Q1: Total Cost North Factory to DC

Objective Function
Minimise Z = ∑∑di Xij Cij + {∑Fi yi + ∑ Vi Xij} + Lij Wijk hij
s.t.
Constraints
Wijk <= Myi
Xij = Dj
Xij <=Myi
Wijk = Ejk
Yi=0,1

Where Xij: Material j to DC i

Di is the distance between DC i and factory
Cij: Cost of transporting material j to DC i
Fi: Fixed cost
Vi: Variable cost
Lij: Distance between DC i and City j
Wijk: Material k from DC i to city j

Q 2: Appropriate aggregation strategies:

Large number of variables in a network optimization case make it heavy and time consuming
to solve. Therefore data can be aggregated in a manner such that it does not impact the final
result. For this purpose aggregation strategy can used for 1. Customers or 2. Materials

Aggregation strategy for Customers:

Customer Sales Order Data v1.0, has the customer data in which customers are from all over
India. To provide a better customer service geographical boundary of India can be divided
into 4 major zones namely Delhi, Gujrat, Kolkata and Chennai who will then act as a DCs to
cater to the areas in their boundaries. Bangalore is the main factory and therefore will act as
a separate DC.
 Zone DC clubbed as per States in a Zone
North-Delhi J&K, HP, Punjab, Chandigarh,
Uttarakhand, Haryana, Rajasthan, UP
West-Gujarat Dadra and Nagar Haveli, Daman and Diu,
Goa, Gujarat, Maharashtra, Rajasthan.
East-Kolkata West Bengal, Bihar, Jharkhand, Odisha
South-Bangalore Andaman and Nicobar Islands, AP,
Karnataka, Kerala, Tamil Nadu,Telangana

Aggregation strategy for Material:

Material can be stored in a central warehouse rather than storing in two separate factories.
Planning and purchasing of components as well as raw material for factories which supplies
the organization with finished goods will be done at a centralize location as below

Supplies  Central Procurement  South Factory

 North Factory

Organization will thus have control over the management of material e.g. ERP, ordering
inventory control, accounting etc. it will be able to better negotiate with its suppliers.
Process standardization will also help the firm with Collaboration with supply chain partners
e.g. CPFR.

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%