PRODUCTION ENGINEERING 2 (PENG 201)

TUTORIAL 2 - LOGISTICS, DISTRIBUTION, AND TRANSPORTATION

1. A manufacturer has decided to locate a new factory in the northwest U.S. to

serve growing demand in that market. They have narrowed the potential sites
down to two finalists, City A and City B. They have developed a list of important
factors to consider in selecting a site, and rated each as shown in the following
table.

Factor City A City B

Utility rates 100 115
Availability of skilled labor 78 75
Tax rates 40 35
Transportation 46 38
Proximity to suppliers 35 34
Quality of life 19 16

Based on this data, which city appears to be the better choice?

Summing up the factor ratings for each city shows that City A has a slight edge,
318 – 313, over City B. City A is the better choice.

2. Logistics Consultants Inc. (LCI) provides various logistics analysis services to

other firms, including facility location decisions. They have just completed a
project for a major customer, but on the eve of their presentation they discovered
a computer malfunction partially deleted some of their data. One file that was
impacted contains the final factor rating results. Following are the partial results
they were able to recover. As you’ll notice, some ratings are missing.

Max Ratings
City X City Y
Factor Points
Availability of labor 150 130 123
Availability of utilities 130 122 110
Transportation infrastructure 80 73
Warehousing availability/costs 75 70 63
Proximity to customers 65 59
Business climate 40 30 24
Taxation structure 30 15
Quality of life 25 22 17

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 If you were the project manager for LCI, what would you do given that they you
missing some crucial data?

Adding up the factor ratings that we have in the table, City X currently has 506
points and City Y has 352 points. If City Y received the maximum points for the
missing ratings that would add 80 + 65 points for a total of 497 points, which is
less than what City X has with its one missing rating. There is no way that City Y
would have been rated higher than City X. City X is the best choice.

3. A small manufacturing facility is being planned that will feed parts to three
heavy manufacturing facilities. The locations of the current plants with their
coordinates and volume requirements are given in the following table:

Volume
Plant Location Coordinates (X,  Y)
(Parts Per Year)
  Peoria 300, 320 4 000
  Decatur 375, 470 6 000
  Joliet 470, 180 3 000

Use the centroid method to determine the best location for this new
facility. (Round your answers to 1 decimal place.) Draw an X –Y grid map
of the plant locations and for the best location for this new facility.
Solution
d1x = 300 d1y = 320 V1 = 4,000
d2x = 375 d2y = 470 V2 = 6,000
d3x = 470 d3y = 180 V3 = 3,000

Cx=
∑ d ix V i = (300 )(4 , 000)+(375 )(6 , 000)+(470 )(3 ,000 ) =373 .8
∑ V i 13 ,000
C y=
∑ diy V i = (320 )(4 ,000 )+( 470)(6 , 000 )+(180 )(3 , 000 ) =356 .9
∑ V i 13 , 000

4. DM Office Products (DMOP) is a wholesale supplier of office products with one

facility in Pennsylvania. They have decided to build a new distribution
warehouse in the state of New York to help serve the growing demand in that
market. They have four major customers located in Buffalo, Syracuse, Albany,

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 and New York City. Though New York City is the largest market, it also has the
greatest competition and DMOP is not a major player there. When DMOP ships
an order to a customer they use their own small fleet of two trucks to deliver, so
the cost of delivery is essentially the same for a full or partially full truck. The
expected number of annual shipments to each city and their coordinates on an
x, y grid is shown in the following table.

City X-Coordinates Y-Coordinates Number Of Shipments

  Buffalo 325 850 78

  Syracuse 1420 900 82
  Albany 2300 630 122
  New York 2275 25 62

Use the centroid method to recommend a location for the new warehouse for DMOP.
(Round your answers to 1 decimal place.)
Solution

( 325∗78 )+ ( 1420∗82 ) + ( 2300∗122 ) + ( 2275∗62 )

C x= =1637.9
78+82+122+62

( 850∗78 )+ ( 900∗82 )+ ( 630∗122 ) + ( 25∗62 )

C y= =635.2
78+82+122+62

Based on these coordinates it looks like a good location for the new warehouse
is somewhere between Syracuse and Albany.

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 5. Suppose the U.S. Pharmaceutical Company has three factories supplying the
warehouses of four major customers and its management want to determine
the minimum-cost shipping schedule for its monthly output to these
customers. Factory supply from Indianapolis, Phoenex, New York and
Antlanta, warehouse demands in Columbus, St Louis, Denver, and Los
Angeles, and shipping costs per case for these drugs are shown in the table
below.

Shipping Costs per Case ( in Dollars)

St Los Factory
From/To Columbus Denver Warehouse Demand
Louis Angeles supply
Indianapolis 25 35 36 60 15 Columbus 10

Phoenex 55 30 25 25 6 St Louis 12

New York 40 50 80 90 14 Denver 15

Antlanta 30 40 66 75 11 Los 9
Angeles

Use Excel Solver to determine the minimum-cost shipping schedule for the
monthly output to these customers.

Solution

Cells for the solution of the problem are B9 through E12. These cells can
initially be left blank when setting up the spreadsheet. Column cells F9 through
F12 are the sum of each row, indicating how much is actually being shipped

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from each factory in the candidate solution. Similarly, row cells B13 through
E13 are sums of the amount being shipped to each customer in the candidate
solution. The Excel Sum function can be used to calculate these values.

The cost of the candidate solution is calculated in cells B16 through E19.
Multiplying the amount shipped in the candidate solution by the cost per unit of
shipping over that particular route makes this calculation. For example,
multiplying B2 by B9 in cell B16 gives the cost of shipping between Indianapolis
and Columbus for the candidate solution. The total cost shown in cell F20 is the
sum of all these individual costs.
To solve the problem, the Excel Solver application needs to be accessed. The
Solver is found by selecting Data and then Solver from the Excel menu. A
screen similar to what is shown below should appear.

Solver

If you cannot find Solver at that location, the required add-in might not have
been activated when Excel was initially installed on your computer.

Solver parameters now need to be set. First set the target cell. This is the cell
where the total cost associated with the solution is calculated. In this problem,
this is cell F20, which sums the values in cells B16 through E19.

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Next we need to indicate that we are minimizing this cell. Selecting the “Min”
button does this. The location of our solution is indicated in the “By Changing
Variable Cells.” These cells are B9 through E12.

Next we need to indicate the constraints for our problem. For our transportation
problem we need to be sure that customer demand is met and that we do not
exceed the capacity of our manufacturing plants. To ensure that demand is
met, click on “Add” and highlight the range of cells where we have calculated
the total amount being shipped to each customer. This range is B13 to E13 in
our example. Next select “=” indicating that we want the amount shipped to

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equal demand. Finally, on the right side enter the range of cells where the
actual customer demand is stated in our spreadsheet. This range is B6 to E6 in
our example.

The second set of constraints that ensures that the capacity of our
manufacturing plants is not exceeded is entered similarly. The range of cells
that indicate how much is being shipped from each factory is F9 to F12. These
values need to be less than or equal to (< =) the capacity of each factory, which
is in cells F2 to F5.
Two options need to be set for solving transportation problems. First, set the
solving method to “Simplex LP.” This tells the Solver that there are no nonlinear
calculations in our spreadsheet. This is important because the Solver can use a
very efficient algorithm to calculate the optimal solution to this problem if this
condition exists. Next, check the “Make Unconstrained Variables Non-
Negative” box. This tells Solver that the values in our solution need to be
greater than or equal to zero. In transportation problems, shipping negative
quantities does not make any sense. Click “Solve” to actually solve the
problem. Solver will notify you that it found a solution. Indicate that you want
that solution saved. Finally, click OK to go back to the main spreadsheet. The
solution should be in cells B9 to E12.
The transportation method can be used to solve many different types of
problems if it is applied innovatively. For example, it can be used to test the
cost impact of different candidate locations on the entire production–distribution
network. To do this we might add a new row that contains the unit shipping cost
from a factory in a new location, say, Dallas, to the existing set of customer
warehouses, along with the total amount it could supply. We could then solve
this particular matrix for minimum total cost. Next we would replace the factory
located in Dallas in the same row of the matrix with a factory at a different
location, Houston, and again solve for minimum total cost. Assuming the
factories in Dallas and Houston would be identical in other important respects,
the location resulting in the lower total cost for the network would be selected.

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Formulae

C x=
∑ d ix V i
∑Vi
C y=
∑ d iy V i
∑ Vi
where
C x = X coordinateof centroid
C y =Y coordinate of centroid

d ix =X coordinate of i th location
d iy =Y coordinate of ith location
V i=Volume of goods moved ¿∨¿ i th location