Omni-channel distribution

Fresh Food is an omnichannel grocery retailer with stores in Phoenix, Arizona. The company wants to design its online grocery business to allow customers two fulfillment options:

A.Click-and-Collect (CC): To pick up their online orders from a store, or

B.Home Delivery (HD): Have them delivered to their home address.

To fulfill these two CC and HD orders, Fresh Foods has fouralternatives:

A.Pickup: Ship online orders to a store where customers pick them up,

B.Direct Delivery: Deliver orders directly from a regional DC (RDC) close to the Phoenix market using company's fleet of trucks,

C.Delivery from In-Market DC (IMDC): Build an intermediary DC inside the Phoenix market. And, ship orders from RDC to IMDC, and then to customer homes,

D.Outsourced Delivery: Have a third-party deliver orders from the RDC to customer homes.

The challenge is which channel to utilize for which type of order, given that each option has different costs and capacity limitations.

Monthly demand: The company estimates that it will have 600 Click-and-Collect orders and 800 Home Delivery orders. Note we must fulfill all demand.

Facility cost: The cost of opening and maintaining the IMDC is $1000 per month, irrespective of the quantity of orders processed.

Note: Please be sure to use the sum of demand as yourbig number (M). Using too high values may lead to errors in Excel.

Capacity: IMDC, if built, can process 100 orders per month. The RDC and the 3rd party provider do not have a capacity limit.

Transportation costs (dollar per order) between facilities and to customers are given below:

What is the optimal monthly total cost?

Part 2:

Now assume the IMDC has a capacity of 1000 orders per month. What is the optimal monthly total cost?