Supply Chain Management - Assignment Example

Running Header: Supply Chain Management Your name: Course name: Professors’ name: Date Question 1 Variables to be considered in the calculation, wipes and ointment cost. The total capacity - Wipes Ointment Capacity =5000000 Capacity =1000000 Cost analysis Cost analysis Fixed cost- $ 5000000 Variable cost(10* capacity)- $50000000 Fixed cost- $1500000 Variable cost(20*capacity)- $20000000 Total production cost =$55000000 Total production cost= $21500000 The total production cost of the two products 55000000+21500000= Total=$ 76500000 Distribution cost (Transport cost) for all the six customer zones Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units +Ointment units) Total cost of transport (Total units demanded*cost per unit) Chicago-Northwest 6.32 500,000 50,000 550,000 3476000 Chicago-Southwest 6.32 700,000 90,000 790,000 4992800 Chicago-Upper Midwest 3.68 900,000 120,000 1,020,000 3753600 Chicago-Lower Midwest 4.04 800,000 65,000 865,000 3494600 Chicago-Northeast 5.76 1,000,000 120,000 1,120,000 6451200 Chicago-Southeast 5.96 600,000 70,000 670,000 3993200 Total transport cost         $26161400 The current annual cost supply chain= Total transport cost+ Total production cost The current annual cost supply chain=26161400 +76500000 The current annual cost supply chain= $102661400 Question 2 In order to determine if there is any need to add a new plant in the proposed new locations, the cost of the production and distribution will be calculated and compared with the current location in Chicago. In this case since the production cost is constant irrespective of the new location of the three, the expected cost of production is as shown below (Nagurney 2006). Wipes Ointment Capacity =2000000 Capacity =1000000 Cost analysis Cost analysis Fixed cost- $ 2200000 Variable cost(10* capacity)- $20000000 Fixed cost- $1500000 Variable cost(20*capacity)- $20000000 Total production cost =$22200000 Total production cost= $21500000 Total production cost=43700000 $43,700,000 Now regarding the transportation issue, a calculation of the three areas, Princeton, Los Angeles and Atlanta will be done and compared with the current Chicago plant. Princeton Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Princeton-Northwest 6.6 500,000 50,000 550,000 3630000 Princeton-Southwest 6.6 700,000 90,000 790,000 5214000 Princeton-Upper Midwest 5.76 900,000 120,000 1,020,000 5875200 Princeton-Lower Midwest 5.92 800,000 65,000 865,000 5120800 Princeton-Northeast 3.68 1,000,000 120,000 1,120,000 4121600 Princeton-Southeast 4.08 600,000 70,000 670,000 2733600 Total transport cost         $26695200 Atlanta Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Atlanta-Northwest 6.72 500,000 50,000 550,000 3696000 Atlanta-Southwest 6.48 700,000 90,000 790,000 5119200 Atlanta-Upper Midwest 5.92 900,000 120,000 1,020,000 6038400 Atlanta-Lower Midwest 4.08 800,000 65,000 865,000 3529200 Atlanta-Northeast 4.04 1,000,000 120,000 1,120,000 4524800 Atlanta-Southeast 3.64 600,000 70,000 670,000 2438800 Total transport cost         $25346400 Los Angeles Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Los Angeles-Northwest 4.36 500,000 50,000 550,000 2398000 Los Angeles-Southwest 3.68 700,000 90,000 790,000 2907200 Los Angeles-Upper Midwest 6.32 900,000 120,000 1,020,000 6446400 Los Angeles-Lower Midwest 6.32 800,000 65,000 865,000 5466800 Los Angeles-Northeast 6.72 1,000,000 120,000 1,120,000 7526400 Los Angeles-Southeast 6.6 600,000 70,000 670,000 4422000 Total transport cost         $29166800 Chicago Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units +Ointment units) Total cost of transport (Total units demanded*cost per unit) Chicago-Northwest 6.32 500,000 50,000 550,000 3476000 Chicago-Southwest 6.32 700,000 90,000 790,000 4992800 Chicago-Upper Midwest 3.68 900,000 120,000 1,020,000 3753600 Chicago-Lower Midwest 4.04 800,000 65,000 865,000 3494600 Chicago-Northeast 5.76 1,000,000 120,000 1,120,000 6451200 Chicago-Southeast 5.96 600,000 70,000 670,000 3993200 Total transport cost         $26161400 As evident from the three zones, transportation cost is cheaper at Atlanta, $25,346,400 as compared to $26,161,400 in Chicago. The difference is $ 815,000 the other two regions are expensive as compared to Chicago. The other two regions, Atlanta and Los Angeles are more expensive as compared to the current plant in Chicago. It is recommended to start another plant at Atlanta as the transport cost is cheaper by a significant margin, $815,000; this will became more economical with time because the annual savings will be more. Since the transport cost is on the increased, it is by far recommended to establish a zone which is more economical in terms of transport especially to high demand areas for the two products such as Northeast and Upper Midwest. In fact the existing plant at Chicago can be run at a lower utilization in order to allow the exploitation of the cheaper option, Atlanta. This will be a good decision since the cost of production and distribution will be reduced and hence increasing the profit margin (Shah 2009). The rationale for relative cheaper transport cost in Atlanta is mainly because of the nearness to the high demand zones. In the event that the company increases its capacity due to increasing demand, Atlanta will prove to be a more strategic zone as compared to all the zones including Chicago(Watson & Lewis 2012). Question 3 If a new plant was to be designed, the cost will be the important factor to be analyzed. Since the fixed cost and variable cost is the same for the two products, then determining the supply chain network to be recommended will be based on the transport cost for the three regions selected. Wipes Ointment Capacity =5000000 Capacity =1000000 Cost analysis Cost analysis Fixed cost- $ 5000000 Variable cost(10* capacity)- $50000000 Fixed cost- $1500000 Variable cost(20*capacity)- $20000000 Total production cost =$55000000 Total production cost= $21500000 Total=$ 76500000 The transport expenses for the three regions are as shown below. Princeton Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Princeton-Northwest 6.6 500,000 50,000 550,000 3630000 Princeton-Southwest 6.6 700,000 90,000 790,000 5214000 Princeton-Upper Midwest 5.76 900,000 120,000 1,020,000 5875200 Princeton-Lower Midwest 5.92 800,000 65,000 865,000 5120800 Princeton-Northeast 3.68 1,000,000 120,000 1,120,000 4121600 Princeton-Southeast 4.08 600,000 70,000 670,000 2733600 Total transport cost         $26695200 Atlanta Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Atlanta-Northwest 6.72 500,000 50,000 550,000 3696000 Atlanta-Southwest 6.48 700,000 90,000 790,000 5119200 Atlanta-Upper Midwest 5.92 900,000 120,000 1,020,000 6038400 Atlanta-Lower Midwest 4.08 800,000 65,000 865,000 3529200 Atlanta-Northeast 4.04 1,000,000 120,000 1,120,000 4524800 Atlanta-Southeast 3.64 600,000 70,000 670,000 2438800 Total transport cost         $25346400 Los Angeles Region Cost per unit ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Los Angeles-Northwest 4.36 500,000 50,000 550,000 2398000 Los Angeles-Southwest 3.68 700,000 90,000 790,000 2907200 Los Angeles-Upper Midwest 6.32 900,000 120,000 1,020,000 6446400 Los Angeles-Lower Midwest 6.32 800,000 65,000 865,000 5466800 Los Angeles-Northeast 6.72 1,000,000 120,000 1,120,000 7526400 Los Angeles-Southeast 6.6 600,000 70,000 670,000 4422000 Total transport cost         $29166800 As evident, the best supply chain will be based in Atlanta because of the cost efficient transport cost of $25,346,400; this is by far less that the two other regions. The Atlanta plant will supply the six customer base as shown in the diagram below. Assuming that the new plant will be based on the new provisions, then the fixed cost and variables will be as follows; Wipes Ointment Capacity =2000000 Capacity =1000000 Cost analysis Cost analysis Fixed cost- $ 2200000 Variable cost(10* capacity)- $20000000 Fixed cost- $1500000 Variable cost(20*capacity)- $20000000 Total production cost =$22200000 Total production cost= $21500000 Total production cost=43700000 $43,700,000 If the prices are halved, the three proposed regions will have the following transport cost Princeton Region Cost per unit ($) Cost per unit halved($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Princeton-Northwest 6.6 3.3 500,000 50,000 550,000 1815000 Princeton-Southwest 6.6 3.3 700,000 90,000 790,000 2607000 Princeton-Upper Midwest 5.76 2.88 900,000 120,000 1,020,000 2937600 Princeton-Lower Midwest 5.92 2.96 800,000 65,000 865,000 2560400 Princeton-Northeast 3.68 1.84 1,000,000 120,000 1,120,000 2060800 Princeton-Southeast 4.08 2.04 600,000 70,000 670,000 1366800 Total transport cost           $13347600 Atlanta Region Cost per unit ($) Cost per unit halved ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Atlanta-Northwest 6.72 3.36 500,000 50,000 550,000 1848000 Atlanta-Southwest 6.48 3.24 700,000 90,000 790,000 2559600 Atlanta-Upper Midwest 5.92 2.96 900,000 120,000 1,020,000 3019200 Atlanta-Lower Midwest 4.08 2.04 800,000 65,000 865,000 1764600 Atlanta-Northeast 4.04 2.02 1,000,000 120,000 1,120,000 2262400 Atlanta-Southeast 3.64 1.82 600,000 70,000 670,000 1219400 Total transport cost           $12673200 Los Angeles Region Cost per unit ($) Cost per unit halved ($) Wipes unit Ointment units Total units demanded (Wipes units +Ointment units) Total cost of transport (Total units demanded*cost per unit) Los Angeles-Northwest 4.36 2.18 500,000 50,000 550,000 1199000 Los Angeles-Southwest 3.68 1.84 700,000 90,000 790,000 1453600 Los Angeles-Upper Midwest 6.32 3.16 900,000 120,000 1,020,000 3223200 Los Angeles-Lower Midwest 6.32 3.16 800,000 65,000 865,000 2733400 Los Angeles-Northeast 6.72 3.36 1,000,000 120,000 1,120,000 3763200 Los Angeles-Southeast 6.6 3.3 600,000 70,000 670,000 2211000 Total transport cost           $14583400 As evident, if the prices were halved, I would consider building plants on the three sites, I would however still prioritize building the first plant at Atlanta because of the relative cheaper transport cost (Ferreira 2009). If the prices were doubled, then the results for the proposed regions would be as follows. Princeton Region Cost per unit ($) Cost per unit double ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Princeton-Northwest 6.6 13.2 500,000 50,000 550,000 7260000 Princeton-Southwest 6.6 13.2 700,000 90,000 790,000 10428000 Princeton-Upper Midwest 5.76 11.52 900,000 120,000 1,020,000 11750400 Princeton-Lower Midwest 5.92 11.84 800,000 65,000 865,000 10241600 Princeton-Northeast 3.68 7.36 1,000,000 120,000 1,120,000 8243200 Princeton-Southeast 4.08 8.16 600,000 70,000 670,000 5467200 Total transport cost           $53390400 Atlanta Region Cost per unit ($) Cost per unit doubled ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Atlanta-Northwest 6.72 13.44 500,000 50,000 550,000 7392000 Atlanta-Southwest 6.48 12.96 700,000 90,000 790,000 10238400 Atlanta-Upper Midwest 5.92 11.84 900,000 120,000 1,020,000 12076800 Atlanta-Lower Midwest 4.08 8.16 800,000 65,000 865,000 7058400 Atlanta-Northeast 4.04 8.08 1,000,000 120,000 1,120,000 9049600 Atlanta-Southeast 3.64 7.28 600,000 70,000 670,000 4877600 Total transport cost           $50692800 Los Angeles Region Cost per unit ($) Cost per unit doubled ($) Wipes unit Ointment units Total units demanded (Wipes units+ Ointment units) Total cost of transport (Total units demanded*cost per unit) Los Angeles-Northwest 4.36 8.72 500,000 50,000 550,000 4796000 Los Angeles-Southwest 3.68 7.36 700,000 90,000 790,000 5814400 Los Angeles-Upper Midwest 6.32 12.64 900,000 120,000 1,020,000 12892800 Los Angeles-Lower Midwest 6.32 12.64 800,000 65,000 865,000 10933600 Los Angeles-Northeast 6.72 13.44 1,000,000 120,000 1,120,000 15052800 Los Angeles-Southeast 6.6 13.2 600,000 70,000 670,000 8844000 Total transport cost           $58333600 If the prices were doubled, then there would be no reason to establish another plant. References Ferreira, WN 2009, Design of a Multi-echelon Global Supply Chain Network with MicrosoftRTM Excel Premium Solver Platform, ProQuest, New York. Nagurney, A 2006, Supply Chain Network Economics: Dynamics of Prices, Flows And Profits, Edward Elgar Publishing, London. Shah 2009, Supply Chain Management: Text And Cases, Pearson Education India, London. Watson, M & Lewis, S 2012, Supply Chain Network Design: Applying Optimization and Analytics to the Global Supply Chain, FT Press, New York. Read More