Supply Chain Management - 2151

Home Assignment
Please freely choose 01 exercise and 01 question to do your home assignment.
Deadline to submit: 30th November 2015 - 23:55 CET
Exercise 1
DryIce, Inc., is a manufacturer of air conditioners that has seen its demand grow significantly.
The company anticipates nationwide demand for the next year to be 180,000 units in the South,
120,000 units in the Midwest, 110,000 units in the East, and 100,000 units in the West.
Managers at DryIce are designing the manufacturing network and have selected four potential
sites—New York, Atlanta, Chicago, and San Diego. Plants could have a capacity of either
200,000 or 400,000 units. The annual fixed costs at the four locations are shown in Table 1,
along with the cost of producing and shipping an air conditioner to each of the four markets.
Table 1. Production and Transport Costs for DryIce, Inc
Annual Fixed Cost of potential
Demand region: Variable cost per unit plant
Million dollars
Low capacity
Supply High capacity
East South Midwest West (200,000
region (400,000 units)
units)
New York $ 215 $ 232 $ 240 $ 300 $ 6.00 $ 10.00
Atlanta $ 228 $ 212 $ 230 $ 280 $ 5.50 $ 9.20
Chicago $ 238 $ 230 $ 280 $ 270 $ 5.60 $ 9.30
San Diego $ 299 $ 280 $ 270 $ 225 $ 6.10 $ 10.20
(1) Where should DryIce build its factories and how large should they be?
(2) Assuming that DryIce has new plan to build a warehouse in the East where it has five
distributors. Table 2 shows data about coordinate location of these distributors and
transportation cost. Use gravity model to locating warehouse of DryIce in the East in
order to minimize transportation cost of finished goods to distributors.
Table 2. Location of distributors and transportation cost
Coordinates
Transportation Quantity
Source Cost ($/unit mile) (thousand units) xn yn
Distributor A 0.60 23 600 900
Distributor B 0.55 18 350 800
Distributor C 0.72 25 255 725
Distributor D 0.64 28 650 420
Distributor E 0.66 16 546 782
Please submit excel file with Solver solution.
Explain in details objective, objective functions, how you set up constraints in Solver.

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 Supply Chain Management - 2151

Exercise 2
Moon Micro is a small make- to order manufacturer of servers that currently builds its entire
product in Santa Clara, California. The current demand and capacity are 10,000 servers per
year. The annualized fixed cost is $15,000,000. Variable cost includes raw materials cost
$8,000 per server and plus $500 labor per server. Moon sells each server for $15,000.
As the market for servers has grown dramatically, Moon is considering two options to
increase its capacity.
 The first option is to add 10,000 units of capacity to the Santa Clara plant at an
additional annualized fixed cost of $10,000,000. Other variable costs stay unchanged.
 The second option is to have Molectron, an independent assembler, manufacture
servers for Moon at a cost of $2,000 for each server (excluding raw materials cost).
Moon must make this decision for a two-year time horizon.
 During each year, demand for Moon servers has a 60 percent chance of increasing 50
percent from the year before and a 40 percent chance of increasing 20 percent from
the year before.
 Molectron’s prices may change as well.
They have a 50 percent chance of increasing 15 percent over each year of next two
years and a 50 percent chance of remaining where they are.
Use a decision tree (with discount rate k= 0.1 for all periods) to determine whether Moon
should add capacity to its Santa Clara plant without outsourcing or if it should outsource to
Molectron. What are some other factors that would affect this decision that we have not
discussed?

Exercise 3
Consider quarterly demand for the ABC Corporation in 4 years as shown in the table 3.
Forecast quarterly demand for 4 quarters of 2015 using Winter’s model with α= β =γ = 0.1.
Evaluate MAD, MAPE, and MSE.
Table 3. Quarterly demand for ABC Corporation

Quarter
Year 1 2 3 4

2011 173 144 137 211

2012 204 178 166 230

2013 228 201 183 259

2014 256 226 219 289

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 Supply Chain Management - 2151

Question 1
Consider 2 supply chain network design approaches: (1) few production facilities and (2)
many production facilities worldwide.
 List the pros and cons of each approach?
 List 02 examples of company/supply chain which are suitable for each approach?
Explain in detail.

Question 2
What are the major financial and nonfinancial uncertainties that a company should consider
when making offshoring decision?

Question 3
 How could a company use collaborative forecasting with its suppliers to improve its
supply chain?
 What systematic and random components would you expect in demand for
chocolates?

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