by
relaxing the integer constraint and then search the “vicinity” of the
fractional solution?

• Bad news: the optimal integer solution may not reside in the
“vicinity” of the relaxation problem’s fractional solution.

Logistics Management Prof. Wei University at Buffalo Slide 32

 Mixed Integer Programming (Cont.)

Optimal non-integer solution:

𝒙 = 𝟑. 𝟕, 𝒚 = 𝟑. 𝟑
4

2 Optimal integer solution:

𝒙 = 𝟓, 𝒚 = 𝟏

1
Increasing revenue

0 1 2 3 4 5

Logistics Management Prof. Wei University at Buffalo Slide 33

 Mixed Integer Programming (Cont.)
• Good news: Excel Solver allows us to directly designate decision
variables as integer (or binary) values.
– The Excel Solver applies a procedure that may require the solution of a large
number of linear programs, but because Excel Solver can do this quickly and
reliably, it will eventually identify an optimal solution.
– Yet, the time for the Excel Solver to identify an optimal solution can be
intolerably long.
– Balance the time and optimality by specifying the “Integer Optimality (%)”
level

Logistics Management Prof. Wei University at Buffalo Slide 34

 Mixed Integer Programming (Cont.)

• Solving MIP problem can be very time-

consuming so that Excel Solver allows you
to pick an optimality level.
– In the Solver Parameters Window , select
“Options” and then uncheck the “Ignore
Integer Constraints” box.
– If you pick (say) 1%, Excel Solver will stop
looking further when it identifies that the
current solution is not more than 1% far away
from the optimal solution.

Logistics Management Prof. Wei University at Buffalo Slide 35

 Levinson Foods Company: Excel Models & Solutions
• Without the binary constraint, the optimal total cost is $671,033:

• With the binary constraint, the optimal total cost is $884,550:

Logistics Management Prof. Wei University at Buffalo Slide 36

 In Class Exercise

Spencer Shoe Company

Logistics Management Prof. Wei University at Buffalo Slide 37

 Spencer Shoe Company
• The Spencer Shoe Company manufactures a line of inexpensive
shoes in one plant in Pontiac and distributes to five main
distribution centers (Milwaukee, Dayton, Cincinnati, Buffalo, and
Atlanta). To meet increased demand, the company has decided to
build at least one new plant with a capacity of 40,000 pairs per
week to three potential locations: Cincinnati, Dayton, and Atlanta.
Data are given as follows:

Fixed Distribution Costs (per pair) Unit

Plants Capacity
Costs Milwaukee Dayton Cincinnati Buffalo Atlanta cost

Pontiac 7000 0.42 0.36 0.41 0.39 0.50 27000 2.70

Cincinnati 4000 0.46 0.37 0.30 0.42 0.43 40000 2.64
Dayton 6000 0.44 0.30 0.37 0.38 0.45 40000 2.69
Atlanta 7000 0.48 0.45 0.43 0.46 0.27 40000 2.62
Demand 10000 15000 16000 19000 12000

Logistics Management Prof. Wei University at Buffalo Slide 38

 Spencer Shoe Company: Decision Variables
• Decision variables:
– Shipping schedule: for i=1,2,3,4 and j=1,2,3,4,5.

𝑥!,# : quantity shipped from plant i to distribution center j;

– Plant choices: for i=1,2,3,4.

1; if plant 𝑖 is open
𝑦! = #
0; if plant 𝑖 is NOT open

Logistics Management Prof. Wei University at Buffalo Slide 39

 Spencer Shoe Company: Objective Function
• Use 𝑓! to represent monthly fixed operating costs for plant i
*

Plants fixed costs: = 𝑓! C 𝑦!

!"#

• Use 𝑚! to represent production cost for a pair of shoes at plant i

* +

Plants production costs: = 𝑚! C = 𝑥!,&

!"# &"#

• Use 𝑐!,& to represent the shipping costs from plant i to distribution

center j;
* +

Distribution costs: = = 𝑐!,& C 𝑥!,&

!"# &"#

Logistics Management Prof. Wei University at Buffalo Slide 40

 Spencer Shoe Company: Constraints
• Constraints:
– Supply constraints: total shipments out of each plant is no larger than that
plant’s capacity.
• Let’s use 𝐾! to represent the monthly capacity at plant i
+

= 𝑥!,& ≤ 𝐾! C 𝑦! for 𝑖 = 1,2, … , 4

&"#

Ensure that the shipment 𝑥!,# can be positive

only when plant i is open (i.e., 𝑦! = 1)
– Demand constraints: total shipments to each distribution center is no less
than that distribution center’s demand.
• Let’s use 𝐷# to represent the monthly demand at distribution center j
*

= 𝑥!,& ≥ 𝐷& for 𝑗 = 1,2, … , 5

!"#
Logistics Management Prof. Wei University at Buffalo Slide 41
 Spencer Shoe Company: Optimization Model
* * + * +

min = 𝑓! C 𝑦! + = 𝑚! C = 𝑥!,& + = = 𝑐!,& C 𝑥!,&

(/ ,)/,0
!"# !"# &"# !"# &"#

Subject to
+

= 𝑥!,& ≤ 𝐾! C 𝑦! , for i=1,2,…,4.

&"#
+

= 𝑥!,& ≥ 𝐷& , for j=1,2,…,5.

!"#

𝑦! = 0 or 1 , for i=1,2,…,4.

Logistics Management Prof. Wei University at Buffalo Slide 42

 Spencer Shoe Company: Solutions
a. Optimal total cost is 227,210

9:?7;(-+<
S7(-8 !?#ABCD(( )B*+,- .?-/?--B+? MC11B#, O+#B-+B
P,-+?B/ 4 ! ! ! ! !
.?-/?--B+? 5 ! "#$!!! "%$!!! &$!!! !
)B*+,- 4 ! ! ! ! !
O+#B-+B 5 "!$!!! ! ! "!$!!! "'$!!!

b. Optimal total cost is 234,210

S7?89(-+:
;8(-< !?#ABCD(( )B*+,- .?-/?--B+? MC11B#, O+#B-+B
P,-+?B/ 4 ! ! ! ! !
.?-/?--B+? 4 ! "#$!!! "%$!!! &$!!! !
)B*+,- 5 ! ! ! ! !
O+#B-+B 4 "!$!!! ! ! "!$!!! "'$!!!

Logistics Management Prof. Wei University at Buffalo Slide 43