6. Adding Outbound Transportation to the Model

Up to this point, we’ve looked at models that have focused mostly on service levels and locating facilities as close to demand as possible. However, running a supply chain costs money. And, sooner or later, someone is going to ask you to financially justify the new supply chain design. That is, you are going to have to determine how much money you will save with the changes you are suggesting.

Transportation is often the most important cost in a network design study. A retail or manufacturing company may spend the equivalent of 2% to 3% of their total revenues on transportation alone. For a company with $5 billion in revenues, this could equate to $150 million in spend. You can imagine that reducing ...

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