Question

The below mentioned question is sample for the questions abd please answer the same questions in a different manner.

Does the capacity shortage at the Denver facility invalidate the channel network plan?

Yes, the capacity shortage at the Denver facility invalidates the channel network plan because it will affect the company profits as well as there will be an increase in operating costs. The capacity shortage needs to be supplied from one or a combination of other channel facility and that causes additional cost in transportation and shipping of the products.

Based on the available capacity at each facility, which facility or combo of facilities should be used to absorb the excess demand at Denver?

Based on the available capacity at each facility, the Cincinnati facility is the nearest facility that can accommodate the excess demand at Denver. Even though Los Angeles is the nearest facility which has 300 Ton Miles from Denver, but the available capacity is only 5000. The other facilities are far from Denver such as Boston, New York, and Philadelphia. Thus, the Cincinnati facility can absorb the excess demand at the Denver, wherein the distance from Denver is 900 Ton Miles, with a transportation cost of $0.95/Ton Mile and an available capacity of 20,000 that will accommodate the excess 15,000 of Denver.

Answer 1

Does the capacity shortage at the Denver facility invalidate the channel network plan?

Yes, the capacity shortage at the Denver facility invalidates the channel network plan because of the following reasons,

1. Operating costs will increase since there is a shortage in Denver Facility the firm needs to source the supply form other facilities. As a result, different channel or combination of channels for transportation and other purposes must be used. And this will result in an increase in operating costs.
2. At the same time the amount supplied is not increasing neither does the demand. So, the profit decreases due to this increase in operational expenses.

Based on the available capacity at each facility, which facility or combo of facilities should be used to absorb the excess demand at Denver?

Let us consider some of the nearest facilities to Denver.

Los Angeles: It is the nearest one to Denver, with 300-ton miles distance. The available capacity is 5000.

Cincinnati: Distance from Denver is 900-ton miles, and available capacity is 20,000.

Some of the other facilities are New York, Boston and Philadelphia, but they are farther than the above mentioned two.

Since there is an excess of 15000 in Denver, Los Angeles cannot accommodate due to lower capacity, but Cincinnati can accommodate this excess amount. And with a transportation cost of $0.95/Ton mile Cincinnati is the best choice