1 Global Supply Chain Design John H. Vande Vate Spring 2005

2 Basics of SC Design EU Ports Case –Where to manufacture? Asia EU Central EU Eastern EU –Which ports to use? –Where to locate DCs?

3 Context Almost Greenfield study –Fixed pool points Aggregate study –Demand aggregated to pool points by population and per capita income –Products aggregated to a single product Time –Growth? Seasonality? Life cycle? Labor rates?

4 Our Job Recommend a high-level supply chain design Provide estimates of costs for comparisons and to weigh risks Identify where to focus effort in more detailed assessment

5 Questions Hierarchy of costs?

6 Questions Hierarchy of costs –Raw Materials ~ €1.5 billion –Inventory costs ~ € 30 million –VAT ~ € 10 million –In-bound freight (RM)~ € 1 – 33 million –Out-bound freight (FG)~ € 1 – 28 million –Labor~ € 1.5 – 15 million –Plant and DC leases ~ € 0.2 – 3 million

7 Questions Hierarchy of confidence/indifference –What data are you most sure of or care the least about

8 Summary of Results S/N oOptionLocation(s)Costs SubtotalTotal Costs TptnReal EstateWagesInventory 1Mfg in W.EuropeBarcelona, Spain$15,241,665$6,983,045$17,748,337$17,046,593$57,019,641$91,002,406 Distribute fr Heart of EuropeParis, France$102,744$3,509,762$21,601,150$8,769,109$33,982,765 2Mfg in E.EuropeBudapest,Hungary$21,592,494$4,658,749$27,699,845$22,246,449$76,197,538$110,180,303 Distribute fr Heart of EuropeParis,France$102,744$3,509,762$21,601,150$8,769,109$33,982,765 3Mfg in C.EuropeParis, France$0$2,848,593$86,404,600$4,567,204$93,820,396$127,803,162 Distribute fr C.EuropeParis, France$102,744$3,509,762$21,601,150$8,769,109$33,982,765 4Mfg in AsiaXiamen, China$1,800$1,499,703$9,073,206$413,211,807$423,786,517$466,177,054 Distribute fr C.EuropeParis, France$12,069,464$3,509,762$21,601,150$5,210,162$42,390,537 5Mfg in E EuropeBudapest,Hungary$10,449,602$4,658,749$27,699,845$14,020,581$56,828,778$133,239,830 DC 1Budapest,Hungary$131,129$4,658,749$2,315,241$37,707,049$44,812,168 DC2Poznan, Poland$84,616$4,418,603$2,882,392$24,213,274$31,598,885 Chosen Option is S/No 1. Based on the limited scenario given, the cost is the lowest, the distribution network from the heart of Europe had been long established and is also the most reliable one.

9 DC Inventory Costs Average Inventory Formula The reasoning behind this formula is the basic b*h/2 formula for the area of a triangle. Our period is 3 days long here, so each triangle gets 1/3 of a period. Q1/(3*2) + Q2/(3*2) + Q3/(3*2)

10 Picture of the Inventory Model

11 Single DC Result Minimum Cost is to have a single DC in Antwerp. Cost = 12,292,656 Top 3 options as follows:

12 Two DC Result Minimum Cost is to have DCs in Antwerp (serve Milton Keynes, Paris, Madrid, Bern, Antwerp, Frankfurt) and Brno (serve Milan, Graz, Malmo) Cost = 14,657,246

13 Material flow map of proposed solution

14 Supply chain costs of the proposed solution

15 Comparison to alternatives considered

16 Project Results Summary Of the possible locations for DCs, the model shows that it is more economical to place the DC's in Eastern Europe, where the land and labor are cheaper. The model also places the DCs as close as it can to the customers, to minimize transportation cost. The transportation cost via sea is less expensive per mile than by land, and therefore the model tries to maximize sea travel, while minimizing land travel. If a network of operations was to be set for this case, we would recommend placing the manufacturing in Shanghai, and EDCs in Lille, Nancy, and Marseille. This would result in a total cost of 13.5 million Euros. Reflections: It is most cost effective to place the manufacturing in China. This is due to lower wages, land cost, building cost, and transportation from suppliers to manufacturers. The benefits gained from having the manufacturing in China outweigh the transportation cost to the European DCs. This does not take into account the lead time, since if the demand is constant, shipments will be made in advance considering the longer transportation times. All ports used for this model have a yearly capacity (in TEU) much larger than what is being shipped to them, although any delays in moving the products from/to ships are not factored into this analysis.

17 Scenario 4a To Manufacturing To DC To Port To Costumer