After receiving regulatory approval from the European Union, Lightning Networks, a major wireless carrier, and SatTV, the largest satellite TV provider in Europe, completed their 50 billion euro merger in 2016 After initial skepticism when the deal was first announced, analysts had warmed to the idea of synergies in the merger Lightning expected to benefit from the large customer base of SatTV and the company announced that it expected significant annual cost savings within three years of the merger Simone Durand, senior VP of supply chain at Lightning, was charged with identifying some cost reduction opportunities She decided to focus her initial attention on the distribution networks the two companies used to fulfill demand for installation and repair products The merger offered an opportunity to combine the two distribution networks The Current Distribution Network Any new installation or repair by Lightning or SatTV required a set of products for the technician to complete the job Rather than carrying these products with technicians, both companies had decided to centralize product inventories in a few locations Annual product demand for the two companies across six regions in Europe was as shown in Table 1 Table 1 Annual Demand in Europe for Lightning Networks (wireless) and SatTV (satellite) Zone Wireless Demand Satellite Demand Zone Wireless Demand Satellite Demand Northwest 140,000 100,000 Middle South 130,000 105,000 Southwest 1500,00 110,000 Northeast 140,000 125,000 Middle North 220,000 100,000 Southeast 100,000 110,000 Case Study Managing a Merger at Lightning Networks After receiving regulatory approval from the European Union, Lightning Networks, a major wireless carrier, and SatTV, the largest satellite TV provider in Europe, completed their 50 billion euro merger in 2016 After initial skepticism when the deal was first announced, analysts had warmed to the idea of synergies in the merger Lightning expected to benefit from the large customer base of SatTV and the company announced that it expected significant annual cost savings within three years of the merger Simone Durand, senior VP of supply chain at Lightning, was charged with identifying some cost reduction opportunities She decided to focus her initial attention on the distribution networks the two companies used to fulfill demand for installation and repair products The merger offered an opportunity to combine the two distribution networks The Current Distribution Network Any new installation or repair by Lightning or SatTV required a set of products for the technician to complete the job Rather than carrying these products with technicians, both companies had decided to centralize product inventories in a few locations Annual product demand for the two companies across six regions in Europe was as shown in Table 1 Lightning had served its product needs from three warehouses located in Madrid, Spain Rotterdam, Netherlands and Krakow, Poland SatTV had served its product needs from three warehouses located in Toulouse, France Munich, Germany and Budapest, Hungary Each facility was specialized to handle either wireless or satellite products because of the historical focus of the company it belonged to The specialization, capacity, and annual fixed cost for each facility were as shown in Table 2 The capacity of each warehouse is given in terms of how much annual demand it can handle From Table 2, observe that the Madrid warehouse can serve demand of up to 350,000 units The variable cost of shipping one unit (either wireless or satellite) from each warehouse location to each market is shown in Table 3 Table 2 Warehouse Specialization, Capacities, and Fixed Costs Location Specialization Capacity Fixed Cost (euro year) Madrid Wireless 350,000 550,000 Rotterdam Wireless 400,000 580,000 Krakow Wireless 350,000 670,000 Toulouse Satellite 260,000 500,000 Munich Satellite 270,000 463,000 Budapest Satellite 290,000 425,000 Table 3 Variable Distribution Cost per Unit in Euro Northwest Southwest Middle North Middle South Northeast Southeast Madrid 5 2 1 4 5 6 Rotterdam 6 5 8 3 6 4 Krakow 2 4 8 6 2 4 Toulouse 7 5 7 2 3 1 Munich 1 6 7 3 2 2 Budapest 6 8 7 2 6 3 The Network Options Simone had a short term and a long term decision to make In the short term, she had to decide whether to make all the warehouses flexible or not Making all warehouses flexible required an investment equivalent to an additional annual cost of 300,000 euro Flexible warehouses, however, could be used to serve demand for both wireless and satellite products In the longer term, Simone had to decide whether to restructure the distribution network She could choose to close some warehouses, leave others open as they were, or double the capacity of some warehouses Doubling the capacity of a warehouse would increase its annual fixed cost by 60 percent Closing a warehouse would also incur some cost, thus reducing the annual fixed cost that could be saved Simones team estimated that closing a warehouse would save 90 percent of the annual fixed cost Questions What is the annual cost if Lightning uses the current network (with warehouses specialized as in Table 2) optimally to meet European demand Should Simone make all warehouses flexible given the additional cost of 300,000 euro per year What supply chain network configuration do you recommend for the long term if demand is as in Table 1 Should any warehouses be closed Should any warehouses see their capacity doubled What supply chain network configuration do you recommend for the long term if the Northeast and Southeast demand is expected to increase by 30 percent while all other demands remain as in Table 1 Should any warehouses be closed Should any warehouses see their capacity doubled

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After receiving regulatory approval from the European Union, Lightning Networks, a major wireless carrier, and SatTV, the largest satellite TV provider in Europe, completed their

After receiving regulatory approval from the European Union, Lightning Networks, a major wireless carrier, and SatTV, the largest satellite TV provider in Europe, completed their 50 billion euro merger in 2016. After initial skepticism when the deal was first announced, analysts had warmed to the idea of synergies in the merger. Lightning expected to benefit from the large customer base of SatTV and the company announced that it expected significant annual cost savings within three years of the merger. Simone Durand, senior VP of supply chain at Lightning, was charged with identifying some cost reduction opportunities. She decided to focus her initial attention on the distribution networks the two companies used to fulfill demand for installation and repair products. The merger offered an opportunity to combine the two distribution networks.

The Current Distribution Network

Any new installation or repair by Lightning or SatTV required a set of products for the technician to complete the job. Rather than carrying these products with technicians, both companies had decided to centralize product inventories in a few locations. Annual product demand for the two companies across six regions in Europe was as shown in Table 1.

Table 1 Annual Demand in Europe for Lightning Networks (wireless) and SatTV (satellite)

Zone	Wireless Demand	Satellite Demand	Zone	Wireless Demand	Satellite Demand
Northwest	140,000	100,000	Middle South	130,000	105,000
Southwest	1500,00	110,000	Northeast	140,000	125,000
Middle North	220,000	100,000	Southeast	100,000	110,000

Case Study Managing a Merger at Lightning Networks

The Current Distribution Network

Lightning had served its product needs from three warehouses located in Madrid, Spain; Rotterdam, Netherlands; and Krakow, Poland. SatTV had served its product needs from three warehouses located in Toulouse, France; Munich, Germany; and Budapest, Hungary. Each facility was specialized to handle either wireless or satellite products because of the historical focus of the company it belonged to. The specialization, capacity, and annual fixed cost for each facility were as shown in Table 2. The capacity of each warehouse is given in terms of how much annual demand it can handle. From Table 2, observe that the Madrid warehouse can serve demand of up to 350,000 units. The variable cost of shipping one unit (either wireless or satellite) from each warehouse location to each market is shown in Table 3.

Table 2 Warehouse Specialization, Capacities, and Fixed Costs

Location	Specialization	Capacity	Fixed Cost (euro/year)
Madrid	Wireless	350,000	550,000
Rotterdam	Wireless	400,000	580,000
Krakow	Wireless	350,000	670,000
Toulouse	Satellite	260,000	500,000
Munich	Satellite	270,000	463,000
Budapest	Satellite	290,000	425,000

Table 3 Variable Distribution Cost per Unit in Euro

	Northwest	Southwest	Middle North	Middle South	Northeast	Southeast
Madrid	5	2	1	4	5	6
Rotterdam	6	5	8	3	6	4
Krakow	2	4	8	6	2	4
Toulouse	7	5	7	2	3	1
Munich	1	6	7	3	2	2
Budapest	6	8	7	2	6	3

The Network Options

Simone had a short term and a long term decision to make. In the short term, she had to decide whether to make all the warehouses flexible or not. Making all warehouses flexible required an investment equivalent to an additional annual cost of 300,000 euro. Flexible warehouses, however, could be used to serve demand for both wireless and satellite products.

In the longer term, Simone had to decide whether to restructure the distribution network. She could choose to close some warehouses, leave others open as they were, or double the capacity of some warehouses. Doubling the capacity of a warehouse would increase its annual fixed cost by 60 percent.

Closing a warehouse would also incur some cost, thus reducing the annual fixed cost that could be saved. Simones team estimated that closing a warehouse would save 90 percent of the annual fixed cost.

Questions

What is the annual cost if Lightning uses the current network (with warehouses specialized as in Table 2) optimally to meet European demand?

Should Simone make all warehouses flexible given the additional cost of 300,000 euro per year?

What supply chain network configuration do you recommend for the long term if demand is as in Table 1? Should any warehouses be closed? Should any warehouses see their capacity doubled?

What supply chain network configuration do you recommend for the long term if the Northeast and Southeast demand is expected to increase by 30 percent while all other demands remain as in Table 1? Should any warehouses be closed? Should any warehouses see their capacity doubled?