Transportion Problem Essay Example

Oil Fields to all the refineries, including the new one.

Now the production data for Texago Corporation is as follows:

Table 1. 2 The Crude Oil Requirement at various Refineries Refinery

Therefore, there is a shortfall of 120 Million Barrels, which Texago Corporation needs to fulfill by means of imports. Management wants all the refineries, including the new one, to operate at full capacity. Since the amounts of crude oil produced or purchased will be the same regardless of which location is chosen for the new refinery, the management concludes that the associated production or purchase costs (exclusive of shipping costs) are not relevant to the site selection decision.

The costs for transporting the crude oil from its source to a re-finery are very relevant, which are as follows:

Table 1. 4 Cost of transporting Cruse Oil from an Oil Field to the refinery

Table 1. 5 Cost of shipping the Finished product from the Refineries to the Distribution Centres

CHECKING THE OPERATING COSTS FOR LOS ANGELES

Using Solver & Excel, when we solve the Transportation problem for the supply from Oil Wells to the refineries, we get the following Optimal Solution. The Minimum cost is $ 880 Million. Now, we look at the minimum operating

costs incurred when we ship the petroleum from the Oil Refineries to the Distribution Centres. Following is the solution: The Cost incurred after shipping the petroleum to the Distribution Centres is $1570 Million.

So, the minimum cost that Texago Corporation will have to incur when they set up their refinery at Los Angeles will be 880+1570 i. e. $2450 Million.

OPERATING COSTS FOR GALVESTON

Now, for Galveston the Shipping Costs for transporting Oil from Wells to the Refinery will be $920 Million, as solved in Excel. Now the Minimum Shipping Costs that will be incurred when transporting Petroleum from Galveston to the Distribution Centres turns out to be $1630 Million. The Total Cost that has to be incurred will be $2550 Million.

CALCULATING THE SHIPPING COSTS FOR St. LOUIS

Again, the Shipping Costs will have to be calculated for transporting Oil from various Oil Wells to the refineries. The Minimum Cost this time is $920 Million. And the Shipping Costs for transporting Petroleum from the Refineries to the Distribution Centres turn out to be $1430 Million The total cost here is $2350 Million. We see that the Shipping Costs will be minimized if the New Refinery is established at St. Louis.

CONCLUSION

Therefore, we see that the Transportation Problem plays a pivotal role in any organization as it helps the management and employees decide which strategy to take up, so as to minimize the costs.

Also, it can help them maximize the returns from a particular venture. However, Transportation Problem has its own limitations as it does not include any other factors such as operating costs, capital expenditures, revenue expenditures etc. Though these can be incorporated in the analysis, separately.

REFERENCES

Operations Research, By C.

K. Mustafi, New Age International Pvt. Ltd. , Publishers. Quantitative Techniques in Management, By N. D. Vihra, Tata McGraw Hill