RENSSELAER POLYTECHNIC INSTITUTE
Case Study Analysis:
Applichem
ISYE 6600: Design of Manufacturing Systems
and Supply Chains
Chaoqun Deng, Hongtan Sun, Prasanna Date, Wei Zou
December 4, 2014
Case Study Analysis: Applichem
Acknowledgement
The team members had a great time working on this project! It was indeed a
rewarding experience to fully understand the core concepts and models pertaining to
Supply Chain Management in the lectures and then apply them to a real life scenario
as a part of the course project. This experience helped us gain deeper insights into
the concepts and gain a valuable exposure regarding how Supply Chain
Management can be applied to a real life scenario.
The project team would like to express their deepest gratitude to Professor Jennifer
K. Ryan for the stimulating and insightful lectures which laid the foundation of Supply
Chain Management for the team members. The understanding gained in this course
is indeed going to stick for a long time. The team is very grateful to Professor Ryan
for her generous and timely help for this course project.
Further, the team members would like to thank Department of Industrial and
Systems Engineering at Rensselaer Polytechnic Institute for offering this course and
for providing us with the necessary infrastructure which enabled us to hone our skills
as students and researchers.
1
Case Study Analysis: Applichem
Table of Contents
Serial Number
Content
Page Number
1.
Acknowledgement
1
2.
1. Introduction
3
3.
2. Management Problems in Applichem
2.1. Organizational Problems
2.2. Obsolescence Problems
4
4
5
4.
3. Competitive Priorities and Performance Measures
3.1. Competitive Priorities
3.2. Performance Measures
7
7
8
5.
4. Network Design for Applichem
4.1. Basic Model
4.2. Variation in Exchange Rates
4.3. Variation in Demand
4.4. Not Meeting All Demand
10
11
12
13
14
6.
5. Conclusion
15
7.
References
16
8.
Appendix
18
2
Case Study Analysis: Applichem
1. Introduction
Applichem is a company that provides customized chemicals to its customers. Once a
product is made for a particular customer, Applichem modifies the product and manufactures
it on a larger scale to suit the general market. Its products start off as innovative products
and are converted to functional products later.
Release-Ease is one of such chemical products manufactured by Applichem in six plants
worldwide – Gary (USA), Canada, Mexico, Frankfurt, Venezuela and Sunchem (Japan).
These plants operate 24 hours a day, 7 days a week, supply different markets all over the
world and use different energy sources (steam, coal, electricity and natural gas) depending
on which energy source is economical locally. Each of these plants differs from one another
in terms of production efficiency. The Gary plant is the oldest, most inefficient and hasn’t
improved its production processes since it began operating. The Canadian plant is wellregarded for its efficiency and quality. The Mexican plant supplies the Mexican market and
has reasonably high operating costs. The Frankfurt plant has state of the art technology and
produces quality products efficiently. While the Venezuelan plant hasn’t improved its
production processes for twenty years, the Japanese plant is well known for its focus on
product development.
The external factors that affect production and distribution of Applichem are exchange rates,
duties and variation in demand. The objective of this study are (1) to identify existing
managerial problems in Applichem; (2) to identify the competitive priorities of Applichem and
performance measures used by it to evaluate its plants; and (3) to propose an optimal
network design for Applichem and conduct scenario analysis for various scenarios (for e.g.
variation in demand, exchange rates etc.). This report is structured as follows: Section 2
highlights the management problems in Applichem and provides possible solution from a
management perspective. Section 3 identifies competitive priorities and performance
measures for Applichem. Section 4 addresses the problem of network design under different
scenarios and Section 5 concludes the report with recommendations for Applichem.
3
Case Study Analysis: Applichem
2. Management Problems in Applichem
The organizational problems faced by Applichem can be classified into two categories:
Organizational Problems and Obsolescence Problems. Following sub-sections tackle these
problems individually.
2.1.
Organizational Problems
Exhibit 1 shows the functional organization structure of Applichem where the employees are
grouped hierarchically, managed through clear lines of authority, and report ultimately to one
top person1. The benefits of a functional organization structure are that it offers a high level
of specialization and expertise in a functional area which enhances efficiency and
productivity2. The disadvantages of this structure include lack of teamwork and management
control2. On one hand, one plant has difficulty working well with other plants due to
specialization, and each plant may pursue its own interest regardless of the whole
company’s interests2. On the other hand, as organizations get larger, top management
needs to delegate more decision-making responsibilities/authority to each functional area.
The degree of autonomy may also increase, making coordination of activities more difficult2.
Applichem operates in different geographic areas all over the world. As a result, maintaining
control over and managing the separate plants can be very challenging2. In Applichem,
managers at one plant rarely encounter managers from other plants. As a result, plants with
a low performance have little opportunities to learn from those with better performance.
Thus, communication is a big problem in this hierarchical organization. It is suggested that
Applichem establish a matrix structure which is more dynamic than functional management
in that it is a combination of all the other structures and allows employers/executives to
share information more readily across task boundaries and allows for specialization that can
increase depth of knowledge in a specific sector or segment3.
1
Retrieved from http://www.businessdictionary.com/definition/functional-organization.html
Retrieved from http://smallbusiness.chron.com/benefits-disadvantages-functional-organizational-structure11944.html
3
Retrieved from http://en.wikipedia.org/wiki/Organizational_structure
2
4
Case Study Analysis: Applichem
2.2.
Obsolescence Problems
The difficulties of keeping pace with incessant external developments can cause a firm’s
innovative outputs to become increasingly unsuitable to the most current environmental
demands [7]. As a result, the innovative activities of older firms may be less relevant in the
light of the most current technological developments, reflecting the obsolescence of
organizational know-how as firms age in rapidly changing environments [8].
The Gary plant was Applichem’s first large manufacturing facility and it hadn’t opened itself
to technological innovation since its inception. Lack of technological innovation over the
years led to the plant becoming obsolete and inefficient. Shifting production from Gary to
Frankfurt was a decision that the top management was unwilling to take. Technological
innovation was a must for Gary to keep up with other plants. However, introducing new
technology to Gary would have significant implications on people, work processes, business
processes and would introduce new risks into the business4. For example, it would be very
difficult to encourage the aging workforce to adapt to use the new technology. Therefore, it is
suggested that Gary should hire new and young workers who have different learning styles
and are willing to accept and use new technology. Considering the influence of new
technology on daily routines of a process operator, it is suggested that Gary formulate strict
work rules and regulations for operators to ensure that work process is operated efficiently
and safely.
3. Competitive Priorities and Performance Measures
3.1.
Competitive Priorities
Applichem’s business strategy is to provide customized services/products to meet all kinds
of customer requirements and keep up with the market demand and innovation changes.
Therefore the key competitive priorities of the company are:
Quality: Applichem is aiming to provide high quality products and services that meet the
customers’ expectations consistently.
4
Retrieved from http://iom.invensys.com/EN/pdfLibrary/ManagingObsoleteTechnologiesStrategiesandPractices.pdf
5
Case Study Analysis: Applichem
Flexibility: Applichem customizes the product and service to meet different customer
requirements. The engineers at Applichem have worked with customers closely to identify
the problems they have encountered in the use of Release-ease, and they have developed
different specifications of the chemical to better accommodate the regional demands and
created products with broader applications.
Release-ease is traditionally known as a functional product with consistent predictable
demand; however, recently new formulations with more variety of the product are produced
to meet customers’ specific requirements. Thus the supply chain efforts should focus on
reducing physical costs on its main products and being responsive to different demands in
different regions.
3.2.
Performance Measures
Table 1 summarizes the comparison of performance measures among the six plants in
various aspects:
i.
Efficiency: To compare the production efficiency among six plants, we estimate the
capacity utilization rate based on the plant capacity and actual production in 1982, the
result shows that Venezuelan plant has the highest utilization rate, while Canadian plant
has the lowest utilization rate of capacity.
ii.
Cost: Plant Sunchem has the highest cost – its raw material cost, production cost
packaging, loading and shipping cost are almost twice as those for Frankfurt plant,
mainly due to its high standards of manufacturing and management.
iii.
Product: In terms of product formulation, plant Gary is designed to produce a wide
range of product while plant Frankfurt has only two. Plant Gary also has various packing
types. The other plant that has various packaging is Sunchem while plant Frankfurt,
Mexico and Venezuela only have one packaging available. All plants produce other
chemical products. Plant Gary and Frankfurt produce more than 10 other products, while
plant Sunchem and Venezuela produce one other product apart from Release-ease. The
average yield on raw material, which is a key measurement of manufacturing
performance, shows that plant Gary is the only one that is not performing very well in the
6
Case Study Analysis: Applichem
process. It is also mentioned in the study that the quality and product specification were
more closely monitored in plant Frankfurt, and plant Canada is well known for its
efficiency and quality of product.
The case study also lists a number of performance valuations for some of the plants:
i.
Product Life Span: The product life span varies in different regions. In Western Europe,
customers usually use the product within a year while customers in North America may
use the product as long as three years.
ii.
Competition: It is mentioned in the study that the competition in Western Europe is the
fiercest while there’s less competition in North America and no competition in Japan.
iii.
Age of Plant and Production Line: Plant Gary is the oldest plant, followed by plant
Canada and plant Sunchem. The Mexican plant is the newest one amongst all. Plant
Sunchem was re-designed in 1969 with an update in production equipment and
machines. It also added in Applichem’s first Research and Development department with
product test labs and plastics engineering labs, etc. Comparatively, plant Venezuela is
still producing with its old equipment in poor conditions.
iv.
Technology and Environmental Protection: Plant Sunchem uses the most updated
technology and has waste recovery technology, while other plants don’t have special
treatment for the product waste.
v.
Employees: Plant Sunchem and plant Canada have the most educated employees
while the education levels in plant Mexico and plant Venezuela are the lowest. However,
plant Mexico still outperforms plant Venezuela as its employees have a certain level of
technical depth and the plant maintains improvements.
4. Network Design for Applichem
With respect to Release-Ease, Applichem has six sources of supply viz. Mexico, Canada,
Venezuela, Frankfurt, Gary (USA) and Sunchem (Japan); and six destinations of demand
viz. Mexico, Canada, Venezuela, Western Europe, USA and Pacific and Rest of the World.
The cost of production in each of the six supply regions is outlined in Appendix 2 along with
data regarding import duties for each of the six demand regions. Moreover, Appendix 2 also
7
Case Study Analysis: Applichem
shows the transportation costs incurred to transport hundred pounds of Release-Ease from
each of the supply regions to each of the demand regions.
Three variants of the basic network model are considered in this section. The basic model is
explained in Section 4.1. Section 4.2 talks about network design model when the exchange
rates fluctuate. Section 4.3 addresses the problem of variability in demand and section 4.4
tackles the case where Applichem doesn’t want to meet all demand. Two assumptions
underline each of these models. First of all, Sunchem plant is not shut down in any model.
This is because Japan is the center for Applichem’s research and development. It is vital for
a firm to invest in research and development for continuous improvement. Since Sunchem is
the only plant which facilitates R&D, it is in the best interest of Applichem that it doesn’t shut
down. Secondly, the annual demand in North America is distributed between Mexico,
Canada and USA as 10, 10 and 12 million pounds respectively. This is done to simplify
calculations.
4.1.
Basic Model
The Basic Model addresses the idealized situation where demand, production cost, unit
selling price, exchange rate and import duties are fixed. The objective in this problem is to
minimize the total costs. The lowest annual cost in this model comes out to be $79,424,260.
The Mexican plant and Gary plant are underutilized - the utilization being 12 million pounds
and 12.7 million pounds of capacity respectively. In accordance with the first assumption,
Sunchem plant is kept open but does not supply to any demand region. This model is
tabulated in Appendix 3.
The above model is modified to maximize profits instead of minimizing costs. Profit is
calculated as the difference of revenue and costs incurred. Revenue is calculated as the
selling price multiplied by the total demand. Selling price is $101 per hundred pounds of
Release-Ease. The results show that Venezuelan plant needs to be shut down and Gary
needs to be underutilized again (7.2 million pounds capacity utilized). Sunchem doesn’t
supply to any region but is kept open only for R&D purposes. The total annual cost in this
model is $81,163,510 – which is higher than the previous model. Maximum profit calculated
8
Case Study Analysis: Applichem
is $8,554,790. The inconsistency in the two plans with respect to total annual cost can be
attributed to the high duty and high production cost in Venezuela. However, since the duty is
applied to the selling price also, the duty cancels out with the revenue when the net profit is
calculated. The calculations for this model are shown in Appendix 4.
4.2.
Variation in Exchange Rates
As a company supplying multiple regions of the world, exchange rates could have a
significant impact on Applichem’s profits. In this model, demand, price per unit, unit cost of
production and unit transportation cost are assumed to be constant. The impact of variation
in exchange rates is analyzed on Applichem’s profits. The input data regarding exchange
rates is tabulated in Appendix 5. In the first case, exchange rates for the subsequent year
(1983) are taken to be the average of exchange rates in 1977 through 1982. The
capacitated plant model shows that all the five plants use their full capacity except Mexico.
The Mexican plant has an excess capacity of 20.8 million pounds in this case which is
approximately 94.5% of its total capacity. This is because the Mexican Peso depreciated a
lot in 1982. So, if it appreciates to the average level in 1983, the unit production cost will
increase in USD and other currencies significantly. The net profit in this case is
$17,495,564.57, which is much higher than the previous models. These calculations are
shown in Appendix 6.
In the second case, the trend of exchange rates over the last three rates is linearly
interpolated to estimate the exchange rate in 1983. This is the case where USD appreciates.
It is seen that the capacitated model gives the best profit when the Venezuelan plant is shut
down and only 7.2 million pounds of Gary’s capacity is utilized. This is a low fraction (39%)
of Gary’s total capacity. This seems reasonable because when USD appreciates, it is no
longer profitable to produce in USA. Hence, it is more feasible to satisfy demand in USA by
importing Release-Ease. The Sunchem plant in Japan is not utilized but is operational for
R&D purposes only. The net profit in this case is $11,365,371, which is lower than the
previous case. The corresponding calculations are shown in Appendix 7.
9
Case Study Analysis: Applichem
4.3.
Variation in Demand
Although Release-Ease is a functional product, it still faces competition from Applichem’s
competitors in the global market. Thus, it is possible for the demand of Release-Ease to
change in 1983. First case considered in this scenario is when global demand for ReleaseEase increases by 7%. This is in consensus with the predictions made for demand in
chemical industry [4]. If the demand for Release-Ease increases by 7%, the most profitable
option is to close down Venezuelan plant and use 12.8 million pounds of Gary’s capacity to
meet the extra demand. In this case the net profit is $8,609,592. The profit has increased
from the cases in 4.1. However, the increase is not as much as expected considering the
demand is increased by 7%. A possible explanation for this could be that to satisfy the
current demand, all the efficient plants are utilized to their full capacity. But the high unit
production cost of inefficient Gary plant cuts down the profit margin. This could be improved
by increasing the efficiency of Gary. Calculations regarding this case are presented in
Appendix 8.
In the next case, decrease in demand is considered. It is assumed that the demand
decreases by 10%. Since Release-Ease is a functional product, its demand won’t decrease
drastically. In this regard, 10% decrease in demand seems to be a reasonable assumption to
make. If the demand decreases by 10%, the most profitable strategy would be to close both
Venezuelan and Gary plant. The maximum profit in this case comes out to be $8,459,249.
Comparing to the profit in the basic model (section 4.1), the profit in this case decreases by
$95,541 (1.12%). Comparing the 10% decrease in demand to 1.12% decrease in profit, it
can be inferred that Gary and Venezuelan plant contribute significantly less to the company’s
net profits as compared to other plants. Calculations for this case are outlined in Appendix 9.
4.4.
Not Meeting All Demand
Considering the results in 4.3, it might be a good idea to look at the case where Applichem
doesn’t meet all demand for Release-Ease. The constraint to meet all demand is relaxed in
the model. The net profit in this case turns out to be $9,003,750 – and increase of $448,960
(5.25%) as compared to the best case profit when all demand is met ($8,554,790). The
10
Case Study Analysis: Applichem
market allocation indicates that 7.3 million pounds of demand in Latin America and all the
demand in Pacific and Rest of the World is not met. Applichem is essentially losing a market
in this case. This happens because the Frankfurt plant, which is the most efficient, doesn’t
have enough capacity to fill the demand in these regions. If the total unit cost of production
and transportation to each demand region is computed, it is seen that for all the other five
plants except Frankfurt, Applichem is losing money when it tries to fill demand in Pacific and
rest of the world. In essence, if this demand is satisfied by any one of the five other plants
(Mexico, Canada, Venezuela, Gary or Sunchem), then Applichem may lose money for each
pound of Release-Ease they sell in this region. On the other hand, Applichem would make
money if the demand in this region is satisfied by the Frankfurt plant. However, limited
capacity of Frankfurt plant doesn’t allow this. Pacific and the rest of the world is the least
profitable market for Applichem. Giving up this market does increase its profits. If Applichem
does not want to abandon a market, then it must increase the capacity of Frankfurt plant or
decrease the unit cost of production in other plants. The calculations pertaining to this case
are outlined in Appendix 10.
In the next case, a scenario is analyzed where Applichem might not want to completely
abandon a particular market. There may be several reasons for doing this. One of the
reasons could be to keep the brand image alive and not lose old customers in these areas.
So, it is assumed that that Applichem meets atleast half of the demand in the Pacific and
rest of the world region. In this case, the optimal profit is calculated as $8,956,150. In this
case, Applichem must give up 13.25 million pounds of demand in Latin America. The profit in
this case is more than the previous case where Applichem was abandoning Pacific and rest
of the world - $8,956,150 as compared to $8,554,790 respectively. The calculations for this
scenario are demonstrated in Appendix 11.
5. Conclusion
In this case study, the organizational and obsolescence problems that existed in Applichem
were pointed out. Then, based on the company’s competitive priorities, a comparison of the
performance of Applichem’s six plants was done in terms of production efficiency,
11
Case Study Analysis: Applichem
manufacturing cost and product quality. Next, an optimal network design was proposed for a
basic ideal case. This was then extended to incorporate variation in exchange rates and
variation in demand.
Further, a scenario was considered where Applichem doesn’t intend to fill all demand. Two
cases were considered in this scenario – first, where Applichem completely abandons a
market; and second, where Applichem meets 50% of the demand in the abandoned market
of the previous case but does not meet the demand of another market fully. It was found out
that both these cases generate two highest profits for Applichem. Thus, Applichem should
seriously consider this option of not meeting all its demand with its existing set of plants.
Further, if adequate technological innovation is introduced in its non-performing plants,
Applichem can think of recapturing these lost markets in due course of time.
At a time when supply chains continue to globalize and firms continue to grow, the growth of
a particular firm comes at a cost to the environment [3]. In order to continue growing,
Applichem should focus on sustainable growth in the years to come. Firstly, Applichem
should pay attention to energy consumption, water consumption, greenhouse gas emissions
and waste generation from environmental perspective [3]. Secondly, Applichem should
reduce health and safety costs and labor turnover costs resulting from safer warehousing
and transportation and better working conditions which can increase motivation of workers
and productivity of plants [1]. Thirdly, Applichem should enhance its reputation by engaging
in a sustainable behavior. Such an approach to growth makes an organization more
attractive not only to its suppliers and customers [5], but also to potential employees [2], and
shareholders [6]. In sum, an increased focus on sustainability will allow Applichem’s supply
chain to reduce risk, become more efficient and environment-friendly, and also attract
stakeholders who value those efforts [3].
12
Case Study Analysis: Applichem
References
[1] Brown, K. A. (1996). Workplace safety: a call for research. Journal of
operations management, 14(2), 157-171.
[2] Capaldi, N. (2005). Corporate social responsibility and the bottom line.
International Journal of Social Economics, 32(5), 408-423.
[3] Chopra, S., & Meindl, P. (2007). Supply chain management. Strategy,
planning & operation (pp. 265-275). Gabler.
[4]
Chemical
Industry
Vision
2030:
A
European
Perspective.
http://www.atkearney.com/chemicals/ideas-insights/article//asset_publisher/LCcgOeS4t85g/content/chemical-industry-vision-2030-aeuropeanperspective/10192?_101_INSTANCE_LCcgOeS4t85g_redirect=%2Fch
emicals%2Fideas-insights.
[5] Ellen, P. S., Webb, D. J., & Mohr, L. A. (2006). Building corporate
associations: consumer attributions for corporate socially responsible programs.
Journal of the Academy of Marketing Science, 34(2), 147-157.
[6] Klassen, R. D., & McLaughlin, C. P. (1996). The impact of environmental
management on firm performance. Management science, 42(8), 1199-1214.
[7] Sørensen, J. B., & Stuart, T. E. (2000). Aging, obsolescence, and
organizational innovation. Administrative science quarterly, 45(1), 81-112.
[8] Tushman, M. L., & Anderson, P. (1986). Technological discontinuities and
organizational environments. Administrative science quarterly, 439-465.
13
14
18.5
5
3.7
22
4.5
North America
Pacific and Rest of
World
North America
North America
Latin America
Gary
Sunchem
Canada
Mexico
Venezuela
47
Western Europe
Frankfurt
Market
Capacity (million
pounds)
4.1
17.2
2.6
4
14
38
Production (million
pounds)
91%
78%
70%
80%
76%
81%
Utilization Rate
87.29
75.05
68.7
91.86
60.83
53
Raw Material Cost
(U.S. dollars per
hundred pounds of
Release-ease)
25.02
17.58
24.55
57.38
25.67
20.34
Operating Cost (U.S.
dollars per hundred
pounds of Releaseease)
116.34
95.01
97.35
153.8
102.93
76.69
Package, Load & Ship
Cost (U.S. dollars per
hundred pounds of
Release-ease)
116.34
95.01
97.35
153.8
102.93
76.69
Total Cost(U.S. dollars
per hundred pounds of
Release-ease)
91.7
94.7
91.1
98.8
90.4
98.9
Average Yield on Raw
Material (%)
Good
Good
Good
Good
Not Good
Good
Manufacturing
performance based on
A.Y
1
1
NA
Many
80
1
Packaging
NA
NA
NA
NA
8
2
Product Type
1
6
4
1
19
12
Other products
1. Comparison of Performance Measures
Appendix
Case Study Analysis: Applichem
Case Study Analysis: Applichem
2. Input Data
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Production per
Hundred Pounds
$
95.01
$
97.35
$
116.34
$
76.69
$
102.93
$
153.80
Import
Duty
60.00%
0.00%
50.00%
9.50%
4.50%
6.00%
Supply Region
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Canada
Latin
America
Western
Europe
US
Pacific and Rest
of the World
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total Demand
in Millions of
Pounds
Mexico
Supply Region
Demand Region
Transportation Cost per per hundred pounds of Release-Ease
$$ 11.00
$ 7.00
$ 10.00
$ 10.00
$ 14.00
$ 11.40
$$ 10.00
$ 11.50
$ 6.00
$ 13.00
$ 7.00
$ 9.00
$$ 12.50
$ 11.00
$ 12.50
$ 11.00
$ 11.50
$ 13.00
$$ 10.00
$ 14.20
$ 11.00
$ 6.00
$ 10.40
$ 11.20
$ $ 13.00
$ 14.00
$ 13.00
$ 14.30
$ 13.30
$ 12.50
$-
10.0
10.0
16.0
20.0
12.0
11.9
15
Capacity in Millions of
Pounds
Supply Region
22.0
3.7
4.5
47.0
18.5
5.0
0
37000
0
63000
0
0
100000
0
100000
0
0
0
0
0
100000
0
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
Excess
Demand
Canada
Mexico
Supply Region
0
27000
0
45000
88000
0
0
160000
Latin
America
0
0
0
0
200000
0
0
200000
Western
Europe
0
0
0
0
0
120000
0
120000
US
0
Pacific
and Rest
of the
World
0
0
0
119000
0
0
119000
Demand Region - Shipment Quantities in Hundreds of Pounds
1
1
1
1
1
1
Open?
Transportation
Cost
Production
Cost
Duty
Total Cost
220000
37000
45000
470000
185000
50000
Actual
Capacity
16
3,596,200.00
69,299,420.00
6,528,640.00
79,424,260.00
$
$
$
93000
0
0
0
65000
50000
Excess
Inventory
$
127000
37000
45000
470000
120000
0
Shipments
Out
In Hundreds of Pounds
Case Study Analysis: Applichem
3. Basic Model – Minimizing Cost
37000
0
17
0
0
0
0
0
63000
0
0
0
0
100000 100000
0
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
Excess
Demand
100000
Mexico Canada
Mexico
Supply Region
0
0
40000
0
0
160000
0
120000
Latin
America
0
0
200000
0
0
200000
0
0
Western
Europe
0
0
48000
72000
0
120000
0
0
US
0
0
119000
0
0
119000
0
Pacific
and Rest
of the
World
0
Demand Region - Shipment Quantities in Hundreds of Pounds
45000
470000
185000
50000
37000
220000
Actual
Capacity
Production
Cost
Revenue
Profit
Transportation
Cost
1
1
1
1
1
1
Open?
45000
0
113000
50000
0
0
Excess
Capacity
$ 80,699,000.00
$ 8,554,790.00
$ 67,959,410.00
$ 4,184,800.00
0
470000
72000
0
37000
220000
Shipments
Out
In Hundreds of Pounds
Case Study Analysis: Applichem
4. Basic Model – Maximizing Profit
Case Study Analysis: Applichem
5. Input Data – Exchange Rates
Base Year (1982) Exchange Rate
Supply Region
Mexico
Canada
Venezuela
Frankfurt
(Germany)
Gary (US)
Sunchem (Japan)
Forecasting Year Exchange Rate
Annual Average
Exchange Rate
(Currency /$1
US)
Supply Region
96.50
1.23
4.30
Mexico
Canada
Venezuela
Frankfurt
(Germany)
Gary (US)
Sunchem (Japan)
2.38
1.00
235.00
18
Annual Average
Exchange Rate
(Currency /$1 US)
26.20
1.18
4.30
2.25
1.00
219.00
0
12000
0
0
37000
0
0
88000
0
0
63000
0
0
100000 100000
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
Excess
Demand
0
Mexico Canada
Supply Region
0
0
0
45000
113000
2000
0
160000
Latin
America
0
0
0
0
200000
0
0
200000
Western
Europe
0
0
0
0
0
120000
0
120000
US
0
Pacific
and Rest
of the
World
0
0
0
69000
0
50000
119000
Demand Region - Shipping Quantities in Hundreds of Pounds
220000
37000
45000
470000
185000
50000
12000
37000
45000
470000
185000
50000
208000
0
0
0
0
0
Actual Shipments Excess
Capacity
Out
Capacity
19
Production
Cost
Revenue
Profit
Transportation
Cost
3,610,200.00
$ 110,272,559.35
$ 28,052,451.36
$ 78,609,907.99
$
Forecasting year cost and profit
1
1
1
1
1
1
Open?
In Hundreds of Pounds
Case Study Analysis: Applichem
6. Variation in Exchange Rate
0
37000
0
63000
0
0
100000
0
100000
0
0
0
0
0
100000
0
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
excess
demand
Canada
Mexico
Supply Region
0
120000
0
0
40000
0
0
160000
Latin
America
0
0
0
0
200000
0
0
200000
Western
Europe
0
0
0
0
48000
72000
0
120000
US
0
Pacific
and Rest
of the
World
0
0
0
119000
0
0
119000
Demand Region - Shipment Quantities in Hundreds of Pounds
220000
37000
0
470000
185000
50000
0
0
0
0
113000
50000
20
$ 76,158,447.07
$ 11,365,317.87
$ 60,608,329.21
$ 4,184,800.00
220000
37000
0
470000
72000
0
Actual Shipments Excess
Capacity
Out
Capacity
Transportation
Cost
Production
Cost
Revenue
Profit
1
1
0
1
1
1
Open?
In Hundreds of Pounds
Case Study Analysis: Applichem
7. Variation in Exchange Rates – USD Appreaciates
0
107000
0
0
37000
0
0
0
70000
0
0
0
0
107000 107000
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
Excess
Demand
0
Mexico Canada
Supply Region
0
113000
0
0
58200
0
0
171200
Latin
America
0
0
0
0
214000
0
0
214000
Western
Europe
0
0
0
0
470
127930
0
128400
US
0
0
0
0
127330
0
0
127330
Pacific and
Rest of the
World
Demand Region - Shipment Quantities in Hundreds of Pounds
220000
37000
0
470000
185000
50000
21
Production
Cost
Revenue
Profit
0
0
0
0
57070
50000
$ 86,347,930.00
$ 8,609,392.10
$ 73,716,284.90
$ 4,022,253.00
220000
37000
0
470000
127930
0
Actual Shipments Excess
Capacity
Out
Capacity
Transportation
Cost
1
1
0
1
1
1
Open?
In Hundreds of Pounds
Case Study Analysis: Applichem
8. Variation in Demand – Demand Increases by 7%
Mexico Canada
0
37000
0
53000
0
0
90000
0
90000
0
0
0
0
0
90000
0
Supply Region
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
Excess
Demand
0
122100
0
0
21900
0
0
144000
Latin
America
0
0
0
0
180000
0
0
180000
Western
Europe
0
0
0
0
108000
0
0
108000
US
0
0
0
0
107100
0
0
107100
Pacific and
Rest of the
World
Demand Region - Shipment Quantities in Hundreds of Pounds
220000
37000
0
470000
0
50000
22
Production
Cost
Revenue
Profit
7900
0
0
0
0
50000
$ 72,629,100.00
$ 8,459,249.00
$ 59,797,871.00
$ 4,371,980.00
212100
37000
0
470000
0
0
Actual Shipments Excess
Capacity
Out
Capacity
Transportation
Cost
1
1
0
1
0
1
Open?
In Hundreds of Pounds
Case Study Analysis: Applichem
9. Variation in Demand – Demand Decreases by 7%
0
100000
0
0
37000
0
0
0
63000
0
0
0
0
100000 100000
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
Excess
Demand
0
Mexico Canada
Supply Region
73000
0
0
0
87000
0
0
87000
Latin
America
0
0
0
0
200000
0
0
200000
Western
Europe
0
0
0
0
120000
0
0
120000
US
119000
Pacific
and Rest
of the
World
0
0
0
0
0
0
0
Demand Region - Shipment Quantities in Hundreds of Pounds
1
1
0
1
0
1
220000
37000
0
470000
0
50000
23
Production
Cost
Revenue
Profit
120000
0
0
0
0
50000
$ 61,307,000.00
$ 9,003,750.00
$ 49,147,250.00
$ 3,156,000.00
100000
37000
0
470000
0
0
Actual Shipments Excess
Capacity
Out
Capacity
Transportation
Cost
Open?
In Hundreds of Pounds
Case Study Analysis: Applichem
10. Not Meeting All Demand – Losing a Market Altogether
0
100000
0
0
37000
0
0
0
63000
0
0
0
0
100000 100000
Mexico
Canada
Venezuela
Frankfurt
Gary
Sunchem
Total demand
Excess
Demand
0
Mexico Canada
Supply Region
132500
0
0
0
27500
0
0
27500
Latin
America
0
0
0
0
200000
0
0
200000
Western
Europe
0
0
0
0
120000
0
0
120000
US
59500
Pacific
and Rest
of the
World
0
0
0
59500
0
0
59500
Demand Region - Shipment Quantities in Hundreds of Pounds
220000
37000
0
470000
0
50000
24
Production
Cost
Revenue
Profit
120000
0
0
0
0
50000
$ 61,307,000.00
$ 8,956,150.00
$ 49,147,250.00
$ 3,203,600.00
100000
37000
0
470000
0
0
Actual Shipments Excess
Capacity
Out
Capacity
Transportation
Cost
1
1
0
1
0
1
Open?
In Hundreds of Pounds
Case Study Analysis: Applichem
11. Not Meeting All Demand – Not Losing Any Market Completely