Business Analysis

Figure 1. Possible plant and warehouse location locations.

Suppose you started working for a cellphone manufacturer company that is expanding its supply chain network to Europe. As your first project, you were assigned as a part of the team that designs the firm’s European supply chain network. In Figure 1, you see the possible plant and warehouse locations along with the locations of the customers. Your objective as a team is to create the least costly distribution network that satisfies the demand of all customers. You must decide the number of cellphones to be shipped from plants to warehouses and to customers as well as whether a plant or a warehouse should be opened or not. There are fixed costs of opening a plant and a warehouse as well as $/unit/mile cost of shipping from plants to warehouses and warehouses to customers. (You can solve this problem using Solver or any other software you would like. You do not need to write the mathematical formulation.)

1) Which plants and warehouses should the firm open?

2) How many cellphones should be shipped between each plant and warehouse, and warehouse to customer?

Your team leader now reminded you that due to the Waste from Electrical and Electronic Equipment regulation in Europe, the firm must collect 75% of the cellphones returned by customers. Suppose that all customers will return their used cellphones. You have identified two possible methods of collecting the returns: (1) you can simply use your warehouses as collection and storage centers, or (2) you can build collection centers that only deal with returns.

3) In option 1, you will need to retrofit your warehouses to store returns. This will cost 25% of the original fixed cost of opening a warehouse. For example, if warehouse 1 is used both to send products from the warehouse to the customer and to store returns from the customers, the fixed cost of opening this warehouse will be 1.25 time the original fixed cost. The per unit cost of shipping returns from customers to the warehouses (reverse flow) is identical to the per unit cost of shipping products from the warehouses to the customers (forward flows). What is the new optimal cost of the network (including both forward and reverse flows)?

Hint: If your Excel is taking too long to solve this problem, set your Solver’s constraint precision to 0.001 or 0.01 or 0.1.

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