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IE 7325: Supply Chain Management Case Study 2 Submitted by: Ashish Shadija (FJ9668)
Synopsis: Given case study talks about the BioPharma Inc. and problem faced by them in 2009. The firm had experienced a steep decline in profits and very high costs at its Germany and Japan plant. For coming years, demand was expected to be stable because of which they can afford surplus capacity in there global production network. Thus cutting costs was top most priority for the coming years. BioPharma mainly produce and sell two major chemicals. All of their plants are capable of producing these two chemicals. In order to cut cost, company is looking to idle Germany or Japan plant or even if a plant is limited to producing only one chemical. They are also focusing on which plant should produce how much and what all possibilities are available considering factors like exchange rates and import duties.
Questions: 1. How should BioPharma have used its production network in 2009? Should any of the plants have been idled? What is the annual cost of your proposal, including import duties? BioPharma could have used its production network in 2009 much better. It can be easily seen from the data shown in the case study that Japan plant was utilized for only 20% of its capacity. It was not worth running this plant. It was unnecessary expense of the variable cost. In this situation, Japan plant could have ha ve been idled. 2. How should Landgraf structure his global production network? Assume that the past is a reasonable indicator of the future in terms of exchange rates. From the information given in case study about the history of exchange rates in Currency/US$1, we can clearly see that exchange rate of Euro, Indian Rupee and Japanese Yen have been decreased over last 6 years. Whereas Brazilian Real and Mexican Peso exchange rates has been increased over the last 6 years. Thus in order to structure the global production network, it would be much more profitable to if there is much more production in Brazilian and Mexican plant. As having maximum production in these two plants will give products at low rates as compared to the products from Japan. 3. Is there any plant for which it may be worth adding a million kilograms of additional capacity at a fixed cost of $3 million per year? No, currently it’s not worth adding a million kilograms of additional capacity at a fixed cost to any plant. From the information given in the case study, we can clearly see that all
the plants are running below their capacity. Almost every plant is not being utilized to its maximum capacity available. In this scenario, it not advisable to add extra capacity, instead all the plants should be optimized first to its maximum capacity utilization than additional capacity should be added. 4. How are your recommendations affected by the reduction of duties? In order to affect the reduction of duties, they should increase the capacity of Latin America, Asia w/o Japan and Mexico as they have very high import duties which will increase the cost. Thus they should try to increase the production in there Latin American, Asia w/o Japan and Mexico Plants and should avoid import of chemicals from U.S., Germany and Japan so that they cater there domestic demand and can eventually export to rest of the plants. 5. The analysis has assumed that each plant has a100 percent yield (percent output of acceptable quality). How would you modify your analysis to account for yield differences across plants? In order to account for the yield difference across the pants, we can consider the yield differences across plants as losses. Now under the losses variable we can include the yield losses in it. 6. What other factors should be accounted for when making your recommendations? There are a lot of other factors which affects the Global Supply Chain network. In order to make network model much more reliable and risk proof, I would like to consider following factors:
Volatility of fuel prices: Similar to the instability in the exchange rates, most of the time there is a lot of fluctuation in the prices of fuel due to the instability of the market. As a result transportation cost is highly affected. Thus one should also consider the volatility of fuel prices also. Forecasting: It has been always said that forecasting are always wrong. Forecasting do helps in giving a rough idea about the future but company should also be ready for the extreme conditions. Thus should make sure that there panning is accurate. Considering the factor that there might be a situation where there can be shortage of skilled resources. Company should have more options so that whenever there is a need they can use it without depending upon someone. For ex: company should not depend solely on one supplier as there may be situation where that particular supplier is not able to deliver the product. Within global supply chain network, there can be many other problems like custom delays, communication issues, logistic complexity etc. Thus all this factors should also be considered.
