Levinson Foods is in the process of expanding its distribution system. After some planned acquisitions, the company will have ten regional centers, with monthly volumes (in cartons) as listed below. Six of these sites currently act as warehouses, shipping to other regional centers and these are designated by (W).
Center ALBQ. (W) Boise Dallas (W) Denver (W) Houston (W) OKC Phoenix (W) SLC San Ant (W) Wichita
Volume 3200 2500 6800 4000 9600 3500 5000 1800 7400 2700
Because these properties have been acquired under different circumstances, Levinson Food is considering if they were to keep all of these warehouses or change the distribution plan. The monthly capacities and monthly operating costs are summarized as follows:
Current Warehouses Capacity Fixed Operating Costs
Albuquerque 16,000 $140,000
Dallas 20,000 $150,000
Denver 10,000 $100,000
Houston 10,000 $110,000
Phoenix 12,000 $125,000
San Antonio 10,000 $120,000
Information, compiled showing the cost per carton of shipping from each warehouse to any regional center in the system, is shared under the Excel template.
a) Assuming that all of the six warehouses stay open, determine the distribution plan and its corresponding cost.
b) If some warehouses could be closed, what would be the cost minimizing new distribution plan?
c) Discuss the differences in solutions from part (a) and part (b). What are implications?
Majestic Enterprises is considering a investing $160 million for capital projects this year. The managers have examined various possibilities and have proposed five projects to consider. The projects cover a variety of activities, as listed below:
P1: Implement a new information system.
P2: License a new technology from another firm.
P3: Build a state-of-the-art recycling facility.
P4: Install an automated machining center in production.
P5: Move the receiving department to new facilities on site.
There is just one project of each type. Each project has an estimated net present value (NPV) and each requires a capital expenditure, which must come out of the allocated budget. The following table summarizes the possibilities, with all figures in millions of dollars:
P1 P2 P3 P4 P5
NPV 10 17 16 8 14
Expenditure 48 96 80 32 64
The committee would like to maximize the total NPV from projects selected, subject to the budget limit of $160 million.
Determine which projects should be selected to maximize the total NPV.
If at most one of Project 3 and Project 4 can be selected AND Project 4 requires Project 5, how does your solution from part a change?
Interpret the impact of these changes on your solution.