Assessment of Supply Chain Improvement - Statistics Project Example

When deciding whether to produce scooters in Scotland or import them from China Livingston Quad has to calculate expected monetary value of bothoptions and decide which one is the best. As I took expected daily profit as a decision criterion then the final biggest number would be deciding factor. So I first calculated EMV for production without advertising in Scotland, weighted with demand probability, and came to a number of L 420 daily profit. Daily profit in China on the same basis without imposed tariff would be L 546,67, while with imposed tariff would only be L 373,33. However, as probability of imposing import tariff is 30% I calculated 70% of the number without tariff and 30% of the number with tariff and come to bigger final number than if production is based in Scotland at L 465,33. This would suggest that outsourcing production to China would be better than making scooters in Scotland. I used similar approach in a case with advertising and came to a final number of L 453,33 for production in Scotland and L 494,67 for outsourcing production of scooters to China. The second calculation would suggest that the best approach to this project would be to outsource production of scooters to China and spend L 1.000 daily for advertising to maximize our profits. However, the dangers in using predictive models are in the quality of input assumption. If we underestimated our lawmakers and their willingness to impose import tariff for scooter imports from China is 70% and not 30% this would change the result in favour of production in Scotland as it would suggest (everything else being equal) that the result expressed as daily profit for outsourcing to China would come to only L 425,33 which is less than L 453,33. The simplicity with which I checked the result under changed assumption may be considered as one of advantages of EMV modeling approach. The same goes for all other assumptions like sales probability prediction. There is also a chance to oversimplify model for easy calculations and exclude important factors that may lead to different outcome. 2) a) In original scenario I would recommend that everything for Milton Keynes be made in Manchester. I would recommend that Toulouse makes as much as possible for Paris and Madrid and Stuttgart to fill in where Toulouse can not deliver for Paris and Madrid. It turns out that Toulouse does not make Professional model so it should make more profitable Weekender and less profitable De Luxe model. From available material Toulouse can make 1500 sets of Weekender and 100 sets of De Luxe model. Limitations are available steel and aluminum. Toulouse makes € 297.700 in profits. Stuttgart would be able to make Professional and De Luxe models but not Weekender so available materials there allow for production of 400 Professional sets for Paris and 200 professional sets for Madrid as well as 1000 De Luxe sets for Madrid and 900 De Luxe sets for Paris. Stuttgart makes € 411.700 in profits. Manchester can make all three sets, thus it supplies all the needs of Milton Keynes (600 professional, 800 De Luxe and 800 Weekender) as well as 100 De Luxe sets for Madrid and 1000 Weekender set for Madrid. Manchester unit makes € 616.900 in profits. b) However, if in above scenario we deduct fixed costs from profits we find out that our Toulouse unit does not cover fixed costs. Therefore I would recommend closing down facility in Toulouse and transferring materials to Manchester to make demanded units there. If we have no possibility of transferring materials than we can fulfill our 80% obligation by transferring production of Weekender Sets to Manchester (we can not make them in Stuttgart) where we have surplus materials. We have to transfer production of De Luxe sets from Toulouse to Manchester as Stuttgart is close to limit in steel and can not accept 100 De Luxe sets more. We do not want to lower production of professional sets (they were not produced in Toulouse at all) as they carry the biggest profit margin if possible. If we lower production for De Luxe sets for 360 units and Weekender sets for 500 units we would be able to fulfill our obligations without operating our Toulouse unit, thus saving €350.000 on fixed costs. If we made €226.700 when deducting fixed costs from profits (€ 1.326.700 - € 1.100.000) operating all three production units we made € 391.700 (€1.141.700 - € 750.000) when delivering less (but still more than 80% minimum required) from only two production units. The distribution would also change thus Milton Keynes would get from Manchester 600 Professional sets, 640 De Luxe sets and 700 Weekender sets, Paris would get 400 Professional sets and 900 De Luxe sets from Stuttgart, while 1300 Weekender sets would arrive from Manchester, and Madrid would receive 200 Professional sets and 1000 De Luxe sets from Stuttgart and 800 Weekender sets from Manchester. Read More