LSCM 607 Optimization Models and Methods

Case#3: The Supply Chain Network Challenge

A retailing company, RETAIL-Z, owns a set of r stores R ¿ { 1 ,.. j, … r } each categorized by
annual demand volume of D j , j ∈ R . To replenish the stores’ inventory, RETAIL-Z used to work
on business model built on supplier-based direct replenishment. After the business expansion and
after facing several issues with direct replenishment business model, RETAIL-Z decided to build
its own warehousing network. To do so, the company identified a set of s candidate sites
S= { 1, … , i ,… s } that can be potentially used to locating the warehouses. At each site, RETAIL-Z
can build three types/categories of warehouses {S, M, L}, Small size warehouse (S), Medium
size warehouse (M) or Large size warehouse (L). Each category is characterized by a maximum
capacity referred to as CW K , K ∈ { S , M , L } , where CW S , CW M and CW L is the capacity of the
small, medium and large warehouse respectively. Building a warehouse of type k ∈ { S , M , L } at
site i∈ { 1. .n } would require an investment/fixed cost of I ki . Moreover, the per unit handling cost
at warehouse type k ∈ {S , M , L} at site i∈ { 1. .n } has been estimated to be H ki . In addition to
above described costs, RETAIL-Z have estimated the transportation cost of moving one unit of
product between any potential site/warehouse i and store j denoted by t ij. Assume the
transportation inputs are summarized in a (n) by (r) matrix T (n, r).

The question posed by RETAIL-Z is where to locate the warehouses (and of which type), and
how to assign stores to warehouses so that all stores’ demands are fully satisfied with a minimum
cost. (Note a store’s demand can be fulfilled from more than one warehouse facility).

Question-1: Propose a Linear Programming Formulation for RETAIL-Z challenge. You must
use the afore defined notations and indexes. Clearly specify (mathematical + description, i.e,
each line of the mathematical formulation should be explained) of the following :(1) decision
variables, (2) objective function, and (3) constraints.

Question-2: Build your model on Cplex OPL and solve the given data set.
The company is operating in a 50 by 50 km city, it owns a set of 50 retailing stores as shown in
the figure. Management identified 15 candidate sites as potential location for warehouses and
identified the different costs at each site. You are given in the excel file the X and Y coordinates
of all facilities, use Euclidean Distance to calculate the distance between any two points.
Assume its costs 0.5 QR to move one item one km.

Retailing Network
Candidate Sites for warehouses
Retailing Stores

50

40

30

20

10

0
0 10 20 30 40 50

Hint: Probably you need to construct a 65 (50 +15) by 65 (50+15) distance matrix. An easier
way would be to use OPL to calculate the distance and construct the matrix for you. (Execute
function)

Question-3-Propose a graphical display/ layout of your solution (map) and discuss the solution
and the new network design.

Required Deliverable:
You should provide a PowerPoint presentation with the following:
1-Title page with group Full names:

2- Detailed Model Formulation (parameters, decision variables, objective function and constraints)

3- 3 Screenshots from OPL Implementation: 1-Model File, 2- Data File and 3-Solution Log

(*) I will check in the class whether your Model is running or not

4-Solution Display, Discussion and Comments.

Each group is going to have 10 min in class to defend their choices and solutions.