CASE 2.

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26 october 2022

Designing the Production Network

at CoolWipes

Ferreira, Jesús F11001107

Figueredo, Fiorella F11001108

Ortiz, Mauricio F11001116

Planás, Ariel F11001117

CASE 2.1: Designing the Production Network at CoolWipes

Rationale

Matt O'Grady, vice president of supply chain at CoolWipes, thought that his current production and
distribution network was not appropriate, given the significant increase in transportation costs over
the past few years. Compared to when the company had set up its production facility in Chicago,
transportation costs had increased by a factor of more than four and were expected to continue
growing in the next few years. A quick decision on building one or more new plants could save the
company significant amounts in transportation expenses in the future. Finding an optimal solution to
this problem is the main objective of this report, to do that we take serious care about the given data
and the condition of the company and the problem stipulation, the decision variables, objective
functions and constraints used in the calculation were carefully chosen for every question presented.

Presentation of case facts and data

CoolWipes, a company founded in the 1980s, produces baby wipes and diaper ointment. At the time
the company had a factory in Chicago that produced both products for the entire country. The new
network options were set out, Princeton, New Jersey, Atlanta and Los Angeles were the potential sites
for new plants, each place could be having a wipes line or an ointment line, in some cases even both.
The data is as follows:
Plants Capacity Annual Variable Capacity Annual Variable cost/unit
fixed cost cost/unit fixed
cost

Chicago 5000000 5000000 10 1000000 1500000 20

Princeton 2000000 2200000 10 1000000 1500000 20

Atlanta 2000000 2200000 10 1000000 1500000 20

LA 2000000 2200000 10 1000000 1500000 20

Northwest Southwest Upper Lower Northeast Southeast SUM

Midwest Midwest

Wipes 500000 700000 900000 800000 1000000 600000 4500000

Ointment 50000 90000 120000 65000 120000 70000 515000

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CASE 2.1: Designing the Production Network at CoolWipes

Transportation Northwes Southwest Upper Lower Midwest Northeast Southeast

cost per unit t Midwest

Chicago 6,32 6,32 3,68 4,04 5,76 5,96

Princeton 6,6 6,6 5,76 5,92 3,68 4,08

Atlanta 6,72 6,48 5,92 4,08 4,04 3,64

LA 4,36 3,68 6,32 6,32 6,72 6,6

The questions are as follow:

1. What is the annual cost of serving the entire nation from Chicago?

Total cost: Fixed cost + Variable cost*Units Produced + Transportation cost per unit to each region
individually*Units transported to each region individually

Total cost 87961400

For the better understanding of this question please address the annex in page 6

2.1 Do you recommend adding any plant(s)? If so, where should the plant(s) be built and what lines
should be included?

Yes we recommend, but only for diapers, because the cost will decrease compared with the
cost of the Chicago plant, the new plants should be: for diapers, in Princeton and LA, and for ointment
we don't open any new plants. Cost when adding plants:

Total cost 86325,4

2.2 Assume that the Chicago plant will be maintained at its current capacity but could be run at lower
utilization. Would your decision be different if transportation costs are half of their current value?

Taking this in consideration we determine that only one new plant should be open and only for
diapers, the new plant should be in LA.

Total cost 75666,7

2.3 What if they were double their current value?

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CASE 2.1: Designing the Production Network at CoolWipes

Taking this in consideration we determine that the new plants opening would be in Princeton
and LA but only for diapers, same as in 2.1 but since the transportation costs double their value the
total cost is increased much more than only having the plant in Chicago.

Total cost 106450,8

For the better understanding of this question please address the annex in page 7

3.1 If Matt could design a new network from scratch (assume he did not have the Chicago plant but
could build it at the cost and capacity specified in the case), what production network would you
recommend?

We recommend that the plants that the company should have be located in: for diapers in
Princeton, Atlanta and LA, and for ointment in Chicago.

Total cost 85165,4

3.2 Assume that any new plants built besides Chicago would be at the cost and capacity specified
under the new network options. Would your decision be different if transportation costs were half of
their current value?

Taking this in consideration we determine that the new plants opening for diapers would be in
Princeton, Atlanta and LA, and for ointment only in Atlanta. With the total cost of:

Total cost 74343,27

3.3 What if they were double their current value?

Taking this in consideration we determine that the new plants opening would be in Princeton
and LA but only for diapers, same as in 2.1 but since the transportation costs double their value the
total cost is increased much more than only having the plant in Chicago.

Total cost 106450,8

Discussion

The first thing we know about the problem is that the company CoolWipes has one facility in Chicago
which transports to the whole of America. Over time, demand increased and so did the customers

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CASE 2.1: Designing the Production Network at CoolWipes

geographical location. This led to an increase in transportation cost by a factor of more than 4 since
the birth of the company and transportation costs were expected to increase. CoolWipes has the
opportunity to expand and build new facilities at: Princeton, Atlanta and Los Angeles. Each new facility
can contain and wipe line, ointment line or can produce both products. The facilities capabilities to be
considered when calculating were:

The wipes line in Chicago The ointment line in The wipes line at any The ointment line at any
has a: Chicago has a: new plant will have a: new plant will have a:

Capacity of 5 Million Capacity of 1 Million Capacity of 2 Million Capacity of 1 Million

Units Units Units Units

Fixed costs of 5$ Million a Fixed costs of 5$ Million a Fixed costs of 2.2$ Million Fixed costs of 1.5$ Million
year year a year a year

Variable costs of 10$ per Variable costs of 20$ per Variable costs of 10$ per Variable costs of 20$ per
unit produced unit produced unit produced unit produced

And the assumptions taken were that: building a new facility incurs no cost and that when adding a
new facility for any production line, we can only add one in each new place

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CASE 2.1: Designing the Production Network at CoolWipes

Annex

For questions 2.1, 2.2 and 2.3 the same solver parameters were used

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CASE 2.1: Designing the Production Network at CoolWipes

For question 3.1, 3.2 and 3.3 the same solver parameters were used

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CASE 2.1: Designing the Production Network at CoolWipes

Conclusion

After running several solver data analysis it has shown that Chicago is the most optimal geographical
facility to produce and distribute wipes (if it has not been built yet) and the transportation costs are cut
in half. For almost all other constraints and transportation costs, Chicago is not the most efficient
which results in an accumulating loss for CoolWipes. If the transportation costs remain the same, then
3 new CoolWipes facilities will be built in Princeton, Atlanta and Los Angeles while only one new
ointment facility will be built in Los Angeles. Allowing for less constraints in solver will result in a lower
total cost and thus maximize optimization.

References

Chopra & Meindl, 2007