Naman Chhaya IE 7325- Supply Chain Management Case Study #2 Summary:
BioPharma, Inc. which is owned by b y Phillip Landgraf faced several glaring problems in the financial performance of this company. Company had experienced a steep decline in profits profits and very high high costs costs at its plants in Germany and Japan. Phillip Phillip new that demand for the company!s prod"cts was stable across the globe. #o s"rpl"s capacity in his global prod"ction networ looed lie a l"x"ry he co"ld no longer afford. Improvement in financial performance was dependent on having the most effective networ, beca"se reven"es were "nliely to grow. C"tting costs were th"s a top priority for the coming year. $o $o help design a more cost%effective networ, Phillip assigned a tas force to recommend a co"rse of action. BioPharma, Inc. is a global man"fact"rer of b"l b" l chemicals "sed in plastic ind"stry. $he company holds patent of chemicals called &ighcal and 'elax internally. $hese are "sed internally by pharmace"tical division and are also sold to other dr"g man"fact"rers. $here are distinctions distinctions in the precise chemical specifications to be met in different parts of the world. (ll plants, however are recently set "p to be able to prod"ce both chemicals for any part of the world. $he plant capacity of prod"ction, can be assigned to either chemical che mical as long as the plant is capable of p"rchasing both. Company Co mpany has forecast that its sales for the two chemicals are liely to be stable for all the parts of the world, except for (sia witho"t Japan, where sales are expected to grow by )* percent. $he Japanese plant is a technology leader within the BioPharma networ in terms of its ability to handle reg"latory and environmental e nvironmental iss"es. #ome development in Japanese plant had been transferred to other plants in the networ. $he German plant is a leader in terms of its prod"ction ability. $he $he plant has ro"tinely had the highest yields within the global networ. $he Bra+ilian, Indian and exican plants have somewhat o"tdated technology and are in need of an "pdate. (fter considerable debate, tas force identified the cost str"ct"re at eac h plant in -**. /ach plant inc"rs an ann"al fixed cost that is independent of the level of prod"ction in the plant. $he fixed cost incl"des depreciation, "tilities and the salaries and fringe benefits of employees involved in general management, sched"ling, expediting, acco"nting, maintenance. /ach plant that is capable of prod"cing either &ighcal &ighca l or 'elax also inc"rs a prod"ct related fixed cost that is independent of the 0"antity of each chemical prod"ced. $he prod"ct related fixed cost incl"des depreciation of e0"ipment specific to a chemical che mical and other fixed costs mentioned that are specific to a chemical. If a plant maintains the capability to prod"ce a partic"lar chemical, che mical, it inc"rs the corresponding prod"ct%related fixed cost even if the chemical is not prod"ced at the plant. $he variable prod"ction cost of each chemical consist of two components. 'aw materials and prod"ction costs. $he variable prod"ction costs are inc"rred in proportion to the 0"antity of chemical prod"ced and incl"des direct labor and scrap. $he plants themselves can handle ha ndle varying
Naman Chhaya IE 7325- Supply Chain Management Case Study #2 levels of prod"ction. $hey can also be idled for the year. In which case they inc"r only the fixed cost, none of the variable cost. BioPharma Inc. transports the chemical in speciali+ed containers b y sea and in speciali+ed tr"cs on land. Given regional trade alliances, import d"ties in reality vary based on the origin of the chemical. 1or simplicity, the tas force has ass"med that the d"ties are driven only by the destination. Local prod"ction within each region is ass"med to res"lt in no import d"ty. $h"s, prod"ction from Bra+il, Germany and India can be sent to Latin (merica, /"rope and the rest of (sia witho"t Japan respectively, witho"t inc"rring any import d"ties. 2"ties apply only to the raw material, prod"ction and transportation cost component and not to the fixed component cost. $h"s, a prod"ct entering Latin (merica with a raw material, prod"ction and transpiration cost of 3)* inc"rs import d"ties of 34. $he tas force is considering a variety of options for its analysis. 5ne option is to eep the global networ with its c"rrent str"ct"re and capabilities. 5ther option incl"des sh"tting down some plants or limiting the capability of some plants to prod"cing only one chemical. Closing down a plant eliminates all variable costs and saves 6* percent of the ann"al fixed costs. #imilarly, if a plant is limited to prod"cing only one chemical, the plant saves 6* percent of the fixed cost associated with the partic"lar chemical. $he two options being serio"sly considered are sh"tting the Japanese plant and limiting German plant to a single chemical.
7"estions8 ).9 BioPharma Inc. need to consider fixed and variable costs for effective networ of prod"ction. It will efficiently deliver prod"cts globally and will meet demand. $o meet demand prod"ction costs sho"ld be taen into acco"nt over technology and plant capacity. Plant in Japan sho"ld be idled beca"se fixed and variable costs in India is 0"ite lower and can meet to meet the demand which wo"ld be cost effective. $he ann"al cost of proposal wo"ld be 3)4:;.;;
(bove mentioned total cost of proposal is incl"ded all d"ties for all over globe it is being shipped. -.9 Phil sho"ld eep idle the plant in Japan and let plant in India meet the demand in order to save costs. &e can also stop prod"cing only one chemical in Germany plant. (s per forecast demand is stable which can be meet by efficient s"pply chain. It is said that (sian maret can rise in f"t"re for which Phil can start plant in Japan to meet rise in demand. If there is ma
Naman Chhaya IE 7325- Supply Chain Management Case Study #2 minimi+e costs. 1or example, if exchange rate red"ces in co"ntry where plant is sit"ated, costs increases.
'ef8 /xcel #olver #ol"tion
'ef8 /xcel #olver #ol"tion
4.9 India loos most cost effective plant for Biopharma Inc. $his plant has lowest variable and associated fixed cost as well as chemical costs. (s it is said plant has not latest technology and advanced e0"ipment b"t if some money is invested it can provide better o"tp"t to feed (sian maret. =hen Japan plant is idle it can "se single prod"ct prod"ce by Germany. If capacity in (sia is increased there won!t be re0"irement of shipping chemical prod"ct from /"rope. $h"s, additional plant capacity in (sia wo"ld s"rely lead to profits which will be cost effective. ;.9 Import d"ties are higher in Latin (merica, exico and (sia w>o Japan where there is lower prod"ction and s"pply rate. 5n the other side, d"ties are lower in ?#, Japan @ /"rope are lower where prod"ction and s"pply rate are higher. It can be concl"ded that there won!t be any effect of red"cing d"ties where prod"ction networ is lower and that won!t be affected either change of d"ties. .9 If percent o"tp"t of acceptable 0"ality decreases, it will lead to loss of prod"ction and in term increased cost. #imilarly, if the percent o"tp"t of acceptable 0"ality increases, it will lead to increase profit d"e to lesser non 0"alities and lesser material re0"irements. $he increase in no n%
Naman Chhaya IE 7325- Supply Chain Management Case Study #2 0"ality will re0"ire more material and which will increase cost. $h"s, yield of acceptable 0"ality is inversely proportional to prod"ction cost. A.9 =hen maing recommendations n"mber factors sho"ld be acco"nted few of them are here. % Individ"al co"ntry!s economic growth and government schemes. % "t"al trade and b"siness environment within co"ntries and continents. % Ind"strial growth in individ"al co"ntry and plant location. % Labor law and wages all aro"nd plant locations. % Cr"de and non%conventional raw material prices. % #ales and mareting team and their analysis for f"t"re scope.