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OM 888
Supply Chain Modeling and Analysis
Applichem
• Produces Release-ease, a specialty chemical
• 6 plants that manufacture Release-ease
– 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 Canada Frankfurt Mexico Venezuela Sunchem,
Japan
Plant Design, 1905+ 1955+ 1960s ‘68, similar to ‘64, no frills 1957
Size, Capacity 18.5M Cap. = 3.7M lbs Cap. = 47M lbs Gary design Cap = 5M lbs
Maintenance, lbs Cap. = 22M lbs Cap. = 4.5M lbs
etc
Sales Volume 14M lbs or 75.7 2.6M lbs or 38M lbs or 80.9 17.2M lbs or 4.1M lbs or 4M lbs or 80.0
& Utilization % 70.3 % % 78.2 % 91.1 % %
(1982)
Product Cost 102.93 97.35 76.69 95.01 116.34 153.80
$/CWT
Raw Mat’l A 90.4 % & 84.6 91.1 % & 84.7 98.9 % & 84.4 94.7 % & 85.6 91.7 & N/A 98.8 % & 85.4
Yield
& % Active
Ingredient
Others (Labor, 1000 non-union Non-union 600 workers, Low worker Low worker Technically
etc.) workers, loyal workers, quality two different education, education, old excellent, have
conscious processes, serves Far East equipment test labs, no
computer + local mkt union but more
control workers.
What measurement should we use?
1 Sunchem Frankfurt
0.98
Yield on Raw Mat'l A
0.96 Mexico
0.94
Venezuela
0.92
Canada Gary
0.9
0.88
0 10 20 30 40
Production Volume
Too Much Capacity?
Production Idle Capacity
Mexico 17.2 4.8
Canada 2.6 1.1
Venezuela 4.1 0.4
Frankfurt 38 9
Gary 14 4.5
Sunchem 4 1
Total Demand = 79.9 M lbs; Total Capacity = 100.7 M lbs
Which one?
S ta rt
S im u la t e S p o t E x c h a n g e R a t e s & D e m a n d
R e c a lc u la t e S p r e a d s h e e t I n p u t
R u n O p t im iz a t io n o f S u p p ly C h a in N e t w o rk
G e t G l o b a l A f t e r - T a x P r o f it
S h o w D i s t r i b u t i o n o f S i m u l a t io n R e s u l t s
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?
• Check out: