A Least-Cost-per-Lane Solution

The cost associated with these decisions is obtained by multiplying the decisions with the corresponding costs on each lane to obtain a total cost of 1,070,000. But notice that when the first set of decisions was made by the customer zones, the zones did not consider which plants supply the warehouses. In addition, when the customer zones chose their closest warehouse, the deployment of the capacity of plant P2 is not accounted for. 

the resulting decision may not generate the lowest-cost decision for the supply chain. The key takeaway from this example is that myopic, single-stage optimal decisions may not generate the best result throughout the entire supply chain. But how much can the solution be improved  

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A least-cost-per-lane solution ignores the network structure and chooses the minimum- cost warehouse to supply each customer zone, i.e., each customer zone gets delivery from the closest warehouse. In turn, the warehouses are supplied from the closest plant subject to capacity constraints. For the network shown in Figure 2.5, the corresponding decisions regarding how much each plant produces, the quantities shipped to each warehouse, and the quantities shipped by each warehouse to customer zones are shown in the Figure 2.6. 

Figure 2.6 Results using a least Cost-per-lane solution...

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