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Merging Supply Chains of Sleekfon & Sturdyfon

The document outlines an assignment for Al Akhawayn University students focusing on designing supply chain networks for various companies, including Sunchem, a printing ink manufacturer, and Tmark, a telecom firm. It presents scenarios for production planning, cost analysis, and network optimization, considering factors like capacity, demand, production costs, and transportation costs. Additionally, it discusses the implications of a merger between two cell phone manufacturers, Sleekfon and Sturdyfon, on their production and distribution networks.

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32 views3 pages

Merging Supply Chains of Sleekfon & Sturdyfon

The document outlines an assignment for Al Akhawayn University students focusing on designing supply chain networks for various companies, including Sunchem, a printing ink manufacturer, and Tmark, a telecom firm. It presents scenarios for production planning, cost analysis, and network optimization, considering factors like capacity, demand, production costs, and transportation costs. Additionally, it discusses the implications of a merger between two cell phone manufacturers, Sleekfon and Sturdyfon, on their production and distribution networks.

Uploaded by

sanaerbh792
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Al Akhawayn University Logistics and Supply Chain Mgt

School of Business Administration Dr. Yassine Benrqya

Assignment #1 –Designing the Supply Chain Network


1. Sunchem, a manufacturer of printing inks, has five manufacturing plants worldwide. Their locations and capacities
are shown in Table 2 along with the cost of producing 1 ton of ink at each facility. The production costs are in the
local currency of the country where the plant is located. The major markets for the inks are North America, South
America, Europe, Japan, and the rest of Asia. Demand at each market is shown in Table 2. Transportation costs from
each plant to each market in U.S. dollars are shown in Table 2. Management must come up with a production plan
for the next year.
a) If exchange rates are expected as in Table 3, and no plant can run below 50 percent of capacity, how much
should each plant produce and which markets should each plant supply?
b) If there are no limits on the amount produced in a plant, how much should each plant produce?
c) Can adding 10 tons of capacity in any plant reduce costs?
d) How should Sunchem account for the fact that exchange rates fluctuate over time?

Table 2 Capacity, Demand, Production, and Transportation Costs for Sunchem


North South
America Europe Japan America Asia Capacity Production
Tons/Year Cost/Ton
United States $600 $1,300 $2,000 $1,200 $1,700 185 $10,000

Germany $1,300 $600 $1,400 $1,400 $1,300 475 15,000 euro

Japan $2,000 $1,400 $300 $2,100 $900 50 1,800,000 yen

Brazil $1,200 $1,400 $2,100 $800 $2,100 200 13,000 real

India $2,200 $1,300 $1,000 $2,300 $800 80 400,000 rupees

Demand 270 200 120 190 100


(tons/year)

Table 5-8 Anticipated Exchange Rates for the Next Year


US$ Euro Yen Real Rupee
US$ 1.000 1.993 107.7 1.78 43.55
Euro 0.502 1 54.07 0.89 21.83
Yen 0.0093 0.0185 1 0.016 0.405
Real 0.562 1.124 60.65 1 24.52
Rupee 0.023 0.046 2.47 0.041 1
2. Telecommunication companies deal with network design problems in recommending sites for the toll-free call-in
centers of their telemarketing customers. The centers handle telephone reservations and orders arising in many
geographic zones. The location of the centers is very important, since the communication rates vary dramatically
depending on the zone of call origin and the location of the receiving center. A well-designed system should
minimize the total of call charges and center setup costs. Let us consider the specific case of a telecom firm, Tmark: 8
sites under consideration by Tmark for their centers in a map of 14 calling zones. There are unit calling charges,
denoted cij, from zone j to center i, i = 1, . . . ,8, j = 1, . . . ,14. Each zone j has an anticipated call load, dj. Finally, a
center can handle a maximum of 5000 call units per day. However, their fixed costs of operation vary significantly
because of difference in labor and real estate prices. The estimated daily fixed cost for a center located at the site i is
designated by fi, i = 1, . . . ,8.

Region\
1 2 3 4 5 6 7 8 9 10 11 12 13 14 Capacity ui Fixed cost
Call center
1 0.5 0.14 0.4 0.46 0.43 0.27 0.34 0.22 0.23 0.42 0.22 0.26 0.22 0.37 5000 276000
2 0.21 0.35 0.29 0.21 0.44 0.36 0.23 0.31 0.19 0.36 0.29 0.25 0.18 0.32 5000 320000
3 0.17 0.27 0.27 0.34 0.1 0.17 0.15 0.37 0.42 0.1 0.46 0.34 0.44 0.4 5000 328000
4 0.14 0.35 0.25 0.3 0.1 0.19 0.18 0.31 0.24 0.48 0.19 0.41 0.48 0.3 5000 529000
5 0.32 0.38 0.41 0.2 0.43 0.37 0.42 0.32 0.45 0.48 0.35 0.42 0.25 0.31 5000 707000
6 0.42 0.21 0.13 0.37 0.45 0.34 0.27 0.22 0.1 0.29 0.49 0.14 0.14 0.17 5000 331000
7 0.25 0.25 0.31 0.22 0.44 0.15 0.3 0.13 0.25 0.17 0.31 0.48 0.45 0.19 5000 304000
8 0.14 0.15 0.24 0.13 0.14 0.18 0.43 0.4 0.41 0.43 0.29 0.11 0.17 0.43 5000 540000
Demand dj 700 1200 1100 1400 1800 1200 3200 2200 1500 1000 2000 1200 2300 4200
3. Sleekfon and Sturdyfon are two major cell phone manufacturers that have recently merged. Their current market
sizes are as shown in Table 5-9. All demand is in millions of units. Sleekfon has three production facilities in Europe
(EU), North America, and South America. Sturdyfon also has three production facilities in Europe (EU), North
America, and Rest of Asia/Australia. The capacity (in millions of units), annual fixed cost (in millions of $), and
variable production costs ($ per unit) for each plant are as shown in Table 5-10.
Transportation costs between regions are as shown in Table 5-11. All transportation costs are shown in $ per unit.
Duties are applied on each unit based on the fixed cost per unit capacity, variable cost per unit, and transportation
cost. Thus, a unit currently shipped from North America to Africa has a fixed cost per unit of capacity of $5.00, a
variable production cost of $5.50, and a transportation cost of $2.20. The 25 percent import duty is thus applied on
$12.70 (5.00 _ 5.50 _ 2.20) to give a total cost on import of $15.88. For the questions below, assume that market
demand is as in Table 5-9.
The merged company has estimated that scaling back a 20-million-unit plant to 10 million units saves 30 percent in
fixed costs. Variable costs at a scaled-back plant are unaffected. Shutting a plant down (either 10 million or 20
million units) saves 80 percent in fixed costs. Fixed costs are only partially recovered because of severance and other
costs associated with a shutdown.
a) What is the lowest cost achievable for the production and distribution network prior to the merger?
Which plants serve which markets?
b) What is the lowest cost achievable for the production and distribution network after the merger if
none of the plants is shut down? Which plants serve which markets?
c) What is the lowest cost achievable for the production and distribution network after the merger if
plants can be scaled back or shut down in batches of 10 million units of capacity? Which plants
serve which markets?
d) How is the optimal network configuration affected if all duties are reduced to 0?
e) How should the merged network be configured?

Common questions

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The location of production facilities critically influences transportation costs within a global supply chain like Sunchem's. Facilities located closer to major markets reduce transportation lead times and costs. Strategic placement can optimize logistics, thereby reducing the reliance on expensive long-haul routes. In Sunchem's context, decisions must align with market demand across North America, South America, Europe, Japan, and Asia, balancing transportation and production costs. Facilities located at strategic hubs can serve multiple markets efficiently, leveraging reduced costs to enhance competitive market positioning .

Scaled-down operations at selected plants in Sleekfon and Sturdyfon's merged production network can yield substantial cost savings by reducing fixed costs by 30% while maintaining variable costs. Complete shutdowns can save up to 80% in fixed costs but incur severance and residual costs. This restructuring would necessitate analyzing which facilities can be scaled back or shuttered without affecting the company's ability to meet market demand efficiently. Cost efficiency also depends heavily on the ability to handle remaining production loads at consolidated plants, thus ensuring economies of scale and optimal logistics costs .

Call center site selection is crucial in minimizing total operational costs by strategically choosing locations that balance the call charge costs from calling zones with the fixed operational expenses at each site. By optimizing locations to align with expected call volumes and costs, telecom companies can lower both communication charges and operational overhead, enhancing cost efficiency. Effective site selection involves considering distance from call origin points and cost variability due to regional labor and real estate price differences .

Scaling back and shutdown of plants post-merger can reshape market supply strategies by consolidating production to fewer, more strategically placed facilities, thus concentrating resources and driving efficiencies through larger scales of operation. While fixed costs are significantly reduced, the ability to flexibly meet market demand becomes essential. The decision should consider capacity redistribution to ensure no market experiences deficits, maintaining reliability and customer satisfaction. Furthermore, streamlined operations can respond more nimbly to market changes and competitive pressures, aligning production capabilities with strategic market positions .

Tmark should focus on locating its call centers strategically by considering both call charges from each zone and the fixed operational costs linked to each potential site. Tmark needs to ensure that call centers are placed to handle the distributed call load efficiently, staying within each center's 5000 call unit per day capacity. Minimizing the sum of regional calling costs and setup expenses by optimizing location choices can significantly reduce total operation costs. Using linear programming or similar optimization techniques may provide a quantitative basis for determining the placement of call centers .

Import duties significantly affect the configuration of the merged production network by increasing the total landed cost of each unit shipped across regions. For instance, a 25% duty on shipped units adds considerable costs, affecting decisions about which facilities serve specific markets. By minimizing duties through local production and optimization of the distribution network to reduce transportation costs, the merged entity can improve cost efficiency. Additionally, if duties are reduced to 0, it allows for a more seamless and cost-effective distribution strategy across global markets without the added burden of duty-related expenses .

In deciding whether to shut down or scale back production, Sleekfon and Sturdyfon must evaluate several factors including the expected savings in fixed costs, the capacity to meet market demands with fewer operational facilities, and the impact on workforce and associated severance costs. Additionally, they need to consider the reallocation of production volumes to remaining facilities to maintain efficient logistics and manage variable costs, which remain unchanged upon scaling back. The decision should further account for the company's long-term strategic goals and market presence in affected regions .

To optimize Sunchem's supply chain network amidst fluctuating exchange rates and plant capacity constraints, Sunchem should evaluate the cost of production and transportation in both local and foreign currencies, accounting for anticipated exchange rates. The company should ensure that no plant operates below 50% capacity by adjusting the production volumes across the five global plants to balance these costs effectively. Additionally, assessing scenarios where no production limits are imposed may help identify an optimal distribution strategy. An analysis to determine whether adding capacity in certain locations could also reduce costs is crucial. Finally, Sunchem should continuously update exchange rates in their planning models to reflect market fluctuations accurately .

Exchange rate fluctuations can significantly affect logistics and cost planning for international manufacturers like Sunchem by altering the comparative cost of production and transportation globally. As exchange rates shift, plants in different countries may become more or less economically viable due to changes in local currency valuation against the dollar. Effective cost planning requires using projected exchange rates to make upfront decisions concerning production allocation among global facilities, aiming to minimize production and transportation costs while meeting market demands .

Lowering call center operation costs would enhance the overall efficiency of a telecommunications company's network by reducing total administrative overhead and allowing the allocated budget to accommodate more extensive call-handling capabilities or invest in better technology. Reduced costs per unit of handled call traffic would result in competitive pricing for services or higher margins for the company. This could also facilitate the ability to geographically expand coverage and market reach while maintaining service quality across different zones .

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