Supply Chain Game Round 2

Supply Chain Game Round 2 Edit 00 4 … Initial Analysis We began our initial analysis by reviewing the instructions in detail. We wanted to be sure that we didn't miss any costs like we did in the first round. Right away ...

Supply Chain Game Round 2 Edit 00 4 … Initial Analysis We began our initial analysis by reviewing the instructions in detail. We wanted to be sure that we didn't miss any costs like we did in the first round. Right away we could see that, while the basic game was the same, Round 2 was a much more complicated affair. Now we had to consider five different markets four our product, each with different demand characteristics, though the final selling price in each market was the same. This table summarizes the characteristics of each market Region Use Demand Trend Avg Demand Avg Order Size Calopeia Air Conditioners Seasonal-stable 39 8 Sorange Hardwood floorsIncreasing-linear 10 8 Tyran Appliances Not seasonal-level 19 8 Entworpe Insulation Not seasonal-level 8 250 Fardo Airplanes Not seasonal-level 15 8 As in the first round we begin the game on day 731 with one factory and one warehouse, both located in Calopeia. The factory has an initial daily capacity of 70 and is currently only serving the Calopeia market. While the product sale price does not vary, the cost to bring the product to market does vary by region, depending on the location of both the factory and the warehouse. The highest possible profit per unit is made if both the factory and warehouse are located within the region they serve. For a batch size of 200, the maximum potential profit can be calculated as follows (assuming 3 day manufacturing time): Production Cost $1000 per drum plus $1500 fixed setup cost $1007.50 Freight to Warehouse $15,000 per truckload $75 Holding Cost $0.27 per day. Minimum 10 days $2.70 Lost Interest 10% annually. Minimum 10 days $3.00 Outbund Shipping $150 per drum $150 Total Cost $1238.20 Available Profit $211.80 Using this number, we can further calculate the potential per unit profit for other factory/warehouse configurations. Considering the 4 mainland regions, additional cost of $75 per unit is incurred if both the factory and warehouse are located in a different region than the market served. If only the factory is located in a different region, but the warehouse is located within the market region, then the additional cost is only $25 per unit. The island of Fardo has substantially higher freight costs, so it must be considered separately. The potential profit for each scenario is summarized below. Mainland Regions Profit Potential Fardo Profit Potential Factory and Warehouse $211.80 Factory and Warehouse $211.80 Warehouse only $186.80 Warehouse only $61.80 Neither $136.80 Neither ($188.20) In addition to the above, it is also important to calculate the number of days of operation each additional facility will offer. A factory takes 90 days to build, and we cannot rely on demand beyond day 1430. Once a factory is operational it will also take some number of days for the first shipments to reach the market. Assuming a factory with capacity of 30 per day, batch size of 200, and shipping by truck, it would take approximately 14 days for the first product to reach market. 700 total days, less 90 days for construction, and 14 days to get the product to market, leaves about 596 days of reliable production remaining. Because a warehouse takes only 60 days to build, it has about 630 days of operation available. Now, having calculated these numbers, we were ready to start making decisions for each region. Calopeia We begin the game with plenty of capacity, as well as considerable inventory in Calopeia. There is no question of serving this area. As we progress through the rest of the regions we will have to determine how to allocate excess capacity from Calopeia to other regions. Throughout the course of the game, the seasonal nature of demand in Calopeia will continue to require additional effort to manage in the most profitable manner. Entworpe The average demand between day 671 and day 730 is just over 8 units. Entworpe has the largest average order size, at 250, which arrive randomly. Therefore stockouts here can be costly. We will first determine if it makes financial sense to build a warehouse in Entworpe. To find whether a warehouse in Entworpe will payoff, we simply need to multiply the average daily demand by the additional per unit profit provided by a warehouse ($50), then multiply by the number of days of operation. 8 X 50 X 630 = $252,000 Since a warehouse costs only $100,000, the additional profit provided by a warehouse is definitely worthwhile. Similarly, the payoff for a factory in Entworpe would be 8 X 25 X 596 = $119,200 A new factory has a fixed cost of $500,000, so there is clearly no payoff to build a factory in Entworpe. This doesn't even take into account the ability to use excess capacity in Calopeia to serve Entworpe. Decision: Build a warehouse only in Entworpe on day 731. Serve the market using excess capacity from Calopeia Tyran Demand in Tyran is averaging 19 per day, and is level and non-seasonal. Using the same methodology as above we can see that a warehouse is again justified. The calculation for a factory is: 19 X 25 X 596 = $283,100 Again a factory would n