The Tata Beverages Company operates a plant in Paonta Sahib with an annual capacity of 40,000 units.

Product is transported to regional distribution centers located in Vishakhapatnam, Kochi, Chennai.

Because of an anticipated increase in demand, Tata beverages plans to increase capacity by constructing a
new plant in one or more of the following cities: Delhi, Mumbai, Kolkata, and Hyderabad. The estimated
annual fixed cost and the annual capacity for the four proposed plants are as follows:
Proposed Plant Annual Fixed Annual Capacity
Cost
Delhi Rs.13125,000 15,000
Mumbai Rs.22500,000 25,000
Kolkata Rs.28125,000 35,000
Hyderabad Rs.37500,000 45,000

The company’s long-range planning group developed forecasts of the anticipated annual demand at the
distribution centers as follows:
Distribution Annual Demand
Center
Vishakhapatnam 30,000
Kochi 20,000
Chennai 20,000

The shipping cost per unit from each plant to each distribution center is shown in Table 1. A network
representation of the potential Tata beverages distribution system is shown in Figure 7.7. Each potential plant
location is shown; capacities and demands are shown in thousands of units. This network representation is for a
transportation problem with a plant at Paonta and at all four proposed sites. However, the decision has not yet
been made as to which new plant or plants will be constructed.
Let us now show how 0-1 variables can be used in this distribution system design problem to develop a model
for choosing the best plant locations and for determining how much to ship from each plant to each distribution
center. We can use the following 0-1 variables to represent the plant construction decision:
y1 5 1 if a plant is constructed in Delhi; 0 if not
y2 5 1 if a plant is constructed in Mumbai; 0 if not
y3 5 1 if a plant is constructed in Kolkata; 0 if not
y4 5 1 if a plant is constructed in Hyderabad; 0 if not
SHIPPING COST PER UNIT FOR THE MARTIN-
BECK DISTRIBUTION SYSTEM
Distribution Centers
Plant Site Vishakhap Kochi Chennai
atnam
Delhi 5 2 3
Mumbai 4 3 4
Kolkata 9 7 5
Hyderabad 10 4 2
Bangalore 8 4 3
The variables representing the amount shipped from each plant site to each distribution center are defined just as
for a transportation problem.
xij 5 the units shipped in thousands from plant i to distribution center j i 5 1, 2, 3, 4, 5 and j 5 1, 2, 3
Using the shipping cost data in Table 7.2, the annual transportation cost in thousands of Rupees is written
5x11 1 2x12 1 3x13 1 4x21 1 3x22 1 4x23 1 9x31 1 7x32 1 5x33
1 10x41 1 4x42 1 2x43 1 8x51 1 4x52 1 3x53
The annual fixed cost of operating the new plant or plants in thousands of rupees is written as 175y1 1 300y2 1
375y3 1 500y4
Note that the 0-1 variables are defined so that the annual fixed cost of operating the new plants is only calculated
for the plant or plants that are actually constructed (i.e., yi 5 1). If a plant is not constructed, yi 5 0 and the
corresponding annual fixed cost is $0.
The Martin-Beck objective function is the sum of the annual transportation cost plus the annual fixed cost of
operating the newly constructed plants.
Now let us consider the capacity constraints at the four proposed plants. Using Delhi as an example, we write the
following constraint:
x11 1 x12 1 x13 # 10y1 Delhi capacity
If the Delhi plant is constructed, y1 5 1 and the total amount shipped from Delhi to the three distribution centers
must be less than or equal to Delhi’s 10,000-unit capacity. If the Delhi plant is not constructed, y1 5 0 will result
in a 0 capacity at Delhi. In this case, the variables corresponding to the shipments from Delhi must all equal zero:
x11 5 0, x12 5 0, and x13 5 0.
In a similar fashion, the capacity constraint for the proposed plant in Mumbai can be written
x21 1 x22 1 x23 # 20y2 Mumbai capacity
Similar constraints can be written for the proposed plants in Kolkata and Hyderabad. Note that because a plant
already exists in Bangalore, we do not define a 0-1 variable for this plant. Its capacity constraint can be written as
follows:
x51 1 x52 1 x53 # 30 Bangalore capacity
Three demand constraints will be needed, one for each of the three distribution centers.
The demand constraint for the Vishakhapatnam distribution center with units in thousands is written as
x11 1 x21 1 x31 1 x51 5 30 Vishakhapatnam demand Similar constraints appear for the Kochi and Chennai
distribution centers.
The complete model for the Martin-Beck distribution system design problem is as follows:
Min 5x11 1 2x12 1 3x13 1 4x21 1 3x22 1 4x23 1 9x31 1 7x32 1 5x33 1 10x41 1 4x42
1 2x43 1 8x51 1 4x52 1 3x53 1 175y1 1 300y2 1 375y3 1 500y4
x11 1 x12 1 x13 Vishakhapatnam demand Kochi demand Chennai
x21 1 x22 1 x23 demand
x31 1 x32 1 x33
x41 1 x42 1 x43
x51 1 x52 1 x53
x11 1 x21 1 x31 1 x41 1 x51
x12 1 x22 1 x32 1 x42 1 x52
x13 1 x23 1 x33 1 x43 1 x53
# 10y1 # 20y2 # 30y3 # 40y4 # 30
5 30
5 20
5 20
Delhi capacity Mumbai capacity Kolkata capacity
Hyderabad capacity Bangalore capacity
xij $ 0 for all i and j; y1, y2, y3, y4 5 0, 1
The solution for the Martin-Beck problem is shown in Figure 7.8. The optimal solution calls
for the construction of a plant in Hyderabad (y4 5 1); 20,000 units will be shipped from
Hyderabad to Kochi (x42 5 20), 20,000 units will be shipped from Hyderabad to Chennai
(x43 5 20), and 30,000 units will be shipped from Bangalore to Vishakhapatnam (x51 5 30).
Note that the total cost of this solution including the fixed cost of $500,000 for the plant in
Hyderabad is $860,000.
This basic model can be expanded to accommodate distribution systems involving direct
shipments from plants to warehouses, from plants to retail outlets, and multiple products.2
Using the special properties of 0-1 variables, the model can also be expanded to
accommodate a variety of configuration constraints on the plant locations. For example,
suppose in another problem, site 1 were in Ahmedabad and site 2 were in Mehsana. A
company might not want to locate plants in both Ahmedabad and Mehsana because the cities
are so close together. To prevent this result from happening, the following constraint can be
added to the model:
y1 1 y2 # 1
This constraint allows either y1 or y2 to equal 1, but not both. If we had written the
constraints as an equality, it would require that a plant be located in either Ahmedabad or
Mehsana.