A Firm Has Established a Distribution Network for the Supply

question 81

Essay

A firm has established a distribution network for the supply of a raw material critical to its manufacturing. Currently there are two origins for this raw material, which must be shipped to three manufacturing plants. The current network has the following characteristics:
$\begin{array}{|l|r|r|r|r|}\hline\text { COSTS } & \text { Plant 1 } & \text { Plant 2 } & \text { Plant 3 } & \text { Supply } \\\hline\text { Raw material source 1 } & \$ 6 & \$ 8 & \$ 9 & 400 \\\hline\text { Raw material source 2 } & \$ 4 & \$ 7 & \$ 3 & 600 \\\hline\text { Demand } & 500 & 500 & 500 & 1500 \backslash 1000\\\hline\end{array}$
The firm has identified two potential sites for a third raw material source; these are identified as Candidate A and Candidate B. From A, the costs to ship would be $9 to Plant 1, $10 to Plant 2, and $12 to Plant 3. From B, these costs would be $11, $14, and $8. The new source, wherever it is located, will have a capacity of 500 units. Set up-but DO NOT SOLVE- this problem as though you were going to solve it with transportation problem software.

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Definitions:

Scenario Analysis

The process of examining and evaluating possible events or scenarios that could affect the outcome of a decision or investment.

Operating Cash Flow

Cash generated by a company’s normal business operations, indicating whether a company can generate sufficient positive cash flow to maintain and grow its operations.

Degree Of Operating Leverage

The Degree of Operating Leverage measures how a company's operating income changes in response to a change in sales, indicating the sensitivity of profits to variations in sales volume.

Operating Cash Flow

Cash generated from a company's regular business operations, indicating its ability to generate sufficient funds to maintain and grow operations.