The Sudoku for Selection of a New Refinery Site Using Transportation Problem: A Case of American Oil Industry

A transportation problem is in general concerned with the use or allocation of scarce resources such as labor, materials, machine-time and capital in the best possible manner, so that either costs are minimized or profits are maximized. However the real life situation often, differs from the theoretical one. In the allocation of resources one often has to consider various other influencing parameters which play a dominant role in the decision making process. The decision is often not only minimization of costs or maximization of profits but could be as complex as maximization of profit through minimization of costs which can be achieved through in-house production of the viable components and outsourcing of the non-viable ones. This again brings in many additional sub-decisions like choice of the supplier, the technical contract to be entered into, the payment mechanisms and the service level agreement etc. The judicious mix of all these sub-decisions go into the crafting of a master decision which often decides whether the core competence of most economic production is maintained. The objective of this paper is to seek a holistic understanding of the transportation problem which has wide applications across the industry and a reasonable understanding of the decision making process while undertaking a production or outsourcing decision. We have chosen Texaco Corporation for our study. Key words