Transcript Applichem Case

Applichem Case
OM 888
Supply Chain Modeling and Analysis
Applichem
• Produces Release-ease, a specialty chemical
• 6 plants that manufacture Release-ease
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–
–
–
–
–
Gary, Indiana
Frankfurt, Germany
Mexico
Canada
Venezuela
Japan (Sunchem)
• Competitive Situation
– Applichem = Market Leader,
Revenues $ 75 Million (1982)
• Main competitor has one large plant
What is the Objective?
– Minimize cost?
• What costs?
– Transportation
– Manufacturing
– Fixed versus variable?
• What are appropriate measures?
– How to incorporate exchange rate changes?
– What about different sizes and capabilities of
plants?
Compare Plants
Factor
Gary
Plant Design,
Size,
Maintenance,
etc
1905+
1955+
1960s
Capacity 18.5M Cap. = 3.7M lbs Cap. = 47M lbs
lbs
Product
Variety &
Packaging
20 product
families
8 formulations
(of Releaseease) & 80
package sizes
Sales Volume
& Utilization
(1982)
Product Cost
$/CWT
Raw Mat’l A
Yield
& % Active
Ingredient
Others (Labor,
etc.)
14M lbs or 75.7 2.6M lbs or
%
70.3 %
102.93
90.4 % & 84.6
Canada
5 product
families
Only 50 kg
packages
97.35
91.1 % & 84.7
Frankfurt
Mexico
Venezuela
‘68, similar to
Gary
Cap. = 22M lbs
‘64, no frills
design
Cap. = 4.5M lbs
Sunchem,
Japan
1957
Cap = 5M lbs
13 products
7 products
2 formulations 50 kg packages
bulk shipments;
50 kg packages
2 products
50 kg bags
2 products
many ½ kg, 1
kg, etc.,
packages
38M lbs or 80.9 17.2M lbs or
%
78.2 %
4.1M lbs or
91.1 %
4M lbs or 80.0
%
76.69
98.9 % & 84.4
1000 non-union Non-union
600 workers,
workers, loyal
workers, quality two different
conscious
processes,
computer
control
95.01
116.34
153.80
94.7 % & 85.6
91.7 & N/A
98.8 % & 85.4
Low worker
education,
serves Far East
+ local mkt
Low worker
education, old
equipment
Technically
excellent, have
test labs, no
union but more
workers.
What measurement should we use?
• What is a fair comparison? (economies of scale,
different technologies)
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Cost per pound to manufacture? (different costs)
Total labor/volume? (labor costs, packaging issues)
Capital/volume? (capacity issues)
Cost before packaging per pound?
Costs at different plants
Cost (1982 $ per cwt)
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total
95.01
97.35
116.34
76.69
102.93
153.8
Before Packaging
92.63
93.25
112.31
73.34
89.15
149.24
Cost (1977 $ per cwt)
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total
121.88
66.31
67.16
66.81
64.27
119.95
Before Packaging
118.82
63.51
64.83
63.89
55.67
116.39
Volume versus Yield
Yield on Raw Mat'l A
1
Frankfurt
Sunchem
0.98
0.96
Mexico
0.94
Venezuela
0.92
Gary
Canada
0.9
0.88
0
10
20
Production Volume
30
40
Too Much Capacity?
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Production Idle Capacity
17.2
4.8
2.6
1.1
4.1
0.4
38
9
14
4.5
4
1
Total Demand = 79.9 M lbs; Total Capacity = 100.7 M lbs
Should we close a plant?
Which one?
Might there be reasons for having excess capacity or keeping all
plants open? Safety problems (chemical), transport costs/time, hedging
One Approach: LP Model
Purpose
Conduct “what-if” analysis to find better network supply chain
structure
Objective
Minimize costs measured in some common form (1982 U.S. $)
Decision Variables
How much to make at each plant; how much to ship between
regions
Constraints
Capacity constraints, demand limitations, non-negativity (import
restrictions, etc.)
Data
Costs, import tariffs, exchange rates, capacity/demand info
How to Solve?
• Basic “what if” analysis
– Trial-and-error
– Inefficient, not guaranteed to get optimal solution
• Excel Solver
Still, is this necessarily the best (or even a
good) solution?
Things change (exchange rates, inflation,
etc.)
http://www.oanda.com/convert/classic
http://www.sunshinecable.com/~eisehan/V80-10en.htm
International Monetary Fund: International Financial Statistics Yearbook.
Is there a better way to solve?
Start
Simulate Spot Exchange Rates & Demand
Recalculate Spreadsheet Input
Run Optimization of Supply Chain Network
Get Global After-Tax Profit
Show Distribution of Simulation Results
What’s the Point?
• Conclusion:
Recourse actions from excess
capacity can improve expected
profit while reducing risk!
Recourse actions – capacity decisions made
before demand realized; production decisions
made after demand realized.
Other Actions Spadaro Could Take?
• Sharing technology and innovations across
plants
– Improve Gary’s yield
– Reduce costs in Venezuela
– Sunchem is high-cost, but also extremely efficient
• What is impact of closure?
– Changing management structure
• Ensure technology and improvements transfer
• If we close our most technologically advanced plant, what
does this tell others about priorities?
Just Can’t Get Enough Applichem…
• Check out:
Lowe et al. “Screening Location Strategies to Reduce
Exchange Rate Risk.” European Journal of
Operations Research. 2002.
Cohen and Huchzermeier. “Global Supply Chain
Management: A Survey of Research and
Applications.” Chapter 21 in Quantitative Models for
Supply Chain Management. Eds. S. Tayur, R.
Ganeshan, M. Magazine. 1999.