Question
Satco Foods produces tomato sauce at three plants located in Los Angeles, New York and St. Louis. The monthly production capacity (in millions of pounds)
Satco Foods produces tomato sauce at three plants located in Los Angeles, New York and St. Louis. The monthly production capacity (in millions of pounds) of each plant and variable production cost (per pound) are as follows:
Production Capacity Variable Production Cost
Plant (in millions) (per pound)
New York 9 $.20
Los Angeles 7 $.23
St. Louis 8 $.18
After the tomato sauce is produced it is shipped to four different warehouses located in Philadelphia, Chicago, Atlanta and Kansas City. The shipping cost from plant to warehouse is the same for all locations it is $.0002 pounds per mile. At least 2,000,000 pounds of tomato sauce per year must be shipped through a warehouse for it to be economical to use. If a warehouse site is not used it incurs no cost. To get some idea of monthly shipping and operating cost at the warehouses, Satco has tabulated historical data in file Satco_Template.xlsx. This file contains information of monthly shipping and operating cost for the warehouses. It is based on analysis of other similar products that are stored in the warehouse and shipped to final destinations. This data is provided in two tables. Table 1 shows shipping/ transportation cost from the warehouses to final destinations as a function of pounds and mileage shipped. Table 2 shows average warehouse operating costs for the warehouse operations over the last 18 months. These operating costs are associated with storage and handling of product on a per pound basis. The cost are segregated by east coast operations (average for Philadelphia and Atlanta warehouses) and mid west operations (average for Chicago and Kansas City Operations). Use this information to determine unit shipping / transportation and operation cost associated with the warehouses.
Satco ships tomato sauce to six distributors from the warehouse operations. The monthly amounts of tomato sauce required by each distributor is as follows:
Monthly Requirement
Distributor Location (in millions of pounds)
1 Boston 2
2 Memphis 2.5
3 Detroit 4
4 Denver 2
5 Dallas 3.5
6 San Francisco 5
The travel distance (in miles) between each plant and potential warehouse site is as follows:
Philadelphia Chicago Atlanta Kansas City
New York 100 802 841 1198
Los Angles 2706 2054 2182 257
St. Louis 868 289 541 257
The travel distance (in miles) between each warehouse and each distributor is as follows:
Mileage Data from Warehouse to Demand Destination
Boston Memphis Detroit Denver Dallas San Franciso
Philadelphia 296 1000 576 1691 1452 2866
Chicago 963 530 266 996 917 2142
Atlanta 1037 371 699 1398 795 2496
Kansas City 1391 451 743 600 489 1835
Determine how Satco can minimize the next month cost of getting tomato sauce from plants to customers. Hint: use the historical data in tables to forecast to help solve the transportation problem.
TABLE 1: Warehouse Shipping Cost Data | TABLE 2 - Operating Cost ($/LB) History for Warehouses | ||||||
POUNDS SHIPPED | MILES SHIPPED | Total COST | East Coat Ops Phila & Atl | Mid West Ops Chi & KC | |||
40000 | 300 | $13,889.54 | Month | Cost / lb | Month | Cost / lb | |
48000 | 400 | $19,296.10 | 1 | 0.02 | 1 | 0.014 | |
56000 | 500 | $25,289.94 | 2 | 0.015 | 2 | 0.015 | |
64000 | 380 | $25,094.49 | 3 | 0.023 | 3 | 0.016 | |
72000 | 420 | $29,323.66 | 4 | 0.024 | 4 | 0.015 | |
80000 | 590 | $38,688.36 | 5 | 0.18 | 5 | 0.016 | |
88000 | 780 | $49,111.94 | 6 | 0.025 | 6 | 0.017 | |
96000 | 990 | $60,853.76 | 7 | 0.026 | 7 | 0.016 | |
104000 | 1000 | $65,554.65 | 8 | 0.026 | 8 | 0.017 | |
112000 | 350 | $42,187.98 | 9 | 0.029 | 9 | 0.019 | |
120000 | 450 | $51,092.73 | 10 | 0.028 | 10 | 0.02 | |
128000 | 562 | $60,937.77 | 11 | 0.029 | 11 | 0.02 | |
136000 | 782 | $75,748.82 | 12 | 0.03 | 12 | 0.021 | |
144000 | 345 | $53,691.41 | 13 | 0.03 | 13 | 0.021 | |
152000 | 672 | $78,222.92 | 14 | 0.029 | 14 | 0.02 | |
160000 | 981 | $99,255.48 | 15 | 0.032 | 15 | 0.021 | |
168000 | 189 | $46,002.37 | 16 | 0.032 | 16 | 0.023 | |
176000 | 329 | $63,944.35 | 17 | 0.033 | 17 | 0.024 | |
184000 | 417 | $75,665.58 | 18 | 0.034 | 18 | 0.024 | |
192000 | 506 | $85,680.52 | |||||
Mileage data from plant to warehouse | |||||||
PHIL | CHIC | ATL | INDY | KC | |||
NY | 100 | 802 | 841 | 713 | 1198 | ||
LA | 2706 | 2054 | 2182 | 2073 | 1589 | ||
STL | 868 | 289 | 541 | 235 | 257 | ||
Mileage data from warehouse to demand destination | |||||||
BOST | MEMP | DET | DENV | DALL | SF | ||
PHIL | 296 | 1000 | 576 | 1691 | 1452 | 2866 | |
CHIC | 963 | 530 | 266 | 996 | 917 | 2142 | |
ATL | 1037 | 371 | 699 | 1398 | 795 | 2496 | |
KC | 1391 | 451 | 743 | 600 | 489 | 1853 |
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