Total Cost Minimization Transportation Problem – A Case Study of Carl Star

Abstract

Optimization models can be used to determine the lowest cost solution to ship products from the manufacturing origin to the end customer. This Capstone developed a mixed integer linear programming model for Carl star, a global leader in the specialty tire and wheel industry. The objective was to identify the optimal routing solution of problem to minimize total cost transportation and tariff costs for each of the company’s five product market segments. The model provided for multiple possible routing options, including shipping direct to the customer from the manufacturer or through a distribution center. Multiple scenarios were run using different rates for transportation costs, tariffs, and customer demand. Model constraints included manufacturing location, demand, and flow balance through the distribution centers. Results indicate that Carl star could save almost 20% on distribution costs by increasing the number of direct to customer shipments. The impacts of tariffs demand fluctuations and handling costs were smaller than expected, indicating that once an updated transportation network is established, it would not have to be updated very often to maximize potential cost savings.