A manufacturer and distributor of flooring products including carpet, tiles, and hardwood uses a third party with a dedicated fleet to deliver to its customers. The products are picked up from a local warehouse and deliveries are made to customers located within a specific region around the warehouse. The negotiated transportation rates are based on the following structure:

The truck typically makes multiple deliveries on a trip, so the cost per mile is applied on the total miles driven. Does this rate structure make sense? Why does the rate increase with an increase in distance? For a customer located 350 miles from the warehouse, what is the transportation cost per unit (assume that there were 300 units per shipment for this customer and that this is the only customer delivered on this trip).
If this company were to optimize the warehouse network using this rate structure in place, how would this impact the locations selected? Would the results be different if there was no minimum charge in the rate structure?

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Cost per Mile Distance 0-100 miles 100-300 miles 300-500 miles >500 miles Minimum Charge $200 $200 $200 $200 $1.50 $1.80 $2.20