Hutchinson Gas Service Company: Making Location and Distribution Decisions

The Hutchinson Gas Service Company markets a product line that consists of inert and chemically pure gases used in industrial processes, chemical laboratories, and hospitals. The company fills special high pressure tanks with these gases, delivers the tanks to the customer on a weekly basis, and collects the empty tanks for processing and refilling at the firm’s tank servicing facilities. The company began operations in a small building in Indianapolis, Indiana in 1947 and has since expanded its market to include customers located throughout northern Indiana. These customers are presently supplied from four tank servicing facilities. Recently George Hutchinson, the owner of the company, signed an option to buy a building in Marion, Indiana as a potential site for a new service facility. Mr. Hutchinson is currently trying to decide whether to exercise his option on the building.

Background:

The firm’s first customers included several industrial plants and a chemical laboratory in Indianapolis. Initially, the company provided all of the service associated with servicing and delivering tanks of inert and chemically pure gases to these customers. In addition to making the deliveries, Mr. Hutchinson contacted potential customers and managed the office. As the business grew, he hired driver to make the deliveries. Eventually, the bulk of the firm’s business was located outside of greater Indianapolis area and a considerable amount of Mr. Hutchinson’s times was devoted to scheduling the delivery and pickup of the tanks. In 1951, Mr. Hutchinson signed a contract with Indiana Transporters, Inc., in which Indiana Transporters agreed to deliver the full tanks and return the empty tanks to the servicing facilities. Gradually, a close working relationship developed between the two companies. Indiana Transporters still performs the delivery operations for the company.

After subcontracting the delivery service to Indiana Transporters, Mr. Hutchinson began to devote more of his time to marketing activities and managing the tank servicing facilities. As he developed customers in new locations in Indiana, he added tank-servicing facilities at some of these locations. At the present time the company operates four tank servicing facilities in the state, located in Indianapolis, Lafayette, South Bend, and Terre Haute. The company’s customers are located at these and other cities in the northern two-third of the state.

Tank Servicing Facility Activities:

The tank servicing facility operations include preparing full tanks of gas for delivery to the customers and processing empty tanks. When the tanks are delivered to the customers, the gas is under very high pressure and any weaknesses in the tank could result in an explosion. Because of this, the empty tanks are tested for damage when they are returned to the tank servicing facility.