Q1: Total Cost North Factory to DC

Objective Function
Minimise Z = ∑∑di Xij Cij + {∑Fi yi + ∑ Vi Xij} + Cij Wijk hij
s.t.
Constraints
Wijk <= Myi
Xij = Dj
Xij <=Myi
Wijk <=

Where Xij: Material j to depot i

Q 2: Appropriate aggregation strategies:

In Network optimization cases, the model needs to compare a vast number of options which
makes it heavy and time consuming. It is advised to reduce the number of variables wherever
feasible. One way to do this is to aggregate data, in a manner which is not likely to impact the
optimization calculations.

Formulate appropriate aggregation strategy for

a. Materials
b. Customers
Aggregation strategy for Material:

All the material provided in the list has material type as ZFIN, which means finished product.
Material can be stored in a central warehouse rather than having in 2 separate factories.
Planning and the purchasing of raw materials and other components for both the factories
which supplies the organization with finished goods will be done at a centralized location as
shown:
 South Factory

Suppliers Central
Procurement

North Factory

Advantages:

1. Organization will have control over the management of material

2. Materials requirements planning, ordering, inventory control, accounting etc.
becomes centralized
3. Company X can use advanced ERP tool like sap to integrate all the departments like
sales department, purchasing department, Production Planning, HR and so on
4. Better negotiation with suppliers
5. Process standardization will help in having a consistent behavior among supply chain
partners
6. Centralized ordering will lead to tighter cost control and the cost contributing factors
in the conversion of RM into FG can be better monitored and required action could
be taken
7. Economies of scale could be achieved

Aggregation strategy for Customers:

From Customer Sales Order Data v1.0, we could see the customers are from all over the
India. Timely delivery leads to better customer service so keep that in mind we are diving
the whole India in 4 separate zones east, west, north and south with Chennai, Delhi,
Gujarat and Kolkata respectively as main DC. Rest other DCs would work under these 4
main distribution center. We are not keeping any DC at Bangalore because of the presence
of main factory in Bangalore which will act as DC too.
 Zone DC clubbed as per States in a Zone
East-Kolkata West Bengal, Bihar, Jharkhand, Odisha
West-Gujarat Dadra and Nagar Haveli, Daman and Diu,
Goa, Gujarat, Maharashtra, Rajasthan.
North-Delhi J&K, HP, Punjab, Chandigarh,
Uttarakhand, Haryana, Rajasthan, UP
South-Bangalore Andaman and Nicobar Islands, AP,
Karnataka, Kerala, Tamil Nadu,Telangana

Q3:
a) DC Operating costs (Warehousing costs)
Fixed Cost
Independent Variable (Allocated Space + Additional Space)

SUMMARY OUTPUT

Regression Statistics
Multiple R 0.805133
R Square 0.648239
Adjusted R
Square 0.636513
Standard Error 14698.84
Observations 32

T stat: 2.9688; Intercept: 13136; Slope: 9.93

Hence the model can be approximated as Fixed Cost = 9.93*Space+13136

Cost factor Assumed value

Loading-Unloading Cost Assumed 10% of total secondary freight cost
Primary Freight Cost Can be found out by regression against
Cost = Total Weight Handled x Slope + C
Secondary Freight Cost Can be found by regression against
Cost = Distance between DC- Location(kms) x No_trips (truck)
Semi-Variable Cost This varies from 5-10% therefore assumed 7%