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Project: X and Y Coordinates For Each Retailer and The Warehouse, D, The Demand Rate Per Year

This document presents a case study for a retail company with a central warehouse that serves 24 retailers. The objective is to establish effective reorder intervals for a product that accounts for over 80% of sales. The warehouse uses direct shipping where each truck delivers to one retailer per trip. Table 1 provides location and demand information for each retailer including holding costs. There is a set-up cost proportional to distance for each delivery from the warehouse to a retailer, plus a $400 set-up cost each time the warehouse places an order. The tasks are to (1) find reorder intervals for each retailer and warehouse, (2) calculate total distribution costs, (3) show the solution is within 6% of optimal, and (4) determine

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126 views3 pages

Project: X and Y Coordinates For Each Retailer and The Warehouse, D, The Demand Rate Per Year

This document presents a case study for a retail company with a central warehouse that serves 24 retailers. The objective is to establish effective reorder intervals for a product that accounts for over 80% of sales. The warehouse uses direct shipping where each truck delivers to one retailer per trip. Table 1 provides location and demand information for each retailer including holding costs. There is a set-up cost proportional to distance for each delivery from the warehouse to a retailer, plus a $400 set-up cost each time the warehouse places an order. The tasks are to (1) find reorder intervals for each retailer and warehouse, (2) calculate total distribution costs, (3) show the solution is within 6% of optimal, and (4) determine

Uploaded by

Nishant Neogy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Professor Simchi-Levi

1.270J
Distribution and Logistics
PROJECT
The following case study concerns a retail company that has a central warehouse in the
Boston area. This warehouse serves 24 retailers all located in that region. Our objective
is to establish eective reorder intervals for a single product that accounts for more than
80 percent of total sales. The company uses direct shipping strategy to distribute the
product, i.e., each truck delivers items to one retailer per trip.
Table 1 provides information on the warehouse and the 24 retailers served by it: the
X and Y coordinates for each retailer and the warehouse, D, the demand rate per year
for the main product faced by each retailer, H, cost of holding an item per unit of time
(year) at each retailer and at the warehouse.
Each time the warehouse delivers items to a retailer there is an additional set-up
cost proportional to the distance between the warehouse and that retailer. This cost is
approximated by
di + C
where di is the distance between the warehouse and the retailer, = 0.32 dollar per mile
and C = 150$. Finally, every time the warehouse places an order, it pays a set up cost of
400$.
(i) Find an eective reorder interval for each retailer and the warehouse.
(ii) Find the total cost associated with your distribution strategy.
(iii) Show that your solution is within 6% from the optimal solution.
(iv) Can you improve the solution?

Table 1

Retail

Holding Cost

Demand

No.
0

3.9

$/item/year
1

in a Year

4.7

0.2

5.6

10

200

2.7

0.9

10

700

6.1

4.3

50

7.1

7.9

20

8.4

2.4

10

300

5.7

6.1

20

8.7

6.2

40

1.5

4.6

10

500

9.9

4.3

60

10

7.9

2.9

10

70

11

9.7

2.5

80

12

6.5

1.5

700

13

3.3

5.8

900

14

3.6

9.1

10

600

15

6.9

0.6

14

500

16

5.0

0.5

1200

17

5.7

6.8

10

600

18

3.7

8.0

300

19

3.7

5.6

400

20

5.7

4.7

500

21

6.3

3.2

50

22

3.4

4.4

100

23

5.1

3.8

70

24

4.0

6.0

150

Retailer # 0 is the warehouse.


The coordinates are given in hundreds of miles.

MIT OpenCourseWare
http://ocw.mit.edu

ESD.273J / 1.270J Logistics and Supply Chain Management


Fall 2009

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