25/01/2025

RECAP: FUNCTIONAL VS. INNOVATIVE PRODUCTS

❖ Functional Products
SUPPLY CHAIN ANALYTICS ❖ Functional products are items that are bought regularly
MBA & MBAA TERM-VI and are considered staples.
(2024-25) ❖ They are widely available in retail outlets, such as,
grocery and convenient stores and have a predictable
demand, long life cycle due to their stability, although,
competition is high resulting in low profit margins.
SESSION 3-4
PRESCRIPTIVE ANALYTICS: SUPPLY CHAIN DESIGN
❖ Innovative Products
(DISTRIBUTION NETWORK DESIGN)
❖ Innovative products are new products to the market that
offer something different.
❖ These types of products can have a high profit margin,
Dr. Devendra Kumar Pathak although they also have unpredictable demand
(M.Tech. & Ph.D., IIT Delhi)
patterns and require a entirely different supply chain to
Assistant Professor, fundamental products. 2
Operations Management & Decision Sciences,
Indian Institute of Management (IIM) Kashipur

1 2

RECAP: PHYSICALLY EFFICIENT VS. MARKET RESPONSIVE PROCESS

Recap: WHAT KIND OF A DECISION MAKER ARE YOU?
❖ Market Responsive Process
 Q3) Suppose there is a rare disease found in a half
❖ It responds quickly to unpredictable demand patterns and percent of population (0.5%). A certain clinical blood
can be used when supplying innovative products. test is 95% accurate. If the test result is positive,
❖ Market mediation costs are the main concern for these please estimate the chance that there is actually a
products. disease? 15--95%,
❖ These costs are associated with the imbalance of demand 5—50%,
and supply. Examples include product price markdowns to 4—20%
compensate for excess supply, and lost sales when demand
exceeds supply.  Q3) Suppose there is a rare disease. A certain clinical
❖ Reacting quickly to early sales figures and market blood test is 95% accurate. If the test result is
shares is the key to a successful supply chain in this positive, please estimate the chance that there is
situation. actually a disease? 19--95%,
5—40%,
3 4—90% 4

Incident rate not given

3 4

1
 25/01/2025

RECAP: MACHINE LEARNING OBJECTIVES & TECHNIQUES BUSINESS ANALYTICS

Reduced Cost, Shadow Price,
Sensitivity Analysis (ROO, ROF)

5 6

5 6

MATHEMATICAL MODEL: KEY TERMINOLOGIES (RECAP) MATHEMATICAL MODEL: KEY TERMINOLOGIES (RECAP)
 Linear programming is a problem-solving approach
Decision variable – developed for situations involving maximizing or
A decision variable is a quantity that the decision-maker minimizing a linear function subject to linear constraints.
controls and would like to determine for the stated problem.
These are the unknowns of a mathematical programming model.  A feasible solution
 does not violate constraints is called feasible solution.
Objective Function – a mathematical expression that describes
the problem’s objective, such as maximizing profit or  An optimal solution is a feasible solution that results in the
minimizing cost largest possible objective function value when
maximizing (or smallest when minimizing).
Constraints – a set of restrictions or limitations, such as
production capacities  Infeasible Solution: Any solution that violates at least
one constraint is called infeasible solution.
Parameters -numerical coefficients and constants used in the
objective function and constraints. 7
 Binding Constraints:
8

 Limiting constraint (completely utilized)

7 8

2
 25/01/2025

PROBLEM FORMULATION STEPS PRODUCT MIX PROBLEM

Pottery Company

10 11

10 11

EXAMPLE: PRODUCT MIX PROBLEM EXAMPLE: PRODUCT MIX PROBLEM-- FORMULATION

 Step 1. Define the decision variables

 How many bowls and mugs to produce

 Step 2. Define the objective function

 Maximize profit

 Step 3. Define the constraints

 The resources (clay and labor) available

Given these limited resources, the
company desires to know how many12 13
bowls and mugs to produce each day to
maximize profit.

12 13

3
 25/01/2025

EXAMPLE: PRODUCT MIX PROBLEM RECAP: SLACK VARIABLE (FOR ≤ CONSTRAINTS)

Example 1 in Standard Form

Max 5x1 + 7x2 + 0s1 + 0s2 + 0s3

s.t. x1 + s1 = 6
2x1 + 3x2 + s2 = 19
x1 + x2 + s3 = 8

x1, x2 , s1 , s2 , s3 > 0
Max 5x1 + 7x2
s.t. s1 , s2 , and s3
x1 <= 6 are slack variables
2x1 + 3x2 <= 19
14 x1 + x2 <= 8 15
x1 >= 0
x2 >= 0

14 15

RECAP: SURPLUS VARIABLES (FOR ≥ CONSTRAINTS) LINGO

Example 2 in Standard Form

Min 5x1 + 2x2 + 0s1 + 0s2 + 0s3

s.t. 2x1 + 5x2 - s1 = 10

4x1 - x2 - s2 = 12
Surplus Variables
x1 + x2 - s3 = 4

x 1, x 2, s 1, s 2, s 3 > 0

Min 5x1 + 2x2

s1 , s2 , and s3 are
s.t. 2x1 + 5x2 >= 10
surplus variables
4x1 - x2 > 12
x1 + x2 > 4 16 17
Surplus represents the excess LINGO
x1 > 0 amount over & above the required
x2 > 0 minimum level (https://www.lindo.com/lindoforms/downlingo.html)

16 17

4
 25/01/2025

LINGO LINGO

18 19

18 19

LINGO: PRODUCT MIX-- TERMINOLOGY EXAMPLE 1: LINGO SOLUTION - TERMINOLOGY

Max 5x1 + 7x2

s.t.
x1 <= 6
2x1 + 3x2 <= 19
x1 + x2 <= 8
x1 >= 0
x2 >= 0

20 21

20 21

5
 25/01/2025

RECAP: REDUCED COST EXAMPLE 1: LINGO SOLUTION

Reduced Costs
 The reduced cost for a decision variable whose value
is 0 in the optimal solution is:
 It is the amount by which objective function
coefficient of a DV should improve (increase for
maximization problems, decrease for minimization
problems) before this DV can be a part of optimal
solution.

Max 5x1 + 7x2

 The reduced cost for a decision variable whose s.t. x1 < 6

value is > 0 in the optimal solution is 0. 2x1 + 3x2 < 19

x1 + x2 < 8
x1 > 0 and x2 >0

22 23

22 23

EXAMPLE: LINGO SOLUTION EXAMPLE: LINGO SOLUTION

Max 42D1 + 87D2

s.t.
3D1 + 6D2  480 Line 1 Capacity Max 43.5D1 + 87D2
24 25
4D1 + 2D2  480 Line 2 Capacity s.t.
3D1 + 6D2  480 Line 1 Capacity
4D1 + 2D2  480 Line 2 Capacity

24 25

6
 25/01/2025

REDUCED COST: EXAMPLE REDUCED COST: EXAMPLE

Max 42D1 + 87D2

s.t.
Max 42D1 + 87D2
3D1 + 6D2  480 Line 1 Capacity
s.t.
4D1 + 2D2  480 Line 2 Capacity
3D1 + 6D2  480 Line 1 Capacity
4D1 + 2D2  480 Line 2 Capacity

26 27

REDUCED COST: EXAMPLE RECAP: INTRODUCTION TO SENSITIVITY ANALYSIS

Max 42D1 + 87D2

s.t.
3D1 + 6D2  480 Line 1 Capacity 29
4D1 + 2D2  480 Line 2 Capacity

28 29

7
 25/01/2025

RECAP: INTRODUCTION TO SENSITIVITY ANALYSIS RECAP: OBJECTIVE FUNCTION COEFFICIENTS

 Sensitivity analysis (or post-optimality  Let us consider how changes in the objective
analysis) is used to determine how the optimal function coefficients might affect the optimal
solution is affected by changes, within specified solution.
ranges, in:
 the objective function coefficients  The range of optimality:
 the right-hand side (RHS) values in constraints
 for each coefficient provides the range of
values over which the current solution will
 Sensitivity analysis is important to a manager who remain optimal.
must operate in a dynamic environment with
imprecise estimates of the coefficients.
 Managers should focus on those objective
coefficients that have a narrow range of optimality
 Sensitivity analysis allows a manager to ask certain and coefficients near the endpoints of the range.
what-if questions about the problem. 30 31

30 31

EXAMPLE 1- EXAMPLE 1-

 LP Formulation

Max 5x1 + 7x2

s.t. x1 < 6
2x1 + 3x2 < 19
x1 + x2 < 8

x1 , x2 > 0

32 33

32 33

8
 25/01/2025

EXAMPLE 1 EXAMPLE 1 Max 5x1 + 7x2

Range of Optimality for c1 and c2 s.t. x1 < 6
2x1 + 3x2 < 19
x1 + x2 < 8
x1, x2 > 0
Variable Cells
Model Final Reduced Objective Allowable Allowable
Range Report Variable Name Value Cost Coefficient Increase Decrease
X1 X1 5.000 0.000 5.000 2.000 0.333
X2 X2 3.000 0.000 7.000 0.500 2.000

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.000 0.000 6.000 1E+30 1.000
2 2 19.000 2.000 19.000 5.000 1.000
3 3 8.000 1.000 8.000 0.333 1.667

34 35
If the profit margin for Product 1 is increased to 6.5 per unit,
would the optimal solution change? And what about OFV?

34 35

RECAP: RIGHT-HAND SIDES (ROF) EXAMPLE 1

 Shadow Prices
 Let us consider how a change in the right-hand side
for a constraint might affect the feasible region
and perhaps cause a change in the OFV. Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
 Shadow Price: X1 X1 5.000 0.000 5.000 2.000 0.333
X2 X2 3.000 0.000 7.000 0.500 2.000
 It is the marginal value of a resource by which the
OFV will improve (for a positive shadow price) when Constraints
increasing the RHS of constraint by 1 unit. Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.000 0.000 6.000 1E+30 1.000
 The range of feasibility: 2 2 19.000 2.000 19.000 5.000 1.000
3 3 8.000 1.000 8.000 0.333 1.667
 is the range over which the shadow price is
Max 5x1 + 7x2
applicable. s.t. x1 < 6
36 37
2x1 + 3x2 < 19
x1 + x2 < 8
x1, x2 > 0

36 37

9
 25/01/2025

RECAP: RANGE OF FEASIBILITY EXAMPLE 1

 Range of Feasibility
 The range of feasibility for a change in the right
hand side value is the range of values for this
coefficient in which the original dual price Variable Cells
Model Final Reduced Objective Allowable Allowable
remains constant. Variable Name Value Cost Coefficient Increase Decrease
X1 X1 5.000 0.000 5.000 2.000 0.333
X2 X2 3.000 0.000 7.000 0.500 2.000

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.000 0.000 6.000 1E+30 1.000
2 2 19.000 2.000 19.000 5.000 1.000
3 3 8.000 1.000 8.000 0.333 1.667
Max 5x1 + 7x2
s.t. x1 < 6
If the capacity of Constraint 2 is
38
2x1 + 3x2 < 19
increased to 22, can you 39

x1 + x2 < 8 compute the revised OFV? If yes,

x1, x2 > 0 what will be the revised OFV?

38 39

EXAMPLE 1

SUPPLY CHAIN DESIGN:

DISTRIBUTION NETWORK

40 41

40 41

10
 25/01/2025

DND PROBLEM DND PROBLEM

D.V. ?
 Network Representation
Linear Programming Formulation

c36 Using the notation:

3
c13 xij = number of units shipped from node i to node j
s1 1 c37 6 d1
c14 cij = cost per unit of shipping from node i to node j
c15 c46 si = supply at origin node i
Supply 4 c47 Demand dj = demand at destination node j
c23
continued
c24 c56
s2 2 7 d2
c25
5 c57
Sources Destinations
Intermediate Nodes
42 43

42 43

DND PROBLEM

Linear Programming Formulation (continued)

Min ෍ 𝑐𝑖𝑗 𝑥𝑖𝑗

all arcs

s.t. ෍ 𝑥𝑖𝑗 ≤ 𝑠𝑖 Origin nodes i

arcs out

෍ 𝑥𝑖𝑗 − ෍ 𝑥𝑖𝑗 = 0 Transshipment nodes

arcs out arcs in

෍ 𝑥𝑖𝑗 = 𝑑𝑗 Destination nodes j

arcs in

xij > 0 for all i and j continued

44 45

Destination demands should be completely satisfied.

44 45

11
 25/01/2025

DND PROBLEM SUPPLY CHAIN DESIGN: DISTRIBUTION NETWORK

D.V. ? CASE PROBLEM
 Network Representation
 The Darby Company manufactures and distributes
c36 electric meters used to measure electric power
3 consumption. The company started with a small
c13 production plant in El Paso and gradually built a
c37
s1 1 c14 6 d1 customer base throughout Texas. A distribution center
c15 c46 was established in Fort Worth, Texas, and later, as
Supply Demand business expanded, a second distribution center was
4 c47
established in Santa Fe, New Mexico.
c23
 The El Paso plant was expanded when the company
c24 c56 began marketing its meters in Arizona, California,
s2 2 7 d2
c25 Nevada, and Utah. With the further growth of the
Sources
5 c57
Destinations business, the Darby Company opened a third
distribution center in Las Vegas and just two years
Intermediate Nodes ago opened a second production plant in San
46 47
Bernardino, California.

46 47

SUPPLY CHAIN DESIGN: DISTRIBUTION NETWORK SUPPLY CHAIN DESIGN

CASE PROBLEM CASE PROBLEM
The quarterly production capacity is 30,000 meters at the older
 Manufacturing costs differ between the company’s El Paso plant and 20,000 meters at the San Bernardino plant.
Note that no shipments are allowed from the San Bernardino plant to
production plants. The cost of each meter produced at
the Fort Worth distribution center.
the El Paso plant is $10.50. The San Bernardino The company serves nine customer zones from the three distribution
plant utilizes newer and more efficient equipment; as centers. The forecast of the number of meters needed in each customer
a result, manufacturing costs are $0.50 per meter zone for the next quarter is shown in the next slide.
less than at the El Paso plant.

 Due to the company’s rapid growth, not much

attention had been paid to the efficiency of its
supply chain, but Darby’s management decided that
it is time to address this issue. The cost of shipping
a meter from each of the two plants to each of the
three distribution centers is shown in the next slide. 48 49

48 49

12
 25/01/2025

SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN

CASE PROBLEM CASE PROBLEM

50 51

50 51

SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN

CASE PROBLEM REPORT REQUIRED
You need to make recommendations for improving Darby Company’s
The cost per unit of shipping from each distribution center to each
supply chain. Your report should address the following issues:
customer zone is given in the last Table; note that some distribution
centers cannot serve certain customer zones. These are indicated by 1. If the company does not change its current supply chain, what will
a dash, “—”. its total costs be for the following quarter?
2. Suppose that the company is willing to consider dropping the
In its current supply chain, demand at the Dallas, San distribution center limitations; that is, customers could be served by
Antonio, Wichita, and Kansas City customer zones is satisfied any of the distribution centers for which costs are available. Can costs
by shipments from the Fort Worth distribution center. In a be reduced? If so, by how much?
similar manner, the Denver, Salt Lake City, and Phoenix 3. The company wants to explore the possibility of satisfying some of the
customer zones are served by the Santa Fe distribution customer demand directly from the production plants. In particular, the
center, and the Los Angeles and San Diego customer zones shipping cost is $0.30 per unit from San Bernardino to Los
are served by the Las Vegas distribution center. Angeles and $0.70 from San Bernardino to San Diego. The cost
for direct shipments from El Paso to San Antonio is $3.50 per
To determine how many units to ship from each plant to unit. Can distribution costs be further reduced by considering these
minimize the total cost. direct plant-to-customer shipments?
(production & shipping cost) 52 4. Over the next five years, Darby is anticipating moderate growth (500053
meters) to the north and west. Would you recommend that Darby
consider plant expansion at this time?

52 53

13
 25/01/2025

SUPPLY CHAIN DESIGN

SOLUTION: NETWORK MODEL PART 1

SUPPLY CHAIN DESIGN

Steps

54 55

DV & OF??

54 55

SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN: PART 1

LP MODEL & SOLUTION FOR PART 1
Min 13.7EPFW + 12.7EPSF + 14.7EPLV + 13.9SBSF + 11.2SBLV + .3FWDA +
2.1FWSA + 3.1FWWI + 4.4FWKC + 2.7SFDE + 4.7SFSL + 3.4SFPH +
2.1LVLA + 2.5LVSD
Subject To
EPFW + EPSF + EPLV <= 30000
SBSF + SBLV <= 20000
FWDA + FWSA + FWWI + FWKC - EPFW = 0
SFDE + SFSL + SFPH - EPSF - SBSF = 0
LVLA + LVSD - EPLV - SBLV = 0
FWDA = 6300, FWSA = 4880, FWWI = 2130
FWKC = 1210, SFDE = 6120, SFSL = 4830
SFPH = 2750, LVLA = 8580, LVSD = 4460
EPFW >= 0, EPSF >= 0, EPLV >= 0, SBSF >= 0, SBLV >= 0, FWDA >= 0,
In order to utilize route
FWSA >= 0 FWWI >= 0 FWKC >= 0 SFDE >= 0 SFSL >= 0 SFPH >= 0 LVLA
>= 0 LVSD >= 0 EPLV for shipping, what will
57 58
be your recommendation?

57 58

14
 25/01/2025

SUPPLY CHAIN DESIGN: PART 1 SUPPLY CHAIN DESIGN: PART 1

Which constraints
are non-binding
constraints?

59 60

59 60

SUPPLY CHAIN DESIGN: PART 1 SUPPLY CHAIN DESIGN: PART 1

61 62

61 62

15
 25/01/2025

SUPPLY CHAIN DESIGN: PART 1 SUPPLY CHAIN DESIGN: PART 1

63 64

63 64

SUPPLY CHAIN DESIGN: PART 1 SUPPLY CHAIN DESIGN: PART 1

If the cost for the route

SBLV was increased
to 14.2 per unit, would
the optimal solution
change? And what about
OFV?

65 66

65 66

16
 25/01/2025

SUPPLY CHAIN DESIGN: PART 1 SUPPLY CHAIN DESIGN: PART 1

67 68

67 68

SUPPLY CHAIN DESIGN: PART 1 SUPPLY CHAIN DESIGN: PART 1

If the cost for

the route
SBLV was
increased to
14.2 per unit,
would the
optimal solution 69 70
change? And
what about
OFV?

69 70

17
 25/01/2025

SUPPLY CHAIN DESIGN: PART 1 SUPPLY CHAIN DESIGN: PART 1

Min 13.7EPFW + 12.7EPSF + 14.7EPLV + 13.9SBSF + 11.2SBLV + .3FWDA +
2.1FWSA + 3.1FWWI + 4.4FWKC + 2.7SFDE + 4.7SFSL + 3.4SFPH + 2.1LVLA + 2.5LVSD
Subject To
EPFW + EPSF + EPLV <= 30000
SBSF + SBLV <= 20000
FWDA + FWSA + FWWI + FWKC - EPFW = 0
SFDE + SFSL + SFPH - EPSF - SBSF = 0
LVLA + LVSD - EPLV - SBLV = 0
FWDA = 6300
FWSA = 4880
FWWI = 2130
FWKC = 1210
SFDE = 6120
SFSL = 4830
SFPH = 2750
LVLA = 8580
LVSD = 4460
EPFW >= 0
EPSF >= 0
EPLV >= 0
SBSF >= 0
SBLV >= 0
FWDA >= 0
FWSA >= 0
FWWI >= 0
FWKC >= 0
FWDE >= 0
SFDA >= 0
SFSA >= 0
SFWI >= 0
SFKC >= 0
SFDE >= 0
SFSL >= 0
SFPH >= 0
SFLA >= 0
SFSD >= 0
71 LVDE >= 0 72
LVSL >= 0
LVPH >= 0
LVLA >= 0
LVSD >= 0

71 72

PART 2 SUPPLY CHAIN DESIGN

SOLUTION: NETWORK MODEL PART 2
REPORT REQUIRED

2. Suppose that the company is willing to consider dropping

the distribution center limitations; that is, customers could be
73 74
served by any of the distribution centers for which costs are
available. Can costs be reduced? If so, by how much?

73 74

18
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SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN: PART 2

LP MODEL & SOLUTION FOR PART 2
Min 13.7EPFW + 12.7EPSF + 14.7EPLV + 13.9SBSF + 11.2SBLV +
.3FWDA + 2.1FWSA + 3.1FWWI + 4.4FWKC + 6.0FWDE + 5.2SFDA +
5.4SFSA + 4.5SFWI + 6.0SFKC + 2.7SFDE + 4.7SFSL + 3.4SFPH +
3.3SFLA + 2.7SFSD + 5.4LVDE + 3.3LVSL + 2.4LVPH + 2.1LVLA +
2.5LVSD
Subject To
EPFW + EPSF + EPLV <= 30000
SBSF + SBLV <= 20000
FWDA + FWSA + FWWI + FWKC + FWDE - EPFW = 0
SFDA + SFSA + SFWI + SFKC + SFDE + SFSL + SFPH + SFLA +
SFSD - EPSF - SBSF = 0
LVDE + LVSL + LVPH + LVLA + LVSD - EPLV - SBLV = 0
FWDA + SFDA = 6300
FWSA + SFSA = 4880
FWWI + SFWI = 2130
FWKC + SFKC = 1210
FWDE + SFDE+ LVDE = 6120
SFSL + LVSL = 4830 75 76
SFPH + LVPH = 2750
SFLA + LVLA = 8580
SFSD + LVSD = 4460, EPFW >= 0, ……

75 76

SUPPLY CHAIN DESIGN: PART 2 SUPPLY CHAIN DESIGN: PART 2

If demand is increased to 6310, can
you compute the revised OFV?

Cost Reduction ??

77 78

77 78

19
 25/01/2025

SUPPLY CHAIN DESIGN: PART 2 SUPPLY CHAIN DESIGN: PART 2

79 80

79 80

SUPPLY CHAIN DESIGN: PART 2 SUPPLY CHAIN DESIGN: PART 2

81 82

81 82

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SUPPLY CHAIN DESIGN

REPORT REQUIRED
You need to make recommendations for improving Darby Company’s
supply chain. Your report should address the following issues:

1. If the company does not change its current supply chain, what will
its total costs be for the following quarter?
2. 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? If so, by how much?
3. 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
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?
83 4. Over the next five years, Darby is anticipating moderate growth (500084
meters) to the north and west. Would you recommend that Darby
consider plant expansion at this time?

83 84

SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN: PART 2

SOLUTION: NETWORK MODEL PART 1

85 86

DV & OF??

85 86

21
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SUPPLY CHAIN DESIGN: PART 3 SUPPLY CHAIN DESIGN

SOLUTION: NETWORK MODEL PART 3
REPORT REQUIRED

3. The company wants to explore the possibility of satisfying

some of the customer demand directly from the production $3.50
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 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?

87 $0.30 88

OF? $0.70

87 88

SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN: PART 3

LP MODEL AND SOLUTION FOR PART 3 (PLANT-CUSTOMER SHIPMENTS)

Cost Reduction ??

89 90

89 90

22
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SUPPLY CHAIN DESIGN: PART 4 SUPPLY CHAIN DESIGN: PART 4

REPORT REQUIRED REPORT REQUIRED
4. Over the next five years, Darby is anticipating
moderate growth (5000 electric meters) to the north and
west regions. Would you recommend that Darby consider
plant expansion at this time?

Plant Expansion?

91 92

91 92

SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN

LP MODEL
LP SOLUTION
AND S
ODEL AND PART
FOR P
OLUTION FOR 3 (P
ART 3 (PLANT -CUSTOMER
LANT-C SHIPMENTS
USTOMER S HIPMENTS)) LP M
LP MODEL SOLUTION
AND S
ODEL AND PART
FOR P
OLUTION FOR 3 (P
ART 3 (PLANT -CUSTOMER
LANT-C SHIPMENTS
USTOMER S HIPMENTS))

Plant Expansion? If demand growth

is 9000, is
Plant Expansion
required?

If expansion is required,
93 Plant EP or SB? 94

93 94

23
 25/01/2025

Min 13.7EPFW + 12.7EPSF + 14.7EPLV + 13.9SBSF + 11.2SBLV +

SUPPLY CHAIN DESIGN .3FWDA + 2.1FWSA +
LP MODEL AND SOLUTION FOR PART 3 (PLANT-CUSTOMER SHIPMENTS) 3.1FWWI + 4.4FWKC + 6.0FWDE + 5.2SFDA + 5.4SFSA + 4.5SFWI +
6.0SFKC + 2.7SFDE + 4.7SFSL + 3.4SFPH + 3.3SFLA +
2.7SFSD + 5.4LVDE + 3.3LVSL + 2.4LVPH + 2.1LVLA + 2.5LVSD +
Plant Expansion? 10.3SBLA + 10.7SBSD + 14EPSA

Subject To
EPFW + EPSF + EPLV + EPSA <= 30000
SBSF + SBLV + SBLA + SBSD <= 20000
FWDA + FWSA + FWWI + FWKC + FWDE - EPFW = 0
If expansion is required, SFDA + SFSA + SFWI + SFKC + SFDE + SFSL + SFPH + SFLA
+ SFSD - EPSF - SBSF = 0
Plant EP or SB?
LVDE + LVSL + LVPH + LVLA + LVSD - EPLV - SBLV = 0
FWDA + SFDA = 6300
FWSA + SFSA + EPSA = 4880
FWWI + SFWI = 2130
FWKC + SFKC = 1210
FWDE + SFDE+ LVDE = 6120
SFSL + LVSL = 4830
If demand growth is 10000, SFPH + LVPH = 2750
is 95 SFLA + LVLA + SBLA = 8580 96
Plant Expansion required? SFSD + LVSD + SBSD = 4460
Plant EP or SB SBLA >= 0 SBSD >= 0 EPSA >= 0
EPFW >= 0 EPSF >= 0 …

95 96

SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN

SOLUTION SOLUTION

97 98

97 98

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SUPPLY CHAIN DESIGN SUPPLY CHAIN DESIGN

SOLUTION SOLUTION
1. With the supply chain, the minimum total cost is $620,770; the total cost is the sum
of $426,710 for manufacturing and $194,060 for shipping. One might suspect that
restricting customers to a single distribution center is not optimal.
2. Allowing customers to be serviced by any distribution center reduces total cost to
$600,942; the total cost consists of $423,230 of manufacturing cost and $177,712 of
shipping cost. This is a 3.19% decrease in total cost and an 8.42% decrease in shipping
cost. Only one customer, San Diego, is served by more than one distribution center.
3. Allowing some direct shipments from plants to customers causes a substantial
reduction in total cost. The total cost is $553,534, a 10.83% reduction over the current
plan. Note, however, there is a 32.85% reduction in shipping cost. Again, one
customer, Phoenix, receives shipments from 2 distribution centers.
4. Present Demand: 41260, Total capacity at the two plants (50,000 units) is
adequate to handle the growth in demand.
Beyond 8740, the company might want to consider expanding the more
efficient San Bernardino plant. The shadow price from Part 3 output indicates
that each unit of added capacity will reduce distribution costs by $2.50.
99 However, the range of feasibility shows this shadow price is only applicable
100
for the net 620 units of capacity.

99 100

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