LOCATION ANALYSIS

Widget Products (WP), a widget producer, supplies widgets to retailers nationally and has production facilities in Isando, Durban and Cape Town. These production facilities supply to retailers located in the surrounding areas through strategically located distribution centres (DC). Currently the company does not supply directly to any retailer.

At a strategic planning session the financial director has raised concerns about the cost associated with the distribution network in the Karoo region of the Western Cape. Currently, a DC, which receives widgets from the plant in Cape Town and redistributes them to the retailers, is located at Beaufort West, Western Cape. A combination of an increased fuel price and pressure on sales due to increasing competition has resulted in an increase in the associated distribution costs. It was suggested that transport cost is used as a starting point in the discussion. To this end the data shown in Tables 1 and 2 were collected.

Table 1: Volume, rate, distance and coordinate data for shipping from Cape Town plant to DC

Plant Location	Transport rate to DC (cent/unit/km)	Grid coordinates
		X	Y
Cape Town	9.40	6.90	1.00

Table 2: Volume, rate, distance and coordinate data for shipping from warehouse to customers

Retail Location	Annual volume (units)		Transport rate (cent/unit/km)		Grid coordinates
					X	Y
Sutherland Ladysmith Frazerburg Oudshoorn Graaf Reinet Drie Susters De Aar	12 500 9 500 29 500 21 000 41 300 8 600 10 700		25.75 18.32 25.24 19.66 26.52 26.17 27.98		5.60 7.80 10.20 11.30 14.00 12.70 14.30	6.10 3.60 6.90 3.95 6.55 7.80 8.25
DC (Beaufort West)	X = 8.20	Y = 6.00

Note: 1 map unit = 60 km

• Based on the information for the current year, what is the transport cost associated with the Beaufort West DC? Is this the best location for the DC based on transport cost only?
• Does the centre-of-gravity approach result in a similar warehouse location (transport cost only)?
• Based on transport cost only would you recommend that WP uses direct shipments from the Cape Town plant to the Sutherland and Ladysmith retailers (at 26.5 cent/unit/km) and an optimal location of a DC that supplies to the other retailers?