Because of increasing global demand for its fiber optics products, Hanover Inc. is currently facing a decision on how to increase its production capacity. Hanover has three fiber optic products denoted by FA, FB, and FC. Hanover has two existing plants in Austin, Texas and Paris, France. Hanover plans to keep the Austin and Paris plants will open, but the production capacity at these two existing plants can be changed from their current levels (600,000 units per year). Each plant can make any mix of the three products. Seven locations are being considered for an additional new plant. These consist of two cities in the United States (Charleston, SC and Mobile, AL) and five other locations currently simply defined by country (Australia, India, Malaysia, South Africa, and Spain).

The company's customers have been aggregated onto eight customer regions (Malaysia, China, France, Brazil, US Northeast, US Southeast, US Midwest, and US West) and its Planning and Forecasting department has forecasted demand for each region five years into the future. The Planning and Forecasting department has also provided other relevant data to help with the decision on how to expand capacity given the forecasted demand. Descriptions of the available data provided in the file Hanover follow:

Duty: This worksheet contains the duty rate charged from each plant to each customer region. This rate is multiplied by the selling price to get the cost per unit paid in duty to ship into one country from another country.

Fixed Cost: This worksheet contains the fixed cost of plant operation including capital costs, insurance, management, etc. These costs depend on the capacity level of the plant, and costs for two different levels of capacity are given for each plant location. The capacities are independent of product mix.

Forecast: This worksheet contains five-year-out forecasted demand for each product by customer region.

F&WH Cost: This worksheet contains freight and warehousing cost per unit from each plant location to each customer region (which are independent of product type).

Price: This worksheet contains the selling price of each product for each customer region.

Variable Cost: This worksheet contains the variable cost of each product at each plant.

The vice president of supply chain management would like you to study this situation using the given data.

Managerial Report

Use the concepts in Chapters 10, 12, and 13 to make a recommendation to Hanover's vice president of supply chain management. In particular, make a recommendation regarding whether or not a new plant is needed and if so, at which of the seven locations under consideration it should be located. Also, your report should indicate which capacity levels should be used at each plant, and how product should be sourced.