Based on Efroymson and Ray XXXXXXXXXXBreadco Bakeries is a new bakery chain that sells bread to customers throughout the state of Indiana. Breadco is considering building bakeries in three locations:...

Based on Efroymson and Ray (1966). Breadco Bakeries is a new bakery chain that sells bread to customers throughout the state of Indiana. Breadco is considering building bakeries in three locations: Evansville, Indianapolis, and South Bend. Each bakery can bake up to 900,000 loaves of bread each year. The cost of building a bakery at each site is $5 million in Evansville, $4 million in Indianapolis, and $4.5 million in South Bend. To simplify the problem, we assume that Breadco has only three customers. Their demands each year are 700,000 loaves (customer 1); 400,000 loaves (customer 2); and 300,000 loaves (customer 3).


The total cost of baking and shipping a loaf of bread to a customer is given in the file P06_76.xlsx. Assume that future shipping and production costs are discounted at a rate of 12% per year. Assume that once built, a bakery lasts forever. How would you minimize Breadco’s total cost of meeting demand, present and future? (Note: Although your model is actually linear, Solver might report that “the conditions for Assume Linear Model are not satisfied” if you do not scale your changing cells and costs in “natural” units, as discussed in Chapter 3. For example, costs can be expressed in units of $1 million or $100,000, and annual shipments can be expressed in units of 100,000 loaves.)