Jack Ma$,$ vice president of supply chain at ColdWipes, thought that his current

production and distribution network was not appropriate, given the significant

increase in transportation costs over the past few years. Compared to when the

company had set up its production facility in Suzhou, transportation costs had

increased by a factor of more than four and were expected to continue growing in

the next few years. A quick decision on building one or more new plants could

save the company significant amounts in transportation expense in the future.

ColdWipes

ColdWipes was founded in the late $1990$s and produced baby wipes and diaper

ointment. Demand for the two products tends to be stable over time and the recent

demand was as shown in Table $3-1.$ The company currently had one factory in

Suzhou that produced both products for the entire country. The wipes line in the

Suzhou facility had a capacity of $5$ million units, an annualized fixed cost of $$5$

million a year, and a variable cost of $$10$ per unit. The ointment line in the Suzhou

facility had a capacity of $1$ million units, an annualized fixed cost of $$1\mathrm{.}5$ million a

year, and a variable cost of $$20$ per unit. The current transportation costs per unit

$($for both wipes and ointment$)$ are shown in Table $3-2$:

Zone Wipes Demand Ointment Demand

Northwest $50050$ Lower Midwest $80065$

Southwest $70090$ Northeast $1,000120$

Upper Midwest $900120$ Southeast $60070$

New Network Options

Jack had identified Wuxi, Changshu, and Taizhou as potential sites for new plants.

Each new plant could have a wipes line, an ointment line, or both. A new wipes

line had a capacity of $2$ million units, an annual fixed cost of $$2\mathrm{.}2$ million, and a

variable production cost of $$10$ per unit. A new ointment line had a capacity of $1$million units, an annual fixed cost of $$1\mathrm{.}5$ million, and a variable cost of $$20$ per

unit. The current transportation costs per unit are shown in Table $3-2.$ Jack had to

decide whether to build a new plant and if so$,$ which production lines to put into

the new plant.

From$/$To Northwest Southwest Upper Midwest Lower Midwest Northeast Southeast

Suzhou $$6\mathrm{.}32$ $$6\mathrm{.}32$ $$3\mathrm{.}68$ $$4\mathrm{.}04$ $$5\mathrm{.}76$ $$5\mathrm{.}96$

Wuxi $$6\mathrm{.}60$ $$6\mathrm{.}60$ $$5\mathrm{.}76$ $$5\mathrm{.}92$ $$3\mathrm{.}68$ $$4\mathrm{.}08$

Changshu $$6\mathrm{.}72$ $$6\mathrm{.}48$ $$5\mathrm{.}92$ $$4\mathrm{.}08$ $$4\mathrm{.}04$ $$3\mathrm{.}64$

Taizhou $$4\mathrm{.}36$ $$3\mathrm{.}68$ $$6\mathrm{.}32$ $$6\mathrm{.}32$ $$6\mathrm{.}72$ $$6\mathrm{.}60$

Discussion Questions:

$1.$ What is the annual cost of serving the entire nation from Suzhou? $($Note: you

will need to develop a network optimization model to solve this problem.$)(10$ marks$)$

$2.$ Do you recommend adding any plant$($s$)?$ If so$,$ where should the plant$($s$)$ be

built and what lines should be included? Assume that the Suzhou plant will be

maintained at its current capacity but could be run at lower utilization. $(15$

marks$)$

$3.$ If Matt could design a new network from scratch $($assume he did not have the

Suzhou plant but could build it at the cost and capacity specified in the case$),$

what production network would you recommend? Assume that any new

plants built besides Suzhou would be at the cost and capacity specified under

the new network options. $(15$ marks$)$

Note: The layout of the excel model $($such as titles, tables, transparency of information

and analysis, etc.$)$ will also be considered in marking your answers.