# The Value of Supply Chain Network Design

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## End-of-Chapter Questions

1. ABC Bottling Company’s sales have been expanding rapidly. Their single plant, which ships directly to customers, is now out of capacity. What factors should they consider when they decide whether to expand the existing plant or build another one? If they build another plant, what factors should they consider when they locate this plant?
2. A producer of dog food is trying to decide whether they should change the number and locations of their warehouses to better meet projected demand over the next three years. They do a study and determine that their transportation and warehousing costs will be \$51 million if they stick with their current structure. They have determined that if they close two warehouses and open two new warehouses, their costs will drop to \$50.5 million. Assume that all other costs stay the same. Should they make the change?
3. You need to set up a mathematical optimization model. Assume you are modeling a supply chain for a business with ten warehouses and 1,000 customers. If you set up the model to minimize cost, set the decision variables to decide which warehouse should serve which customers, and set up no constraints, why would you expect the minimal cost to come back as \$0?
4. You are helping a firm determine their future transportation costs between their plant in Dallas and their warehouse in Atlanta. Your best estimate, with the data you have, is that the cost will be between \$1.70 and \$1.80 per mile. You decide to use \$1.75 as your cost because it is the mid point. If you are asked to spend more time seeing whether the number should be closer to \$1.70 or \$1.80, what would be your argument against further refining this number?
5. A small medical supply company in Australia has just developed a never before seen product with major pre-release orders from around the globe already. This company will need more production capacity to support their forecasted sales for this new blockbuster product. If they simply expand their plant in Australia, they estimate that their production, transportation, and warehousing costs will be approximately \$450 million (AUD). After a careful network design study, they have found two solutions that people in the company generally like.
1. Solution #1: Estimated cost of \$375 million with a new large plant in China to supplement their existing plant in Australia.
2. Solution #2: Estimated cost of \$385 million with three new smaller plants in China, Brazil, and Italy to supplement their plant in Australia. These plants would service their local regions.

(Assume the costs listed here include all the costs that are relevant.) What would be the best reasons for picking solution #1? For picking solution #2? Why is it important for this firm to consider other nonquantifiable factors when determining their best course of action for expansion?