Let $G = (V, E)$ be a connected graph expressing a distribution network. The elements of $D \subseteq V$ represent demand centers, while $S \subseteq V$ contains the candidate supply centers. To each node $v_i \in D$, we associate a demand $d_i$, and to each clement $v_j$ of S the couple $(e_j, c_j)$, where $e_j$ and $c_j$ are the set up cost and the capacity of $v_j$ respectively. Furthermore, the distance for every arc $(v_i, v_j) \in E$ and the transportation cost of the product unit are given. In this paper an algorithm is developed which determines a subset of S in order to satisfy the demands with a minimum distribution cost, so that the total set up cost of supply centers does not exceed a given budget.