Case Study: Badger Meter

The Badger Meter Company manufactures and distributes meters used to measure electric

consumption. The company started with a production plant in El Paso, which has a capacity of $30,000$

meters and gradually built a customer base throughout Texas. A distribution center was established in

Ft$.$ Worth, and later, as the business expanded, a second distribution center was established in Santa Fe$.$

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 company opened a third

distribution center in Las Vegas and just two years ago opened a second production plant in

Sacramento, with a capacity of $20,000$ meters.

Manufacturing costs differ between the company$$s production plants. The cost of each meter produced

at the El Paso plant is $$10\mathrm{.}50.$ The Sacramento plant uses newer and more efficient equipment, and as

result, its manufacturing costs com to only $$10\mathrm{.}00$ per unit.

Due to the firm$$s rapid growth, little attention has been paid to the efficiency of the distribution system,

but company management has 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 show in the following table:

Plant

Ft

Worth Santa Fe

Las

Vegas

El Paso $$3\mathrm{.}20$ $$2\mathrm{.}20$ $$4\mathrm{.}20$

Sacramento $-$ $$3\mathrm{.}90$ $$1\mathrm{.}20$

The company serves nine customer zones from the three distribution centers. The forecast for the

number of meters needed in each customer zone for the next quarter is show in the following table.

Customer Demand

Zone $($meters$)$

Dallas $6300$

San Antonio $4880$

Wichita $2130$

Kansas City $1210$

Denver $6120$

Salt Lake City $4830$

Phoenix $2750$

Los Angeles $8580$

San Diego $4460$

The cost per unit of shipping from each distribution center to each customer zone is given in the

following table. Some distribution centers do not server certain customer zones because the costs

would be prohibitive.

Customer Zone

Dallas

San

Antonio Wichita

Kansas

City Denver

Salt Lake

City Phoenix

Los

Angeles

San

Diego

Fort Worth $$0\mathrm{.}30$ $$2\mathrm{.}10$ $$3\mathrm{.}10$ $$4\mathrm{.}40$ $$6\mathrm{.}00----$

Santa Fe $$5\mathrm{.}20$ $$5\mathrm{.}40$ $$4\mathrm{.}50$ $$6\mathrm{.}00$ $$2\mathrm{.}70$ $$4\mathrm{.}70$ $$3\mathrm{.}40$ $$3\mathrm{.}30$ $$2\mathrm{.}70$

Las Vegas $----$ $$5\mathrm{.}40$ $$3\mathrm{.}30$ $$2\mathrm{.}40$ $$2\mathrm{.}10$ $$2\mathrm{.}50$

In the current distribution system, demand at the Dallas, San Antonio, Wichita, and Kansas City

customer zones is satisfied by shipments form the Ft$.$ Worth distribution center. In a similar manner, the

Denver, Salt Lake City, and Phoenix customer zones are served by the Santa Fe distribution center, and

the Los Angeles and San Diego customer are served by the Las Vegas distribution center. The El Paso

plant supply the Ft$.$ Worth and Santa Fe distribution centers, while the Sacramento plant supplies the

Las Vegas distribution center.

You have been called in to make recommendations for improving the distribution system, and, how to

address the following issues.

a$)$ If the company does not change its current distribution strategy, what will the distribution

system $($production and shipping$)$ cost be for the following quarter?

b$)$ Suppose that the company is willing to consider dropping the distribution center limitations$.$ In

other words, customer zones would not necessarily be assigned to unique distribution centers

and distribution centers would not necessarily be assigned to unique plants. With this added

flexibility, by how much could costs be reduced?

c$)$ Using Solver Table to answer the question: How sensitive is the new plan outlined in b$)$ to

changes in demand?

d$)$ The company believes that remaining competitive will require moving one distribution center.

Which city should be considered for relocating the proposed distribution center? What city

would you relocate the distribution center to$?$ What would be your target costs for the new

distribution center? Justify your answer by adjusting the model created in b$)$ and how your

proposal reduces overall costs and satisfies demand.