# Supply Chain Management (Sabirzianov Azat).docx - Zhengzhou...

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Zhengzhou University School of Management Engineering Electronic Commerce Supply Chain Management Exercise question of chapter 5 Master Degree Student: Sabirzianov Azat Student’s ID Number: 201912302050009 2020 year
6 . StayFresh, a manufacturer of refrigerators in India, has two plants - one in Mumbai and the other in Chennai. Each plant has a capacity of 300,000 units. The two plants serve the entire country, which is divided into four regional markets: the north, with a demand of 100,000 units; the west, with a demand of 150,000 units; the south, with a demand of 150,000 units; and the east, with a demand of 50,000 units. Two other potential sites for plants include Delhi and Kolkata. The variable production and transport costs (in thousands of rupees: 1 U.S. dollar is worth about 65 rupees) per refrigerator from each potential production site to each market are as shown in Table 5.12 Table 5.12 North East West South Chennai 20 19 17 15 Delhi 15 18 17 20 Kolkata 18 15 20 19 Mumbai 17 20 15 17 StayFresh is anticipating a compounded growth in demand of 20 percent per year for the next five years and must plan its network investment decisions. Demand is anticipated to stabilize after five years of growth. Capacity can be added in increments of either 150,000 or 300,000 units. Adding 150,000 units of capacity incurs a one-time cost of 2 billion rupees, whereas adding 300,000 units of capacity incurs a one-time cost of 3.4 billion rupees. Assume that StayFresh plans to meet all demand (prices are sufficiently high) and that capacity for each year must be in place by the beginning of the year. Also assume that the cost for the fifth year will continue for the next 10 years - that is, years 6 to 15. The problem can now be solved for different discount factors. To begin with, assume a discount factor of 0.2 - that is, 1 rupee spent next year is worth 1 - 0.2 = 0.8 rupee this year. Questions: a. How should the production network for the company evolve over the next five years? b. How does your answer change if the anticipated growth is 15 percent? 25 percent? c. How does your decision change for a discount factor of 0.25? 0.15? d. What investment strategy do you recommend for the company? Answers: (a) Development of the company's production network over the next five years The case study says that demand growth is most likely expected to be around 20 percent per year over the next five years, and plans to meet this demand for StayFresh will remain.
Year South(S) West(W) North(N) East(E) Total Demand (S+W+N+E) 0 150,000 150,000 100,000 50,000 450,000 1 180,000 180,000 120,000 60,000 540,000 2 216,000 216,000 144,000 72,000 648,000 3 259,200 259,200 172,800 86,400 777,600 4 311,040 311,040 207,360 103,680 933,120 5 373,248 373,248 248,832 124,416 1,119,744 Stayfresh already has an installed capacity of 600,000 units (300,000 in Mumbai and 300,000 in Chennai). The total planned capacity increase for the next 5 years is 519,744 units (1,119,744 – 600,000). To meet this demand, Stayfresh must increase its production capacity by either 300,000 units or 150,000 units in Delhi and/or Kolkata. As a result, Stayfresh will require an additional capacity of 600,000 units for the next 5 years. So adding a capacity of 150,000 units entails a one-time cost of Rs. 2 billion and that of 300,000 units is worth Rs. 3,4 billion according to the information provided. We should note that the discount rate is 0.2. Since we do