USING EXCEL SOLVER
Based on Kolesar and Blum (1973). Suppose that
a company must service customers lying in an area
of A square miles with n warehouses. Kolesar and
Blum showed that when the warehouse(s) are located
properly,
the average distance between a warehouse
and a customer is (Ayn)1y2. Assume that it costs the
company $90,000 per year to maintain a warehouse
and $400,000 to build a warehouse. Also, assume that
a $5,000,000 building cost is equivalent to incurring a
cost of $500,000 per year indefinitely. The company
fills 180,000 orders per year, and the shipping cost per
order is $1.25 per mile. If the company serves an area
of 120 square miles, how many warehouses should it
have?
Can the formulas also be shown?