© Wiley 2007 Finding Least Cost Logistics Flows D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = unlimited $4 $5 $2 $3 $4 $5 $2 $1 $2 Production costs are the same, warehousing costs are the same $0

© Wiley 2007 Heuristic #1: Choose the Cheapest Warehouse to Source Demand D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = unlimited $4 $5 $2 $3 $4 $5 $2 $1 $2 Production costs are the same, warehousing costs are the same $0

© Wiley 2007 Heuristic #1: Choose the Cheapest Warehouse to Source Demand D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 $5 x 140,000 $2 x 60,000 $2 x 50,000 $1 x 100,000 $2 x 50,000 Total Costs = $1,120,000 Source: Simchi-Levi, Kaminsky & Simchi-Levi, Designing and Managing the Supply Chain 3/e Cap = unlimited

© Wiley 2007 Heuristic #2 : Choose the warehouse where the total delivery costs to and from the warehouse are the lowest [Consider inbound and outbound distribution costs] D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = unlimited $4 $5 $2 $3 $4 $5 $2 $1 $2 Production costs are the same, warehousing costs are the same $0

© Wiley 2007 D = 50,000 D = 100,000 D = 50,000 Cap = 60,000 Cap = unlimited $5 x 90,000 $2 x 60,000 $3 x 50,000 $1 x 100,000 $2 x 50,000 $0 x 50,000 P1 to WH1$3 P1 to WH2$7 P2 to WH1$7 P2 to WH 2$4 P1 to WH1$4 P1 to WH2$6 P2 to WH1$8 P2 to WH 2$3 P1 to WH1$5 P1 to WH2$7 P2 to WH1$9 P2 to WH 2$4 Total Cost = $920,000 Heuristic #2: Choose the warehouse where the total delivery costs to and from the warehouse are the lowest [Consider inbound and outbound distribution costs] Source: Simchi-Levi, Kaminsky & Simchi-Levi, Designing and Managing the Supply Chain 3/e

© Wiley 2007 What is the Linear Program?

© Wiley 2007 What is the LP?

© Wiley 2007 The Optimal Strategy

© Wiley 2007 The Optimal Strategy via EXCEL’s Solver