Locating Manufacturer Distribution Centers by a Fixed-Charge Model: A Case Study of Kinmen Kaoliang Liquor Inc.

Abstract

Kinmen Kaoliang Liquor Inc. (KKL), once a nonprofit government monopoly, was corporatized in 1998. Cost reduction and profit maximization became the new corporation's main goal. Located on an island off the main island of Taiwan, KKL sells over 90 percent of its produced liquor domestically. In order to restructure its distribution system, KKL is planning to establish the distribution centers (DCs) on the main island of Taiwan. This study aimed to provide the decision support from a quantitative aspect for KKL's strategic plan. The classic fixed-charge model was modified to take into consideration the inbound and outbound transportation costs of the DCs as well as the variable and fixed components of the DC facility costs. This study collected and estimated the relevant parameters in the model, and obtained the optimized solution. The results indicated that three DCs need to be established with a total system cost of NTD 110,786,400 per year.