Problem:
Even though we don't have the cost of opening a warehouse in the model, what information does the model give us in terms of what this cost needs to be for these solutions to be effective? The difference in cost between solutions with the Best 2 vs Best 3 provide information on the fixed cost of the 3rd warehouse. It should be less than this transportation savings. Likewise, the cost difference between the Best 3 and Best 4 shows the fixed cost threshold of adding the 4th warehouse. For example, the cost difference between the Best 4 and 5 is approximately $6.5M. So, if the warehouse fixed cost is less than this (ignoring other costs), then the model would add this 5th warehouse. So, the $6.5M gives us a good number to help make decisions. Will the extra costs of this 5th warehouse be much less than the $6.5M? If so, it is worth it to add this warehouse.