Texago Case Study Essay

4005 Words May 14th, 2013 17 Pages
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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
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Using units of 1 million barrels, these needed
amounts are shown on the left side of Table 3. The right side of the table shows the current
annual output of crude oil from the various oil fields. These quantities are expected to remain stable for some years to come. Since the refineries need a total of 360 million barrels
of crude oil, and the oil fields will produce a total of 240 million barrels, the difference of
120 million barrels will need to be imported from the Middle East.

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SUPPLEMENT TO CHAPTER 8

A CASE STUDY

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Since the amounts of crude oil produced or purchased will be the same regardless of
which location is chosen for the new refinery, the task force concludes that the associated
production or purchase costs (exclusive of shipping costs) are not relevant to the site selection
decision. On the other hand, the costs for transporting the crude oil from its source to a refinery are very relevant. These costs are shown in Table 4 for both the three current refineries and the three potential sites for the new refinery.
Also very relevant are the costs of shipping the finished product from a refinery to a distribution center. Letting one unit of finished product correspond to the production of a refinery from 1 million barrels of crude oil, these costs are given in Table 5. The bottom row…

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