Distribution System Design for the Darby Company

DISTRIBUTION SYSTEM DESIGN FOR THE DARBY COMPANY The Darby Company manufactures and distributes meters used to measure electric power consumption. The company started with a small production facility at El Paso, Texas. A distribution center was first opened at Ft.Worth,Texas, and later to cater to larger markets, A second center was opened at Santa Fe, New Mexico. As business improved, a third distribution center was opened at Las Vegas and a second Production plant was opened at San Bernardino, California.The cost of production at the new plant Was $ 0.5 more than the older plant which was $10.5 per unit. The company decided that it was necessary to look at its distribution system as the company’s rapid growth had occupied the attention of the management till now. The quarterly production capacity at El Paso is 30000 meters, while it is 20000 meters at the new plant. The cost of shipping a meter from each of the units to the various distribution centers is given in one of the tables. TABLE 1 The company serves 9 customer zones from the three Dis. Centers. The demand forecast at the various zones are given below. TABLE 2 The cost per unit of shipping from each center to customer zone is given in Table 3. The current design is : Demand at Dallas, S.A,Wichita, and K city zones is met by shipments from Ft. Worth; Demand at Denver, S L city and Phoenix is met by shipments from Santa Fe and the third center takes care of the rest. To determine how many units to ship from each plant, the quarterly customer demand forecasts are aggregated at the distribution centers, and a Transportation model is used to minimize the cost of shipping from the plants to the distribution center Table 1

Shipping Costs

($)

Table 2 QTRLY Demand (NOS)

Forecasts

El Paso San Bernardino

Ft. Worth 3.2 _

Santa Fe 2.2 3.9

Las Vegas 4.2 1.2

Customer Zone DALLAS SAN ANTONIO WICHITA KANSAS CITY DENVER S L CITY PHONEIX LOS ANGELES SAN DIEGO

Demand 6300 4880 2130 1210 6120 4830 2750 8580 4460

Table 3 Shipping costs from various centers to different zones.( $ ) Ft.Worth

DA .3

SA 2.1

WI 3.1

Santa Fe

5.2

5.4

4.5

-

-

-

Las Vegas

KCITY 4.4

DENVER 6

SL CITY -

PHO -

LA -

SAN DIEGO -

6

2.7

4.7

3.4

3.3

2.7

-

5.4

3.3

2.4

2.1

2.5

Please prepare a managerial report on the following. 1. With the present strategy, what will be the manufacturing and distribution costs for the next quarter ? 2. If the company decides to permit shipment from all distribution centers ( permitted ) to all the customers can the costs be reduced? What will be the best allocation in this case ? 3.The company wants to have the option to supply directly from Plant 2 to L A and to SAN DIEGO, the shipping costs being $ 0.3 and $ 0.7 respectively. El Paso also can supply to SAN ANTONIO @ $3.5. Will these flexibilities reduce the cost further ? What will be the best allocation in this case? 4. If the demand is expected to grow at the rate of 10 % per annum, and if the gestation period is 1 year, Will you suggest Darby plan an expansion now?