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The Darby Company Case
The Darby Company Case
ANUJ SHARMA
RAFAEL NADOFF
Background
Darby Company manufactures and distributes meters used to measure electric power
consumption. The company has production plants in El Paso, Texas and San Bernardino,
California. The company also has three distribution centers in Fort Worth, Texas; Santa Fe, New
Mexico; and Las Vegas, Nevada. The company has nine customer zones that its product is
shipped to from the three distribution centers and they are; Dallas, San Antonio, Wichita, Kansas
City, Denver, Salt Lake City, Phoenix, Los Angeles, and San Diego.
objective
Due to the rapid growth that Darby Company has experienced, the overall efficiency of our
distribution system is being assessed to verify that Darby Company is maximizing its distribution
resources.
Results obtained
Table 1
Version 3 costs $2
less per meter to ship
than Version 1 or
Recommendation Version 2
After a thorough analysis of the Darby Company distribution system, Version 3 of the
distribution methods analyzed is the distribution network that Darby Company should pursue to
maximize its resources and minimize costs. We further recommend Darby not expand
manufacturing operations until its demand has grown to meet and exceed its supply capabilities.
Rationale
Should Darby choose to include some shipping directly from the manufacturer in its schedule, it
will save $3480.00 in manufacturing costs as well as $67,236 in transportation costs at its
current demand schedule. Darby also has the potential in save $2.00 in transportation costs per
unit and, therefore, could face an additional potential savings of $17,480 as its demand
increases, totaling a potential cost savings of $88,196.
2
Further, Darby has the ability to meet an increase of demand up to 8740 units before it is forced
to expand its manufacturing operations. If the cost of opening a new plant is an average near $2
million, and the costs of shipping up to 8740 additional units is approximately $120,000, Darby
can save, $1.8 million by waiting to increase production.
Managerial Report
#1. If the company does not change its current distribution strategy, what will its distribution
costs be for the following quarter?
#2. Suppose that the company is willing to consider dropping the distribution center limitations;
that is, customers could be served by any of the distribution centers for which costs are
available. Can costs be reduced? By how much?
3
Distribution Network Version 2
ElPaso Production Plant San Bernardino Production Plant
SALT KANSAS SAN SALT LOS SAN
UNITS UNIT COST DALLAS LAKE WICHITA CITY DENVER DIEGO LAKE PHOENIX ANGELES DIEG
Transportation costs will be reduced from version 1 to version 2 by $16,348. This is largely due
to the lower production cost in San Bernardino passed on to the distribution center then onto
the transportation cost.
#3. The company wants to explore the possibility of satisfying some of the customer demand
directly from the production plants. In particular, the shipping cost is $0.30 per unit from San
Bernardino to Los Angeles and $0.70 from San Bernardino to San Diego. The cost for direct
shipments from El Paso to San Antonio is $3.50 per unit. Can distribution costs be further
reduced by considering these direct plant to customer shipments?
4
Distribution Network Version 3
San Bernardino
ElPaso Production Plants Production Plants
SALT KANSAS SALT SAN LOS SAN LOS
UNITS UNIT COST DALLAS LAKE WICHITA CITY DENVER PHOENIX LAKE ANTONIO ANGELES DIEGO ANGELES
Version 3 costs
$67,236 less than
Version 1
#4. Over the next five years, Darby is anticipating moderate growth (5000 meters) to the North
and West. Would you recommend that they consider plant expansion at this time?
Due to the fact that Darby is currently under-selling its current supply of 50,000 meters, it is not
practical for Darby to expand its plant operations at this time. If the company grows by
approximately 5000 meters, there will still be a remaining portion of 3,740 of the supply
remaining.
Delivery System Growth Analysis
Total Units Available 50,000
Total Units Shipped 41,260
Units Remaining 8,740
5
Version 3 has a savings
of $67,236 compared to
Version 1
Appendix
Table 1
Manufacturing Cost
Version 3 costs $2
less per meter to ship
than Version 1 or
Version 2
6
Warehouse Expansion
Manufacturing Cost
* Units ( El Paso) $10.50 28220 21260 21260
* Units ( San Bernadino) $10.00 13040 20000 20000
7
Shipping Cost Per Unit from Production Plants to Distribution Centers (in $)
Distribution Center
Fort Las
Worth Santa Fe Vegas
Plant
El Paso 3.2 2.2 4.2
San
Bernardino * 3.9 1.2
Dallas 6300
San Antonio 4880
Wichita 2130
Kansas City 1210
Denver 6120
Salt Lake City 4830
Phoenix 2750
Los Angeles 8580
San Diego 4460
8
Version 1 Network
Dallas
6300
.30 6
x36 San
` Antonio 4880
2.10
x37 7
Fort Worth
x13 13.70 x38 3.10 Wichita
30000 El Paso 2130
3 x39 8
4.40
x14
1 12.70 Kansas
14.70
City 1210
9
x15
Sante Fe x410 2.70 Denver
6120
x24 x411 10
13.90 4 4.70
x412 Salt Lake
San
20000 x25 4830
Bernadino 3.40
11
11.20
2
Phoenix
2750
Las Vegas 12
x513
2.10
Los Angeles
5 8580
x514 13
2.50
San Diego
4460
14
9
Linear Model
Objective Function
Model
MIN
13.7x13+12.7x14+14.7x15+13.9x24+11.2x25+.3x36+2.1x37+3.1x38+4.4x39+2.7x410+4.7x411+3.4x412+2.1x513+2.5x514
s.t.
x13+x14+x15 < 30000
x24+x25 < 20000
x13-x36-x37-x38-x39 = 0
x14+x24-x410-x411-x412 = 0
x15+x25-x513-x514 = 0
x36 = 6300
x37 = 4880
x38 = 2130
x39 = 1210
x410 = 6120
x411 = 4830
x412 = 2750
x513 = 8580
x514 = 4460
Xij > 0
Layout
x13 14520
x14 13700
x15 0
x24 0
x25 13040
x36 6300
x37 4880
x38 2130
x39 1210
x410 6120
x411 4830
x412 2750
x513 8580
x514 4460
13.7x13+12.7x14+14.7x15+13.9x24+11.2x25+.3x36+2.1x37+3.1x38+4.4x39+2.7x410+4.7x411+3.4x412+2.1x513+2.5x514
620770
x13+x14+x15 28220
x24+x25 13040
x13-x36-x37-x38-x39 0
x14+x24-x410-x411-x412 0
x15+x25-x513-x514 0
x36 6300
x37 4880
x38 2130
x39 1210
x410 6120
x411 4830
x412 2750
x513 8580
x514 4460
10
Microsoft Excel 12.0 Answer Report
Worksheet: [DARBY.xlsx]V1
Report Created: 7/23/2010 11:21:22 PM
Adjustable Cells
Cell Name Original Value Final Value
$C$28 x13 > 0 14520
$C$29 x14 > 0 13700
$C$30 x15 > 0 0
$C$31 x24 > 0 0
$C$32 x25 > 0 13040
$C$33 x36 > 0 6300
$C$34 x37 > 0 4880
$C$35 x38 > 0 2130
$C$36 x39 > 0 1210
$C$37 x410 > 0 6120
$C$38 x411 > 0 4830
$C$39 x412 > 0 2750
$C$40 x513 > 0 8580
$C$41 x514 > 0 4460
Constraints
Cell Name Cell Value Formula Status Slack
$C$46 x13+x14+x15 > 28220 $C$46<=30000 Not Binding 1780
$C$47 x24+x25 > 13040 $C$47<=20000 Not Binding 6960
$C$48 x13-x36-x37-x38-x39 > 0 $C$48=0 Not Binding 0
$C$49 x14+x24-x410-x411-x412 > 0 $C$49=0 Not Binding 0
$C$50 x15+x25-x513-x514 > 0 $C$50=0 Not Binding 0
$C$51 x36 > 6300 $C$51=6300 Not Binding 0
$C$52 x37 > 4880 $C$52=4880 Not Binding 0
$C$53 x38 > 2130 $C$53=2130 Not Binding 0
$C$54 x39 > 1210 $C$54=1210 Not Binding 0
$C$55 x410 > 6120 $C$55=6120 Not Binding 0
$C$56 x411 > 4830 $C$56=4830 Not Binding 0
$C$57 x412 > 2750 $C$57=2750 Not Binding 0
$C$58 x513 > 8580 $C$58=8580 Not Binding 0
$C$59 x514 > 4460 $C$59=4460 Not Binding 0
11
Version 2 Network
Dallas
6300
6
.30
x36 San
Antonio 4880
x37 2.10 7
Fort Worth
3.10
x13 x38 Wichita
El Paso 13.70
30000 x39 2130
4.40
x14 3 x310 x46 8
5.20 x47
6.00
1 12.70 Kansas
14.70 5.40
x48 City 1210
4.50 x49 9
x15 6.00
San
4460
Diego
14
12
Objective Function
Model
MIN
13.7x13+12.7x14+14.7x15+13.9x24+11.2x25+.3x36+2.1x37+3.1x38+4.4x39+6x310+5.2x46+5.4x47+4.5x48+6x49+2.7x410+4.7x411+3.4x412+3.3x413+2.7x414+5.4x510+3.3x511+2.4x512+2.
s.t.
x13+x14+x15 < 30000
x24+x25 < 20000
x13-x36-x37-x38-x39-x310 = 0
x14+x24-x46-x47-x48-x49-x410-x411-x412-x413-x414 = 0
x15+x25-x510-x511-x512-x513-x514 = 0
x36+x46 = 6300
x37+x47 = 4880
x38+x48 = 2130
x39+x49 = 1210
x310+x410+x510 = 6120
x411+x511 = 4830
x412+x512 = 2750
x413+x513 = 8580
x414+x514 = 4460
Layout
x13 14520
x14 6740
x15 0
x24 0
x25 20000
x36 6300
x37 4880
x38 2130
x39 1210
x310 0
x46 0
x47 0
x48 0
x49 0
x410 6120
x411 0
x412 0
x413 0
x414 620
x510 0
x511 4830
x512 2750
x513 8580
x514 3840
13.7x13+12.7x14+14.7x15+13.9x24+11.2x25+.3x36+2.1x37+3.1x38+4.4x39+6x310+5.2x46+5.4x47+4.5x48+6x49+2.7x410+4.7x411+3.4x412+3.3x413+2.7x414+5.4x510+3.3x511+2.4x512+2.1x513+2.5x
600942
x13+x14+x15 21260
x24+x25 20000
x13-x36-x37-x38-x39-x310 0
x14+x24-x46-x47-x48-x49-x410-x411-x412-x413-x414 0
x15+x25-x510-x511-x512-x513-x514 0
x36+x46 6300
x37+x47 4880
x38+x48 2130
x39+x49 1210
x310+x410+x510 6120
x411+x511 4830
x412+x512 2750
x413+x513 8580
x414+x514 4460
13
Microsoft Excel 12.0 Answer Report
Worksheet: [DARBY.xlsx]Sheet2
Report Created: 7/24/2010 12:33:40 AM
Adjustable Cells
Cell Name Original Value Final Value
$C$28 x13 > 0 14520
$C$29 x14 > 0 6740
$C$30 x15 > 0 0
$C$31 x24 > 0 0
$C$32 x25 > 0 20000
$C$33 x36 > 0 6300
$C$34 x37 > 0 4880
$C$35 x38 > 0 2130
$C$36 x39 > 0 1210
$C$37 x310 > 0 0
$C$38 x46 > 0 0
$C$39 x47 > 0 0
$C$40 x48 > 0 0
$C$41 x49 > 0 0
$C$42 x410 > 0 6120
$C$43 x411 > 0 0
$C$44 x412 > 0 0
$C$45 x413 > 0 0
$C$46 x414 > 0 620
$C$47 x510 > 0 0
$C$48 x511 > 0 4830
$C$49 x512 > 0 2750
$C$50 x513 > 0 8580
$C$51 x514 > 0 3840
Constraints
Cell Name Cell Value Formula Status Slack
$C$56 x13+x14+x15 > 21260 $C$56<=30000 Not Binding 8740
$C$57 x24+x25 > 20000 $C$57<=20000 Binding 0
$C$58 x13-x36-x37-x38-x39-x310 > 0 $C$58=0 Not Binding 0
$C$59 x14+x24-x46-x47-x48-x49-x410-x411-x412-x413-x414 > 0 $C$59=0 Not Binding 0
$C$60 x15+x25-x510-x511-x512-x513-x514 > 0 $C$60=0 Not Binding 0
$C$61 x36+x46 > 6300 $C$61=6300 Not Binding 0
$C$62 x37+x47 > 4880 $C$62=4880 Not Binding 0
$C$63 x38+x48 > 2130 $C$63=2130 Not Binding 0
$C$64 x39+x49 > 1210 $C$64=1210 Not Binding 0
$C$65 x310+x410+x510 > 6120 $C$65=6120 Not Binding 0
$C$66 x411+x511 > 4830 $C$66=4830 Not Binding 0
$C$69 x414+x514 > 4460 $C$69=4460 Not Binding 0
$C$68 x413+x513 > 8580 $C$68=8580 Not Binding 0
$C$67 x412+x512 > 2750 $C$67=2750 Not Binding 0
14
Version 3 Network
Dallas
14.00 6300
x17
6
.30
x36 San
Antonio 4880
x37 2.10 7
Fort Worth
3.10
x13 x38 Wichita
El Paso 13.70
30000 x39 2130
4.40
x14 3 x310 x46 8
5.20 x47
6.00
1 12.70 Kansas
14.70 5.40
x48 City 1210
4.50 x49 9
x15 6.00
DistributionNetworkVersion3
SanBernardino
ElPasoProductionPlants ProductionPlants
SALT KANSAS SALT SAN LOS SAN LOS SAN
UNITS UNITCOST DALLAS LAKE WICHITA CITY DENVER PHOENIX LAKE ANTONIO ANGELES DIEGO ANGELES DIEGO
TOTALMANUFACTURING $423,230.00
TOTALTRANSPORTATION $130,304.00
TOTALCOST $553,534.00
15
Objective Function
Model
MIN
13.7x13+12.7x14+14.7x15+14x17+13.9x24+11.2x25+10.3x213+10.70x214+.3x36+2.1x37+3.1x38+4.4x39+6x310+5.2x46+5.4x47+4.5x48+6x49+2.7x410+4.7x411+3.4x412+3.3x413+2.7x414+5.4
s.t.
x13+x14+x15+x17 < 30000
x24+x25+x213+x214 < 20000
x13-x36-x37-x38-x39-x310 = 0
x14+x24-x46-x47-x48-x49-x410-x411-x412-x413-x414 = 0
x15+x25-x510-x511-x512-x513-x514 = 0
x36+x46 = 6300
x37+x47+x17 = 4880
x38+x48 = 2130
x39+x49 = 1210
x310+x410+x510 = 6120
x411+x511 = 4830
x412+x512 = 2750
x213+x413+x513 = 8580
x214+x414+x514 = 4460
Xij > 0
Layout
x13 9640
x14 6740
x15 0
x17 4880
x24 0
x25 6960
x213 8580
x214 4460
x36 6300
x37 0
x38 2130
x39 1210
x310 0
x46 0
x47 0
x48 0
x49 0
x410 6120
x411 0
x412 620
x413 0
x414 0
x510 0
x511 4830
x512 2130
x513 0
x514 0
13.7x13+12.7x14+14.7x15+14x17+13.9x24+11.2x25+10.3x213+10.70x214+.3x36+2.1x37+3.1x38+4.4x39+6x310+5.2x46+5.4x47+4.5x48+6x49+2.7x410+4.7x411+3.4x412+3.3x413+2.7x414+5.4x510+3.
553534
x13+x14+x15+x17 21260
x24+x25+x213+x214 20000
x13-x36-x37-x38-x39-x310 0
x14+x24-x46-x47-x48-x49-x410-x411-x412-x413-x414 0
x15+x25-x510-x511-x512-x513-x514 0
x36+x46 6300
x17+x37+x47 4880
x38+x48 2130
x39+x49 1210
x310+x410+x510 6120
x411+x511 4830
x412+x512 2750
x213+x413+x513 8580
x214+x414+x514 4460
16
Microsoft Excel 12.0 Answer Report
Worksheet: [DARBY.xlsx]V3
Report Created: 7/24/2010 12:52:11 AM
Adjustable Cells
Cell Name Original Value Final Value
$C$28 x13 > 0 9640
$C$29 x14 > 0 6740
$C$30 x15 > 0 0
$C$31 x17 > 0 4880
$C$32 x24 > 0 0
$C$33 x25 > 0 6960
$C$34 x213 > 0 8580
$C$35 x214 > 0 4460
$C$36 x36 > 0 6300
$C$37 x37 > 0 0
$C$38 x38 > 0 2130
$C$39 x39 > 0 1210
$C$40 x310 > 0 0
$C$41 x46 > 0 0
$C$42 x47 > 0 0
$C$43 x48 > 0 0
$C$44 x49 > 0 0
$C$45 x410 > 0 6120
$C$46 x411 > 0 0
$C$47 x412 > 0 620
$C$48 x413 > 0 0
$C$49 x414 > 0 0
$C$50 x510 > 0 0
$C$51 x511 > 0 4830
$C$52 x512 > 0 2130
$C$53 x513 > 0 0
$C$54 x514 > 0 0
Constraints
Cell Name Cell Value Formula Status Slack
$C$59 x13+x14+x15+x17 > 21260 $C$59<=30000 Not Binding 8740
$C$60 x24+x25+x213+x214 > 20000 $C$60<=20000 Binding 0
$C$61 x13-x36-x37-x38-x39-x310 > 0 $C$61=0 Not Binding 0
$C$62 x14+x24-x46-x47-x48-x49-x410-x411-x412-x413-x414 > 0 $C$62=0 Not Binding 0
$C$63 x15+x25-x510-x511-x512-x513-x514 > 0 $C$63=0 Not Binding 0
$C$64 x36+x46 > 6300 $C$64=6300 Not Binding 0
$C$65 x17+x37+x47 > 4880 $C$65=4880 Not Binding 0
$C$66 x38+x48 > 2130 $C$66=2130 Not Binding 0
$C$67 x39+x49 > 1210 $C$67=1210 Not Binding 0
$C$68 x310+x410+x510 > 6120 $C$68=6120 Not Binding 0
$C$69 x411+x511 > 4830 $C$69=4830 Not Binding 0
$C$70 x412+x512 > 2750 $C$70=2750 Not Binding 0
$C$71 x213+x413+x513 > 8580 $C$71=8580 Not Binding 0
$C$72 x214+x414+x514 > 4460 $C$72=4460 Not Binding 0
17
18