Optimal distribution of revenue generating assets in an agricultural cooperative retail system

Abstract

Changes in farm structure and increased competition have placed pressure on cooperatives' retail distribution system to meet their farmers changing needs in a profitable fashion. This research attempted to identify changes in regional profitability resulting from different consolidation alternatives for farm supply outlets. Cost and revenue coefficients were developed from available data in the Maryland region, including sales by zip code. Linear and integer programming were used to maximize profit across nine stores given those stores' 1983 gross margin percentages, operating costs, and asset capacities. The optimal solutions of several scenarios indicated that several stores could be closed with little effect on the region's total sales. Specialization through consolidation provided the most profitable venture, especially in product lines requiring processing such as bulk fertilizer and feed.