Texago Case Study

3997 WordsMar 6, 201316 Pages
hil61217_ch08_supplement.qxd 5/12/04 17:22 Page 8S-1 8 SUPPLEMENT TO CHAPTER A Case Study with Many Transportation Problems Background The Texago Corporation is a large, fully integrated petroleum company based in the United States. The company produces most of its oil in its own oil fields and then imports the rest of what it needs from the Middle East. An extensive distribution network is used to transport the oil to the company’s refineries and then to transport the petroleum products from the refineries to Texago’s distribution centers. The locations of these various facilities are given in Table 1. Texago is continuing to increase market share for several of its major products. Therefore, management has…show more content…
Estimating these costs requires site visits by several members of the task force to collect detailed information about local labor costs, taxes, and so forth. Comparisons then are made with the operating costs of the current refineries to help refine these data. In addition, the task force gathers information on one-time site costs for land, construction, and so forth, and amortizes these costs on an equivalent uniform annual cost basis. This process leads to the estimates shown in Table 6. Analysis (Six Applications of a Transportation Problem) Armed with these data, the task force now needs to develop the following key financial information for management: 1. Total shipping cost for crude oil with each potential choice of a site for the new refinery. 2. Total shipping cost for finished product with each potential choice of a site for the new refinery. I TABLE 4 Cost data for shipping crude oil to a Texago refinery Cost per Unit Shipped (Millions of Dollars per Million Barrels) Refinery or Potential Refinery New Orleans Charleston Seattle Los Angeles Galveston St. Louis Texas California Alaska Middle East Source 2 5 5 2 4 5 7 3 5 3 3 5 3 1 4 4 1 3 5 3 1 4 7 4 I TABLE 5 Cost data for shipping finished product to a distribution center Pittsburgh Cost per Unit Shipped (Millions of Dollars) Distribution Center Atlanta

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