Chapter 5144 PART II + Designing the Supply Chain Netw.docx

Chapter 5
144 PART II + Designing the Supply Chain Network
Travel Costs ($)
State Los Angeles Tulsa Denver Seattle Number
of Trips
Washington 150 250 200 25
40
Oregon 150 250 200 75
35
California 75 200 150 125
100
Idaho 150 200 125 125
25
Nevada 100 200 125 150
40
Montana 175 175 125 125
25
Wyoming 150 175 100 150
50

Utah 150 150 100 200
30
Arizona 75 200 100 250
50
Colorado 150 125 25 250
65
New Mexico 125 125 75 300
40
North Dakota 300 200 150 200
30
South Dakota 300 175 125 200
20
Nebraska 250 100 125 250
30
Kansas 250 75 75 300
40
;c Oklahoma 250 25 125 300 55
Each consultant is expected to take at most 25 trips each year.
(a) If there are no restrictions on the number of consultants at a
site and the goal is to m
ini-
mize costs. where should the home offices be located and how
many consultant
s should

be assigned to each office? What is the annual cost in terms of
the facility and tr
avel?
(b) If, at most, 10 consultants are to be assigned to a home
office, where should the
offices be set up? How many consultants should be assigned to
each office?
What is
the annual cost of this network?
(c) What do you think of a rule by which all consulting projects
out of a giv
en state are
assigned to one home office? How much is this policy likely to
add to cost co
m-
pared to allowing multiple offices to handle a single state?
2. Dry lee, Inc., is a manufacturer of air conditioners that has
seen its demand
grow significantly.
The company anticipates nationwide demand for the year 2006
to be 180,
000 units in the
South, 120,000 units in the Midwest, 110,000 units in the East,
and 100,000 un
its in the West.
Managers at Dry lee are designing the manufacturing network

and have selec
ted four poten-
tial sites-New York, Atlanta, Chicago, and San Diego. Plants
could have a ca
pacity of either
200,000 or 400,000 units. The annual fixed costs at the four
locations are sho
wn in Table 5-6,
New York Atlanta Chicago San Diego
Annual-fixed cost
of 200,000 plant $6 million $5.5 million $5.6 million
$6.1 million
Annual fixed cost
of 400,000 plant $10 million $9.2 million $9.3 million
$10.2 million
East $211 $232 $238
$299
South $232 $212 $230
$280
Midwest $240 $230 $215
$270
West $300 $280 $270
$225
-- ---

Chapter 5
Chapter 11
Chapter 13
Supply Chain Management
STRATEGY, PLANNING, AND OPERATION
F i f t h E d i t i o n
Sunil Chopra
Kellogg School of Management
Peter Meindl
Kepos Capital
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Library of Congress Cataloging-in-Publication Data
Chopra, Sunil,
Supply chain management : strategy, planning, and operation /
Sunil Chopra, Peter Meindl.—5th ed.
p. cm.
ISBN-13: 978-0-13-274395-2 (alk. paper)
ISBN-10: 0-13-274395-7 (alk. paper)
1. Marketing channels—Management. 2. Delivery of goods—
Management. 3. Physical distribution of goods—
Management. 4. Customer services—Management. 5. Industrial
procurement. 6. Materials management.
I. Meindl, Peter. II. Title.
HF5415.13.C533 2013
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Dedication
I would like to thank my colleagues at Kellogg for all that I
have learned from
them about logistics and supply chain management. I am
grateful for the love
and encouragement my parents, Krishan and Pushpa, and sisters,
Sudha and
Swati, have always provided during every endeavor in my life. I
thank my
children, Ravi and Rajiv, for the joy they have brought me.
Finally, none of this
would have been possible without the constant love, caring, and
support of my
wife, Maria Cristina.
—Sunil Chopra
I would like to thank three mentors—Sunil Chopra, Hau Lee,
and Gerry
Lieberman—who have taught me a great deal. Thank you also to
my parents
and sister for their love, and to my sons, Jamie and Eric, for
making me smile
and teaching me what life is truly all about. Most important, I
thank my wife,
Sarah, who makes life wonderful and whom I love with all of
my heart.
—Pete Meindl

ABOUT THE AUTHORS
SUNIL CHOPRA
Sunil Chopra is the IBM Distinguished Professor of Operations
Management and
Information Systems at the Kellogg School of Management. He
has served as the interim
dean and senior associate dean for curriculum and teaching, and
the codirector of the
MMM program, a joint dual-degree program between the
Kellogg School of Management
and the McCormick School of Engineering at Northwestern
University. He has a Ph.D. in
operations research from SUNY at Stony Brook. Prior to joining
Kellogg, he taught at
New York University and spent a year at IBM Research.
Professor Chopra’s research and teaching interests are in supply
chain and logistics
management, operations management, and the design of
telecommunication networks.
He has won several teaching awards at the MBA and Executive
programs of Kellogg.
He has authored more than 40 papers and two books.
He has been a department editor for Management Science and
an associate editor for
Manufacturing & Service Operations Management, Operations
Research, and Decision
Sciences Journal. His recent research has focused on
understanding supply chain risk and
devising effective risk mitigation strategies. He has also
consulted for several firms in the area of
supply chain and operations management.

PETER MEINDL
Peter Meindl is with Kepos Capital. Previously, he was a
research officer with Barclays
Global Investors, a consultant with the Boston Consulting
Group and Mercer Management
Consulting, and the director of strategy with i2 Technologies.
He holds a Ph.D., M.S., B.S.,
and B.A. from Stanford, and an M.B.A. from the Kellogg
School at Northwestern.
The first edition of this book won the prestigious Book of the
Year award in 2002 from the
Institute of Industrial Engineers.
CONTENTS
Preface x
Part I Building a Strategic Framework to Analyze Supply
Chains
Chapter 1 UNDERSTANDING THE SUPPLY CHAIN 1
1.1 What Is a Supply Chain? 1
1.2 The Objective of a Supply Chain 3
1.3 The Importance of Supply Chain Decisions 4
1.4 Decision Phases in a Supply Chain 6
1.5 Process Views of a Supply Chain 8

1.6 Examples of Supply Chains 13
1.7 Summary of Learning Objectives 17
Discussion Questions 17 • Bibliography 18
Chapter 2 SUPPLY CHAIN PERFORMANCE: ACHIEVING
STRATEGIC
FIT AND SCOPE 19
2.1 Competitive and Supply Chain Strategies 19
2.2 Achieving Strategic Fit 21
2.3 Expanding Strategic Scope 32
2.4 Challenges to Achieving and Maintaining Strategic Fit 34
Chapter 3 SUPPLY CHAIN DRIVERS AND METRICS 38
3.1 Financial Measures of Performance 38
3.2 Drivers of Supply Chain Performance 41
3.3 Framework for Structuring Drivers 43
3.4 Facilities 44
3.5 Inventory 47
3.6 Transportation 49
3.7 Information 51
3.8 Sourcing 54

3.9 Pricing 56
� CASE STUDY: Seven-Eleven Japan Co. 60
� CASE STUDY: Financial Statements for Wal-Mart Stores
Inc. 66
iv
Part II Designing the Supply Chain Network
Chapter 4 DESIGNING DISTRIBUTION NETWORKS
AND APPLICATIONS TO ONLINE SALES 68
4.1 The Role of Distribution in the Supply Chain 68
4.2 Factors Influencing Distribution Network Design 69
4.3 Design Options for a Distribution Network 73
4.4 Online Sales and the Distribution Network 86
4.5 Distribution Networks in Practice 99
� CASE STUDY: Blue Nile and Diamond Retailing 102
Chapter 5 NETWORK DESIGN IN THE SUPPLY CHAIN 108
5.1 The Role of Network Design in the Supply Chain 108
5.2 Factors Influencing Network Design Decisions 109

5.3 Framework for Network Design Decisions 114
5.4 Models for Facility Location and Capacity Allocation 116
5.5 Making Network Design Decisions in Practice 132
Discussion Questions 134 • Exercises 134 • Bibliography 139
� CASE STUDY: Managing Growth at SportStuff.com 139
� CASE STUDY: Designing the Production Network at
CoolWipes 141
Chapter 6 DESIGNING GLOBAL SUPPLY CHAIN
NETWORKS 143
6.1 The Impact of Globalization on Supply Chain Networks 143
6.2 The Offshoring Decision: Total Cost 145
6.3 Risk Management in Global Supply Chains 148
6.4 Discounted Cash Flows 152
6.5 Evaluating Network Design Decisions Using Decision Trees
153
6.6 To Onshore or Offshore: Evaluation of Global Supply Chain
Design Decisions Under Uncertainty 161
6.7 Making Global Supply Chain Design Decisions Under
Uncertainty in Practice 170
Discussion Questions 171 • Exercises 171
• Bibliography 173

� CASE STUDY: BioPharma, Inc. 174
� CASE STUDY: The Sourcing Decision at Forever Young 176
Part III Planning and Coordinating Demand and Supply
in a Supply Chain
Chapter 7 DEMAND FORECASTING IN A SUPPLY CHAIN
178
7.1 The Role of Forecasting in a Supply Chain 178
7.2 Characteristics of Forecasts 179
Contents v
7.3 Components of a Forecast and Forecasting Methods 180
7.4 Basic Approach to Demand Forecasting 181
7.5 Time-Series Forecasting Methods 183
7.6 Measures of Forecast Error 193
7.7 Selecting the Best Smoothing Constant 195
7.8 Forecasting Demand at Tahoe Salt 197
7.9 The Role of IT in Forecasting 203
7.10 Risk Management in Forecasting 204
7.11 Forecasting in Practice 205

� CASE STUDY: Specialty Packaging Corporation, Part A 208
Chapter 8 AGGREGATE PLANNING IN A SUPPLY CHAIN
211
8.1 The Role of Aggregate Planning in a Supply Chain 211
8.2 The Aggregate Planning Problem 213
8.3 Aggregate Planning Strategies 215
8.4 Aggregate Planning Using Linear Programming 216
8.5 Aggregate Planning in Excel 224
8.6 Building a Rough Master Production Schedule 226
8.7 The Role of IT in Aggregate Planning 227
8.8 Implementing Aggregate Planning in Practice 228
� CASE STUDY: Specialty Packaging Corporation, Part B 231
Chapter 9 SALES AND OPERATIONS PLANNING:
PLANNING SUPPLY
AND DEMAND IN A SUPPLY CHAIN 234
9.1 Responding to Predictable Variability in the Supply Chain
234
9.2 Managing Supply 235

9.3 Managing Demand 237
9.4 Implementing Sales and Operations Planning in Practice 244
� CASE STUDY: Mintendo Game Girl 248
Chapter 10 COORDINATION IN A SUPPLY CHAIN 250
10.1 Lack of Supply Chain Coordination and the Bullwhip
Effect 250
10.2 The Effect on Performance of Lack of Coordination 252
10.3 Obstacles to Coordination in a Supply Chain 254
10.4 Managerial Levers to Achieve Coordination 258
10.5 Continuous Replenishment and Vendor-Managed
Inventories 263
10.6 Collaborative Planning, Forecasting, and Replenishment
264
vi Contents
10.7 Achieving Coordination in Practice 267

Part IV Planning and Managing Inventories in a Supply Chain
Chapter 11 MANAGING ECONOMIES OF SCALE IN A
SUPPLY CHAIN:
CYCLE INVENTORY 271
11.1 The Role of Cycle Inventory in a Supply Chain 271
11.2 Estimating Cycle Inventory–Related Costs in Practice 274
11.3 Economies of Scale to Exploit Fixed Costs 276
11.4 Economies of Scale to Exploit Quantity Discounts 289
11.5 Short-Term Discounting: Trade Promotions 300
11.6 Managing Multiechelon Cycle Inventory 305
� CASE STUDY: Delivery Strategy at MoonChem 311
Appendix 11A: Economic Order Quantity 313
Chapter 12 MANAGING UNCERTAINTY IN A SUPPLY
CHAIN: SAFETY
INVENTORY 314
12.1 The Role of Safety Inventory in a Supply Chain 314
12.2 Determining the Appropriate Level of Safety Inventory 316
12.3 Impact of Supply Uncertainty on Safety Inventory 327
12.4 Impact of Aggregation on Safety Inventory 329
12.5 Impact of Replenishment Policies on Safety Inventory 341

12.6 Managing Safety Inventory in a Multiechelon Supply
Chain 344
12.7 The Role of IT in Inventory Management 345
12.8 Estimating and Managing Safety Inventory in Practice 346
� CASE STUDY: Managing Inventories at ALKO Inc. 351
� CASE STUDY: Should Packaging be Postponed to the DC?
353
Appendix 12A: The Normal Distribution 354
Appendix 12B: The Normal Distribution in Excel 355
Appendix 12C: Expected Shortage Cost per Cycle 356
Appendix 12D: Evaluating Safety Inventory for Slow-Moving
Items 357
Chapter 13 DETERMINING THE OPTIMAL LEVEL OF
PRODUCT
AVAILABILITY 358
13.1 The Importance of the Level of Product Availability 358
13.2 Factors Affecting Optimal Level of Product Availability
359
13.3 Managerial Levers to Improve Supply Chain Profitability
370

Contents vii
13.4 Setting Product Availability for Multiple Products Under
Capacity Constraints 384
13.5 Setting Optimal Levels of Product Availability in Practice
386
Appendix 13A: Optimal Level of Product Availability 391
Appendix 13B: An Intermediate Evaluation 391
Appendix 13C: Expected Profit from an Order 392
Appendix 13D: Expected Overstock from an Order 393
Appendix 13E: Expected Understock from an Order 394
Appendix 13F: Simulation Using Spreadsheets 394
Part V Designing and Planning Transportation Networks
Chapter 14 TRANSPORTATION IN A SUPPLY CHAIN 397
14.1 The Role of Transportation in a Supply Chain 397
14.2 Modes of Transportation and Their Performance
Characteristics 399
14.3 Transportation Infrastructure and Policies 403

14.4 Design Options for a Transportation Network 406
14.5 Trade-Offs in Transportation Design 411
14.6 Tailored Transportation 420
14.7 The Role of IT in Transportation 422
14.8 Risk Management in Transportation 423
14.9 Making Transportation Decisions in Practice 424
Discussion Questions 425 • Exercises 425 • Bibliography 426
� CASE STUDY: Designing the Distribution Network for
Michael’s
Hardware 426
Part VI Managing Cross-Functional Drivers in a Supply Chain
Chapter 15 SOURCING DECISIONS IN A SUPPLY CHAIN 428
15.1 The Role of Sourcing in a Supply Chain 428
15.2 In-House or Outsource 430
15.3 Third- and Fourth-Party Logistics Providers 436
15.4 Using Total Cost to Score and Assess Suppliers 439
15.5 Supplier Selection—Auctions and Negotiations 441
15.6 Contracts, Risk Sharing, and Supply Chain Performance
444
15.7 Design Collaboration 455

15.8 The Procurement Process 457
15.9 Designing a Sourcing Portfolio: Tailored Sourcing 459
15.10 Risk Management in Sourcing 460
15.11 Making Sourcing Decisions in Practice 461
viii Contents
Contents ix
Chapter 16 PRICING AND REVENUE MANAGEMENT IN A
SUPPLY
CHAIN 466
16.1 The Role of Pricing and Revenue Management in a Supply
Chain 466
16.2 Pricing and Revenue Management for Multiple Customer
Segments 468
16.3 Pricing and Revenue Management for Perishable Assets
475
16.4 Pricing and Revenue Management for Seasonal Demand
481
16.5 Pricing and Revenue Management for Bulk and Spot

Contracts 481
16.6 Using Pricing and Revenue Management in Practice 483
Chapter 17 INFORMATION TECHNOLOGY IN A SUPPLY
CHAIN 488
17.1 The Role of IT in a Supply Chain 488
17.2 The Supply Chain IT Framework 490
17.3 Customer Relationship Management 491
17.4 Internal Supply Chain Management 492
17.5 Supplier Relationship Management 493
17.6 The Transaction Management Foundation 494
17.7 The Future of IT in the Supply Chain 495
17.8 Risk Management in IT 496
17.9 Supply Chain IT in Practice 497
Chapter 18 SUSTAINABILITY AND THE SUPPLY CHAIN 500
18.1 The Role of Sustainability in a Supply Chain 500
18.2 The Tragedy of the Commons 502

18.3 Key Metrics for Sustainability 504
18.4 Sustainability and Supply Chain Drivers 505
18.5 Closed-Loop Supply Chains 508
Subject Index 510
x
PREFACE
This book is targeted toward an academic as well as a
practitioner audience. On the academic side, it
should be appropriate for M.B.A. students, engineering master’s
students, and senior undergraduate
students interested in supply chain management and logistics. It
should also serve as a suitable
reference for both concepts as well as methodology for
practitioners in consulting and industry.
NEW TO THIS EDITION
The fifth edition has focused on building on the changes that
were incorporated in the fourth
edition. We have also added changes based on specific reviewer
feedback that we believe
significantly improve the book and its use by faculty and
students.
• We have added several new mini-cases throughout the book.

New cases appear in Chapters
3, 5, 6, 12, and 14. Information in other cases has been updated
to be current.
• For numerical examples discussed in the book, we have
spreadsheets that students can use
to understand the concept. The spreadsheets provide the details
of the example discussed,
but are live which allows the student to try different what-if
analyses. These spreadsheets
are available at www.pearsonhighered.com/chopra.
• In Chapter 3, we have added a section on financial metrics and
ratios and linked these
to the different supply chain drivers and metrics. This chapter
allows a faculty member to
position the supply chain management as it directly impacts the
financial performance of
the firm. We have also added a supporting mini-case with which
students can dig into
Walmart’s financials in detail.
• We have enhanced Chapter 6, which focuses on designing
global supply chains. In particular,
we have included a detailed example in Section 6.6 that looks at
the onshoring/offshoring
decision as a real option in the context of uncertainty. A mini-
case has also been included in
the chapter to look at the offshoring/onshoring decision.
• Supply chain coordination (Chapter 17 in the fourth edition) is
now part of the module on
“Planning and Coordinating Demand and Supply in the Supply
Chain.” Based on reviewer
feedback, we decided it was appropriate to include the
collaboration and coordination

discussions with the forecasting and sales and operations
planning discussions.
• In Chapter 7, we have enhanced the discussions on forecast
errors and selecting the best
smoothing constant.
• In Chapter 8, we have enhanced the discussions on identifying
the aggregate unit and then
disaggregating the aggregate plan.
• In Chapter 9, we now have a spreadsheet that allows students
to work through the entire sales
and operations planning process for the example presented.
Spreadsheets are available that
allow students to build every table shown in Chapters 7–9.
• In Chapter 11, we have added numerical examples supporting
the entire discussion on
the rationale for quantity discounts. Supporting spreadsheets are
provided for students.
• In Chapter 12, we added numerical examples supporting the
value of postponement
discussion and a mini-case investigating a decision to
potentially postpone packaging.
• In Chapter 13, we have also enhanced and highlighted the
discussion on tailored postponement.
• In Chapter 14, we have enhanced the quantitative examples
which support the qualitative
discussion on the design of transportation networks. Students
will also have live spreadsheets
available to use with these examples. A mini-case at the end of
the chapter allows students to

dig even deeper into the quantitative factors in transportation
network design.
• In Chapter 15, we have enhanced the discussion on risk
sharing and supply chain contracts.
Students will also have live spreadsheets with which they can
evaluate different risk-
sharing options. The chapter also contains an enhanced
discussion of tailored sourcing
when designing a supplier portfolio.
www.pearsonhighered.com/chopra
Preface xi
• A new Chapter 18 focuses on sustainability and the supply
chain.
• We have added current examples throughout the book with a
particular focus on bringing
in more global examples.
The book has grown from a course on supply chain management
taught to second-year
M.B.A. students at the Kellogg School of Management at
Northwestern University. The goal
of this class was to cover not only high-level supply chain
strategy and concepts, but also to
give students a solid understanding of the analytical tools
necessary to solve supply chain
problems. With this class goal in mind, our objective was to
create a book that would develop
an understanding of the following key areas and their
interrelationships:

• The strategic role of a supply chain
• The key strategic drivers of supply chain performance
• Analytic methodologies for supply chain analysis
Our first objective in this book is for the reader to learn the
strategic importance of good supply
chain design, planning, and operation for every firm. The reader
will be able to understand how
good supply chain management can be a competitive advantage,
whereas weaknesses in the
supply chain can hurt the performance of a firm. We use many
examples to illustrate this idea and
develop a framework for supply chain strategy.
Within the strategic framework, we identify facilities,
inventory, transportation, information,
sourcing, and pricing as the key drivers of supply chain
performance. Our second goal in the book
is to convey how these drivers may be used on a conceptual and
practical level during supply chain
design, planning, and operation to improve performance. We
have included a case on Seven-Eleven
Japan that can be used to illustrate how the company uses
various drivers to improve supply chain
performance. For each driver of supply chain performance, our
goal is to provide readers with prac-
tical managerial levers and concepts that may be used to
improve supply chain performance.
Utilizing these managerial levers requires knowledge of analytic
methodologies for supply
chain analysis. Our third goal is to give the reader an
understanding of these methodologies.
Every methodological discussion is illustrated with its
application in Excel. In this discussion,
we also stress the managerial context in which the methodology

is used and the managerial
levers for improvement that it supports.
The strategic frameworks and concepts discussed in the book
are tied together through a
variety of examples that show how a combination of concepts is
needed to achieve significant
increases in performance.
FOR INSTRUCTORS
The following supplements are available to adopting instructors.
Instructor’s Resource Center
REGISTER. REDEEM. LOGIN. At
www.pearsonhighered.com/irc, instructors can access a variety
of print, media, and presentation resources that are available
with this text in downloadable,
digital format. For most texts, resources are also available for
course management platforms such
as Blackboard, WebCT, and Course Compass.
NEED HELP? Our dedicated Technical Support team is ready to
assist instructors with questions
about the media supplements that accompany this text. Visit
http://247.pearsoned.com/ for answers
to frequently asked questions and toll-free user support phone
numbers. The supplements are avail-
able to adopting instructors. Detailed descriptions are provided
on the Instructor’s Resource Center.
INSTRUCTOR’S SOLUTIONS MANUAL This manual is
offered in Microsoft Word, and contains
sample syllabi, chapter lecture notes, and solutions to all the
end-of-chapter questions. The solu-
tion spreadsheets are provided in Microsoft Excel. Where

applicable, both the Excel and Word
solutions are provided. It is available for download at
http://247.pearsoned.com/
www.pearsonhighered.com/irc
xii Preface
TEST ITEM FILE The file contains true/false questions,
multiple-choice questions, and essay/prob-
lem questions. It is available for download at
POWERPOINT SLIDES These slides provide the instructor with
individual lecture outlines to
accompany the text. The slides include many of the figures and
tables from the text. These
lecture notes can be used as is, or professors can easily modify
them to reflect specific presentation
needs. They are available for download at
FOR STUDENTS
The following material is available to students at
www.pearsonhighered.com/chopra:
• Spreadsheets for numerical examples discussed in the book.
These provide the details of
the example discussed, but are live and allow the student to try
different what-if analyses.
• Spreadsheets that allow students to build every table shown in

Chapters 7–9.
ACKNOWLEDGMENTS
We would like to thank the many people who helped us
throughout this process. We thank
the reviewers whose suggestions significantly improved the
book, including Iqbal Ali of the
University of Massachusetts, Amherst; Ming Ling Chuang of
Western Connecticut State
University; Chia-Shin Chung of Cleveland State University;
Phillip G. Cohen of San Jacinto
College North Campus; Sime Curkovic of Western Michigan
University; Chunxing Fan of
Tennessee State University; Srinagesh Gavirneni of Cornell
University; Richard Germain of the
University of Louisville; Dr. Michael R. Godfrey of University
of Wisconsin, Oshkosh; Scott E.
Grasman of the Missouri University of Science & Technology;
Jatinder (Jeet) Gupta of
the University of Alabama, Huntsville; James K. Higginson of
the University of Waterloo
(Ontario); James K. Ho of University of Illinois at Chicago;
Patrick Jeffers of Iowa State
University; Mehdi Kaighobadi of Florida Atlantic University;
Alireza Lari of Fayetteville State
University; Bryan Lee of Missouri Western State College;
Jianzhi (James) Li of University
of Texas–Pan American; Arnold Maltz of Arizona State
University; Daniel Marrone of SUNY
Farmingdale; Charles Munson of Washington State University;
James Noble of
the University of Missouri, Columbia; William Roach of
Washburn University; Subroto Roy
of the University of New Haven; Effie Stavrulaki of
Pennsylvania State University; Scott Thorne

of Southeast Missouri State University, Frenck Waage of the
University of Massachusetts;
Chongqi Wu of California State University, East Bay, Boston;
and Kefeng Xu of University of
Texas at San Antonio.
We are grateful to the students at the Kellogg School of
Management who suffered
through typo-ridden drafts of earlier versions of the book.
Specifically, we thank Christoph
Roettelle and Vikas Vats for carefully reviewing several
chapters and solving problems at the
end of the chapters in early editions. We would also like to
thank our editor, Chuck Synovec,
and the staff at Prentice Hall, including Clara Bartunek,
production project manager; Anne
Fahlgren, executive marketing manager; Mary Kate Murray,
senior project manager; and
Ashlee Bradbury, editorial assistant, for their efforts with the
book. Finally, we would like to
thank you, our readers, for reading and using this book. We
hope it contributes to all of your
efforts to improve the performance of companies and supply
chains throughout the world. We
would be pleased to hear your comments and suggestions for
future editions of this text.
Sunil Chopra
Kellogg School of Management Northwestern University
Peter Meindl
Kepos Capital

1
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1
Understanding the
Supply Chain
LEARNING OBJECTIVES
After reading this chapter, …
S. Desa, CSE 171B/270B
02/27/2020
HW#7CSE 171B/270B, MOT II: Homework 7Facilities,
Network, and Transportation Design
Reading: (Please do readings in parallel with the homework
problems): SCM, 4th Edition, Chapter 4 (Designing Distribution
Networks…), Chapter 5 (Network Design in a SC), Chapter 13
(Transportation in a SC) and Chapter 14 (Sourcing
Decisions…).
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Homework Problems:
Due: Thursday, 12 March, 2020
Qualitative Problems (do require quantitative reasoning as
appropriate):
1. Transportation in a SC: D12.2, D13.5
2. Network Design in a SC: D5.1, D5.4, D5.6
Quantitative Problems:
3. Safety Inventory: Exercise 11.5 (re-assigned from HW #6)

4. Safety Inventory (Aggregation): Exercises 11.7, 11.8
5. SC Facilities/Network Optimization for SunOil: Work
through the SunOil Case Study in Chapter 5 (4th Edition) using
Excel and Solver
6. Facilities Design for Dry Ice, Inc.: Exercise 5.2
7. Transportation for Books-on-Line: Exercise 13.2 (Books-on-
Line)
8. (CSE 270B only) Aggregate Planning. (Before starting this
problem, read and complete Problem 4 in HW # 6.) Attempt to
formulate, and then solve, using Excel Solver, the aggregate
planning problem for the “Red Tomato Company”. This problem
is developed and solved in the chapter titled “Aggregate
Planning in a SC.”
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Project: SCM Integration and Final Report
· Simulate your product’s supply chain and examine various
scenarios using your integrated software.
· Align and integrate your high-level strategies with the detailed
implementations of each driver.
· Develop the proper SC management guidelines for your firm’s
products, as well as a user’s manual for your software module.
· Create an outline of the final report, and then compile the
final report. The final report should include a table of contents,
a 1-2 page meaningful executive summary up-front, an
introduction, and a conclusion/lessons learned section at the
end. The final report should also include the project activity
sheets for all the team meetings on each phase of the project.
· Each team member must create a very specific 1-2 page
“write-up” for the final report clearly explaining her/his
“aggregated” contribution to the project over the course of the
quarter, in particular, but not limited to, the following issues:
high-level objectives of your particular work on the project,
your work-plan/work-process; implementation details; results;
conclusions; connection to other parts of the project. This

explanation will be an important part of the individual’s project
grade.
· Final Project Report is due on Thursday, March 12, or
Tuesday, March 17, or Thursday, March 19, 2020.
Page 1 of 1
tim125-225-winter2014-hw7.doc
Weichih Sun
3/14/17
TIM 125
Homework 7
Problems
Estimated Time
Actual Time
Problem 1
1 Hour
1 Hour
Problem 2
1 Hour
1 Hour
Problem 3
2 Hours
1.5 Hours
Problem 4
3 Hours
2.5 Hours
Problem 5
2 Hours
1.5 Hours
Problem 6
3 Hours
3 Hours
Problem 7
4 Hours
3.5 Hours

Qualitative Problems
1. Transportation
Step 1: Define the Problem
1. Consider two products with the same margin carried by a
retail store. Any leftover units of one product are worthless.
Leftover units of the other product can be sold to outlet stores.
Which product should have a higher level of availability? Why?
2. What transportation challenges does online grocer Peapod
face? Compare transportation costs at online grocers and
supermarket chains.
Step 2: Create a Plan
1. Determine which product should have a higher level of
availability
2. Research and describe the challenges online grocer Peapod
faces
Step 3: Execute the Plan
1. Determine which product should have a higher level of
availability
The leftover units of a product which become worthless at
the end of the selling season should have a higher level of
product availability than the leftover units of the other product
that can be sold to outlet stores because unsold items for this
product are useless and no salvage value. Maintaining higher
level of availability for this product will help a firm match
demand uncertainty and maximizes profits.
2. Research and describe the challenges online grocer Peapod
faces
Peapod is responsible for congestion in the releasing area
and has to bear a high-priced outbound transportation costs.
These kinds of facilities were not available with traditional
grocers. Peapod delivers its items in trucks that are climate
controlled. These kinds of trucks should be offered with the
incentive facilities for peak and off-peak seasons for the goods
to be delivered at the right time to the customers. Customers are
aware of the transportation constituent of their purchase and

Peapod can encourage customers to purchase products of a
higher amount. Peapod and traditional grocers need to pay
inbound transportation charges for their merchandise. There
does not seem to be a large margin in this unless a trader has a
market share to gain cost benefits.
Step 4: Check your Work
Using the book as reference and reading over the chapters. I can
be sure my assumptions made for this answer are correct with
minimal amounts of error.
2. Facilities/Network Design
1. How do the location and size of warehouses affect the
performance of a firm such as Amazon.com? What factors
should Amazon.com take into account when making this
decision?
2. Amazon.com has built new warehouses as it has grown. How
does this change affect various cost and response times in the
Amazon.com supply chain?
3. Consider a firm such as Dell, with very few production
facilities worldwide. List the pros and cons of this approach and
why it may or may not be suitable for the computer industry.
1. How do location and size of warehouses affect Amazon.com
performance and what factors should be taken into account
when making these decisions?
2. How does new warehouses affect Amazon.com response time
and costs?
3. What are the pros and cons of having very few production
facilities worldwide?
1. How do location and size of warehouses affect Amazon.com
performance and what factors should be taken into account
when making these decisions?
Responsiveness and efficiency of any company depends
upon its size and location of warehouses. It was a time when
Amazon used to run its bookstore with only one warehouse,

which was established in Seattle. This warehouse was not
capable of meeting the demands of customers as they were
ineffective in delivering the products at given time. Due to
single warehouse, its cost increases with less responsiveness of
customers. Since the time, they supplemented warehouses in
different locations for distribution purpose, their demand
increased at faster rate. This spreading of warehouses helped
the customers to get products on time due to proximity of
warehouses, where shipment can be done from locations nearer
to the customer. Amazon should work on areas underserved,
which can prove to be profitable, responsive and efficient from
the company’s point of view.
2. How does new warehouses affect Amazon.com response time
and costs?
With the change in figure of locations, facilities and
capacities, there is a change in logistic and facility cost.
Amazon’s cost increases with increase in the warehouses at
different locations. This cost includes inventory, facility and
logistics cost. This result in higher fixed cost that can be
utilized for diminishing transportation cost. Fixed cost can be
reduced by scattering the warehouses at different locations for
distribution purpose, which helps in adding the responsiveness
at same expenditure or same responsiveness at less cost.
Inventory cost can be reduced by distributing the warehouses at
different locations. Inventory costs also changes with an
increased number of warehouses.
3. What are the pros and cons of having very few production
facilities worldwide?
The greatest benefit the Dell has is that it can be located in
a large number of countries, which will help in reducing facility
cost by removing tariffs and lessening risk of demand and
exchange rate. The biggest drawback with Dell is its lack of
responsiveness from customers. Customers wait for their order,
because they know that it will take enough time to proceed.
Orders are further delated when shipped from other production
facilities. Orders are further delayed when shipped form other

production facilities that are listed on the web site. Cost of
shipping may be an area of concern for customers, but they
worth provided by Dell is quite high that this shipping cost
seems negligible.
Using the book as a reference and the information we learned
from lectures. I can say that the answers I have put for these
discussion questions are correct.
Quantitative Problems
3. Chapter 11: Exercise 11.5
1. Return to the Sam’s Club store in Exercise 4. Assume that the
supply lead time from HP is normally distributed, with a mean
of 2 weeks and a standard deviation of 1.5 weeks. How much
safety inventory should Sam’s Club carry if it wants to provide
a CSL of 95 percent? How does the required safety inventory
change as the standard deviation of lead time is reduced from
1.5 weeks to zero in intervals of 0.5 weeks?
1. Determine how much safety inventory should Sam’s Club
carry if it wants to provide a CSL of 95 percent. How does the
required safety inventory change as standard deviation of lead
time is reduced from 1.5 to zero in intervals of 0.5 per week
Step 3: Execute the plan
Given information
Average demand per period, D = 250
Standard deviation of demand per period, σD = 150
Lead time, L = 2 weeks
Reorder point, ROP = 600
Lot size, Q = 1,000
Cycle service level, CSL = 0.95
Standard deviation of lead time, sL = 1.5 weeks
1. Determine how much safety inventory should Sam’s Club
carry if it wants to provide a CSL of 95 percent. How does the
required safety inventory change as standard deviation of lead
time is reduced from 1.5 to zero in intervals of 0.5 per week

Standard deviation of lead time 1.5 weeks
Expected demand during L periods, DL = L x D = 2 x 250
= 500
Standard deviation of demand during lead time = σL = =
= = 430.842
Safety inventory, ss = = 1.65 x 431 = 708.672
Safety inventory of 709 HP printers should be carried by
Sam’s Club
Standard deviation of lead time 1 week
σL = = = = 327.871
Sam’s Club
Standard deviation of lead time 0.5 week
= = 246.221
Sam’s Club
Standard deviation of lead time 0 week
= = 212.123
Sam’s Club
Using the book as reference for formulas as well as using
lecture notes. I believe that the numbers I have calculated for
the safety inventory is correct
4. Safety Inventory (Aggregation)
1. Epson produces printers in its Taiwan factory for sale in
Europe. Printers sold in different countries differ in terms of the
power outlet as well as the language of the manuals. Currently,
Epson assembles and packs printers for sale in individual
countries. This distribution of weekly demand in different

countries is normally distributed, with means and stand
deviations as shown in Table 11-6. Assume demand in different
countries to be independent. Given that the lead time from the
Taiwan factory is eight weeks, how much safety inventory does
Epson require in Europe if it targets a CSL of 95 percent?
Epson decides to build a central DC in Europe. It will ship base
printers (without power supply) to the DC. When an order is
received, the DC will assemble power supplies, add manuals,
and ship the printers to the appropriate country. The base
printers are still to be manufactured in Taiwan with a lead time
of eight weeks. How much saving of safety inventory can Epson
expect as a result?
2. Return to the Epson data in Exercise 7. Each printer costs
Epson $200, and the holding cost is 25 percent. What saving in
holding cost can Epson expect as a result of building the
European DC? If final assembly in the European DC adds $5 to
the production cost of each printer, would you recommend the
move? Suppose that Epson is able to cut the production and
delivery lead time from its Taiwan factory to four weeks using
good information systems. How much savings in holding cost
can Epson expect without the European DC? How much savings
in holding cost can the firm expect with the European DC?
1. Assume demand in different countries to be independent.
Given that the lead time from the Taiwan factory is eight weeks,
how much safety inventory does Epson require in Europe if it
targets a CSL of 95 percent? Epson decides to build a central
DC in Europe. It will ship base printers (without power supply)
to the DC. When an order is received, the DC will assemble
power supplies, add manuals, and ship the printers to the
appropriate country. The base printers are still to be
manufactured in Taiwan with a lead time of eight weeks. How
much saving of safety inventory can Epson expect as a result?
2. What saving in holding cost can Epson expect as a result of
building the European DC? If final assembly in the European
DC adds $5 to the production cost of each printer, would you

recommend the move? Suppose that Epson is able to cut the
production and delivery lead time from its Taiwan factory to
four weeks using good information systems. How much savings
in holding cost can Epson expect without the European DC?
How much savings in holding cost can the firm expect with the
European DC?
1. Assume demand in different countries to be independent.
Given that the lead time from the Taiwan factory is eight weeks,
how much safety inventory does Epson require in Europe if it
targets a CSL of 95 percent?
Demand during lead time, DL = D x L
Standard deviation of demand during lead time, σL =
k = number of countries
Safety inventory, ss =
Weekly Demand for Epson Printers in Europe
Country
Mean Demand
Standard Deviation
Lead time
Demand during lead time, DL
Std of demand during lead time, σL
Safety inventory, ss
France
3,000
2,000
8
24,000
5,656.85
9,304.70
Germany
4,000

2,200
8
32,000
6,222.54
10,235.17
Spain
2,000
1,400
8
16,000
3,959.80
6,513.29
Italy
2,500
1,600
8
20,000
4,525.48
7,443.76
Portugal
1,000
800
8
8,000
2,262.74
3,721.88
UK
4,000
2,400
8
32,000
6,788.23
11,165.64

48,384
The amount of safety inventory that Epson requires in Europe
with a CSL of 95 percent is 48,384 units
Epson decides to build a central DC in Europe. It will ship base
printers (without power supply) to the DC. When an order is
received, the DC will assemble power supplies, add manuals,
and ship the printers to the appropriate country. The base
printers are still to be manufactured in Taiwan with a lead time
of eight weeks. How much saving of safety inventory can Epson
expect as a result?
First we would have to calculate the variance of standard
deviation by square rooting each country standard deviation of
demand. Then taking the sum of each countries variance and
finding the average. Then we calculate the standard deviation of
average demand, . Then we can calculate the value of central
demand, . Finally, we can calculate the safety inventory, ss =
Weekly demand for Epson printers in Europe
Country
Mean Demand
Standard deviation of demand
Variance
Average of demand
Standard deviation of average demand,
Value of central demand,
France
3,000
2,000

4,000,000
329,333.33
1,814.75
4,445
20,861
Germany
4,000
2,200
4,840,000
Spain
2,000
1,400
1,960,000
Italy
2,500
1,600

2,560,000
Portugal
1,000
800
640,000
UK
4,000
2,400
5,760,000
If Epson decides to build a central DC in Europe the company
needs to maintain a safety inventory of 20,861 units.
2. What saving in holding cost can Epson expect as a result of
building the European DC?
We know that the safety inventory with decentralized
distribution is 48,384 units and safety inventory with
centralization is 20,861 units.
Savings = (SSwithoutDC + SSwithDC) x unit cost x holding rate
Savings = (48,384 – 20,681) x 200 x 0.25 = $1,385,150 savings
with a distribution center
If final assembly in the European DC adds $5 to the production
cost of each printer, would you recommend the move?
Increase in total cost = weekly demand x 52 weeks x
increased amount

Increase in total cost = 16,500 x 52 x 5 = $4,290,000
Since the increase in cost is more than the savings it is not
recommend to move
Suppose that Epson is able to cut the production and delivery
lead time from its Taiwan factory to four weeks using good
information systems. How much savings in holding cost can
Epson expect without the European DC? How much savings in
holding cost can the firm expect with the European DC?
Weekly Demand for Epson Printers in Europe
Country
Mean Demand
Standard Deviation
Lead time
Demand during lead time, DL
Std of demand during lead time, σL
France
3,000
2,000
4
12,000
4,000
6,600
Germany
4,000
2,200
4
16,000
4,400
7,260
Spain
2,000
1,400

4
8,000
2,800
4,620
Italy
2,500
1,600
4
10,000
3,200
5,280
Portugal
1,000
800
4
4,000
1,600
2,640
UK
4,000
2,400
4
16,000
4,800
7,920
Total
34,320
Savings = (SS8week – SS4week) x unit cost x holding rate
Savings = (48,384 – 34,320) x 200 x 0.25 = $2,419,200 savings
with reduced lead time with a

distribution center
Weekly demand for Epson printers in Europe
Country
Mean Demand
Standard deviation of demand
Variance
Average of demand
Standard deviation of average demand,
Value of central demand,
France
3,000
2,000
4,000,000
329,333.33
1,814.75
4,445
14,669
Germany
4,000

2,200
4,840,000
Spain
2,000
1,400
1,960,000
Italy
2,500
1,600
2,560,000
Portugal
1,000
800
640,000
UK
4,000
2,400
5,760,000

Savings = (SS8weeks – SS4weeks) x unit cost x holding rate
Savings = (20,684 – 14,669) x 200 x 0.25 = $300,750 savings
with a distribution center
Using the book as a reference for formulas on how to solve for
the savings and other equations as well as using lecture notes to
calculate the needed information. I believe that the numbers I
have calculated are correct.
5. SC Facilities/Network Optimization for SunOil
1. Work though the SunOil Case Study in Chapter 5 (4th
Edition) using Excel and Solver
1. Work though the SunOil Case Study using Excel and Solver
1. Work though the SunOil Case Study using Excel and Solver
Cost and Demand Data for SunOil
This shows annual demand for each of the give regions. Cell D5
shows that it costs $92,000 to produce 1 million units in North
America and sell them to South America.
Inputs for capacitated plant location are:
n = number of potential plant locations/capacity (each level of
capacity will count as a separate location)
m = number of markets or demand points
Dj = annual demand from market j
Ki = potential capacity of plant i
fi = annualized fixed cost of keeping factory i open
cij = cost of producing and shipping one unit from factory i to
market j (cost includes production, inventory, transportation,
and tariffs)
yi = 1 if plant i is open, 0 otherwise
xij = quantity shipped from plant i to market j

Spreadsheet Area for Decision Variables
The decision variables determine the amount produced in a
supply region and shipped to a demand region.
Constraint and Object Function
Cells B22:B26 contain the capacity constraints and cells
B28:F28 contain the demand constraints. The object function is
shown in cell B31 and measure the total fixed cost plus the
variable cost of operating the network
Optimal Regional Network Configuration for SunOil
This shows that lowest-cost network will have facilities in
South America, Asia and Africa. Further, a high-capacity plant
should be planned in each region. The plant in South America
meets the North American demand, whereas the European
demand is met from plants in Asia and Africa
Carefully going through each step of the SunOil Case Study the
implementations is all correct. Except for the fact that I have
unknown decimal values in some of the cells. The answer still
came out the be correct so I assume that Excel Solver did
something that made it like that.
6. Facility Design for Dry Ice, Inc.
1. DryIce, Inc., is a manufacture of air conditioners that has
seen its demand grow significantly. The company anticipates
nationwide demand for the year 2006 to be 180,000 units in the
South, 120,000 units in the Midwest, 110,000 units in the East,
and 100,000 units in the West. Managers at DryIce are
designing the manufacturing network and have selected four
potential sites – New York, Atlanta, Chicago, and San Diego.
Plants could have a capacity of either 200,000 or 400,000 units.
The annual fixed costs at the four locations are shown in table
5-6, along with the costs of producing and shipping an air
conditioner to each of the four markets. Where should DryIce

build its factories and how large should they be?
1. Determine from the data given where DryIce should build its
factories and how large they should be
1. Determine from the data given where DryIce should build its
factories and how large they should be
Inputs:
n = number of plant locations per capacity
m = number of demand points
Dj = annual demand from market j
Ki = potential capacity of plant i
fi = fixed costs associated with keeping plant i
cij = the production and transportation cost from site i to region
j
Using Excel and Solver
From the results we can see that building plants at Chicago and
San Diego of capacity 100,000 and 410,000 respectively will be
able to fulfill the demand at minimum cost. The annual total
cost in terms of plants and transportation is $168,290,000.
Using the book and lecture notes as a guide and reference. And
following steps on using excel solver from the book. I can
assume that the numbers that has been created by solver is
correct.
7. Transportation for Books-on-Line
1. Books-on-Line, an online bookseller, charges its customers a
shipping charge of $4 for the first book and $1 for each
additional book. The average customer order contains four
books. Books-on-Line currently has one warehouse in Seattle
and ships all orders from there. For shipping purposes, Books-
on-Line divides the United States into three zones – Wester,
Central, and Easter. Shipping costs incurred by Books-on-Line

per customer order is $2 within the same zone, $3 between
adjacent zones, and $4 between nonadjacent zones. Weekly
demand from each zone is independent and normally
distributed, with a mean of 50,000 and a standard deviation of
25,000. Each book costs on average $10, and the holding cost
incurred by Books-on-Line is 25 percent. Books-on-Line
replenishes inventory every week and aims for a 99.7 percent
CSL. Assume a replenishment lead time of one week. A
warehouse is designed to carry 50 percent more than the
replenishment order + safety stock. The fixed cost of a
warehouse is $200,000 + x, where x is its capacity in books.
The weekly operating cost of a warehouse is $0.01y, where y is
the number of books shipped. Books-on-Line is planning its
network strategy. Which zones should have warehouses? Detail
all costs involved.
1. Create a detailed structure for Books-on-Line for which zone
they should have warehouses
1. Create a detailed structure for Books-on-Line for which zone
they should have warehouses
Given information
Weekly mean demand, Dm = 50,000
Standard deviation, = 25,000
Holding Cost, h = 0.25
Replenishment lead time, L = 1 week
Reorder interval, T = 1 week
Cycle service level, CSL = .997
Average cost per book, p = $10
Fixed cost = 200,000 + x
Weekly Operating cost = 0.01y
Warehouses only in the Western Zone
50,000 books are shipped to each zone from the Western zone
Safety inventory, ss = = 2.76 x = 168,267
Shipment cost for each zone differs
Cost of shipment from Western zone to Eastern zone is $4 per

order = 50,000 x 4/4 = 50,000
Cost of shipment from Western zone to Central zone is $3 per
order = 50,000 x 3/4 = 37,500
Cost of shipment from Western zone to Western zone is $2 per
order = 50,000 x 2/4 = 25,000
Since the warehouse can carry 50 percent more than the
replenishment order + safety inventory. We can calculate this
by (200,000 + 1.5 x (168,267 + 150,000))/52 = 13,027
We can calculate weekly operating cost by, 0.01(150,000) =
1,500
Cycle inventory cost = = / 52 = 3,606
Safety inventory cost = ss x hC = 168,267 x .25 x 10 /52 =
8,090
The total weekly cost of setting up the warehouse only in the
Western zone is $138,722
Eastern
Central
Western
Eastern
0
0
0
Central
0
0
0
Western
50,000
50,000
50,000
Total Zone Demand
50,000
50,000
50,000

Safety Inventory
168,267
Shipment Cost
Eastern
0
0
0
Central
0
0
0
Western
50,000
37,500
25,000
Weekly Warehouse fixed cost
13,027
Warehouse operating cost

1,500
Weekly cycle inventory cost
3,606
Weekly safety inventory cost
8,090
Total weekly cost
50,000
37,500
51,222
Warehouse only in the Central Zone
50,000 books are shipped to each zone from the Central zone
Cost of shipment from Central zone to Eastern zone is $3 per
order = 50,000 x 3/4 = 37,500
Cost of shipment from Central zone to Central zone is $2 per
order = 50,000 x 2/4 = 25,000
Cost of shipment from Central zone to Western zone is $2 per
order = 50,000 x 3/4 = 37,500

by (200,000 + 1.5 x (168,267 + 150,000))/52 = 13,027
We can calculate weekly operating cost by, 0.01(150,000) =
1,500
Safety inventory cost = ss x hC = 168,267 x .25 x 10 /52 =
8,090
The total weekly cost of setting up the warehouse only in the
Central zone is $126,222
Eastern
Central
Western
Eastern
0
0
0
Central
50,000
50,000
50,000
Western
0
0
0
Total Zone Demand
50,000
50,000
50,000
Safety Inventory
168,267

Shipment Cost
Eastern
0
0
0
Central
37,500
25,000
37,500
Western
0
0
0
13,027
1,500

3,606
8,090
Total weekly cost
37,500
51,222
37,500
Warehouse in each Zone
50,000 books are shipped to each zone from each zone
Cost of shipment from Eastern zone to Eastern zone is $3 per
order = 50,000 x 2/4 = 25,000
Cost of shipment from Central zone to Central zone is $2 per
order = 50,000 x 2/4 = 25,00
Cost of shipment from Western zone to Western zone is $2 per
order = 50,000 x 2/4 = 25,000
by (200,000 + 1.5 x (97,149 + 50,000))/52 = 8,091
We can calculate weekly operating cost by, 0.01(50,000) = 500
Safety inventory cost = ss x hC = 97,149 x .25 x 10 /52 = 4,671
The total weekly cost of setting up the warehouse in each zone
is $118,390

Eastern
Central
Western
Eastern
50,000
0
0
Central
0
50,000
0
Western
0
0
50,000
Total Zone Demand
50,000
50,000
50,000
Safety Inventory
97,149
97,149
97,149
Shipment Cost
Eastern

25,000
0
0
Central
0
25,000
0
Western
0
0
25,000
8,091
8,091
8,091
500
500
500
1,202
1,202
1,202
4,671
4,671
4,671

Total weekly cost
39,463
39,463
39,463
Since the total cost of setting up warehouse in each zone is the
lowest, it is recommended to have warehouse in each zone.
Using the book as a reference for formulas and step by step
from examples. I can say that the numbers I have calculated are
correct.

Chapter 5144 PART II + Designing the Supply Chain Netw.docx

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