WAREHOUSE LOCATION HEURISTIC

1. Locate a warehouse at the largest customer not within 300 miles of an existing
warehouse.
2. Calculate the cost.
3. Repeat 1 and 2 as long as cost decreases.
4. One at a time, replace each existing warehouse with a warehouse at another customer
if it decreases the cost.
Suppose the fixed cost is $2,500/month for each warehouse and the transportation cost is:
$500/month if the customer is located at the warehouse,
$1,000/month if the customer is within 300 miles of a warehouse,
$1,800/month if the customer is 301-600 miles from a warehouse and
$2,600/month if the customer is more than 600 miles from a warehouse.
The fixed cost is $2,500/month for each warehouse.
6

11

8
5

9
4

10

300 miles
12

Suppose the six largest customers, in order, are 5, 9, 8, 3, 1, 7.

SOLUTION
Steps 1-3 of the heuristic are summarized in the following table:
Number of Customers at Different
Distances
<300
300-600
>600
Cost ($/month)
1 (at 5)
2
7
2
20,300 + 2500 = 22,800
2 (at 5,9)
6
4
0
14,200 + 5000 = 19,200
3 (at 5,9,3)
8
1
0
11,300 + 7500 = 18,800
4 (at 5,9,3,1)
8
0
0
10,000 +10,000 = 20,000
Step 4: Try to replace the warehouses at 5, 9 and 3:
Should not replace warehouse 1 (at 5) or warehouse 2 (at 9).
Warehouse 3 (at 3) should be replaced by a warehouse at 2. (see table below)
Number of
Warehouses

Number of Customers at Different

Distances
<300
300-600
>600
Cost ($/Mo)
3 (at 5,9,2)
9
0
0
10,500 + 7500 = 18,000
Heuristic Solution: 3 warehouses at 5, 9 and 2; cost = $18,000/month
Number of
Warehouses