Network Analysis

How do fuel prices effect distribution networks?

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Optimizing a distribution network with increasing fuel costs: analyzing the quantity, location, and size of optimal facilities

Increasing fuel demand and the inability of oil supply to keep up with demand have led to record highs in the cost of transportation fuels. As the cost of transportation increases, stress is felt by supply chain networks around the globe. The researchers have conducted an experiment to optimize the distribution network of a United States-based furniture manufacturer while factoring in the increasing cost of transportation. The objective of a network optimization is to select the optimal number, location, and size of warehousing facilities within a distribution network. In this study, the optimization was conducted using LogicNet Plus XE. The researchers will show that there will be a direct, positive correlation between the price of fuel and the number of facilities the experiment determines as optimal.

The following images can be viewed to see the changes to a distribution network as the cost of fuel increases. For the network in question, the optimum number of facilities was 7 when the cost of diesel fuel was $2.50 per gallon. As the price of fuel increased to $3.50 per gallon, the optimal number of facilities increased to 10. This change occurs in order to balance the cost of operating additional facilities with the increased cost associated with transporting goods. By adding more facilities to the network, the transportation links are shortened to mitigate the increasing costs of fuel.