Fantastic Corporation designs and makes a fantastic new home entertainment center with widescreen HD TV and surround sound. It performs to demanding specifications and delivers impressive results. Customer demand is growing steadily, and if Fantastic does not keep up with demand, customers will go elsewhere and competitors will start taking market share. There have been some supply chain problems as Fantastic ramps up production. There are points in the supply chain where products are either running out or building up too much. And now the company has also decided to expand from its North American market into Europe.
You are head of supply chain operations at Fantastic and you already run a supply chain that extends from China to New York and points in between. Now you are going to extend that supply chain to Paris and Berlin. You need to design and execute a strategy to improve operations of the existing supply chain and then expand it to support the new business in Europe.
Your CEO has already described the company’s business plan. The company intends to open stores in London, Paris, Amsterdam and Berlin. The CEO wants to enter the most promising European markets quickly, and then be ready to expand into further cities in Europe if prospects look good. Everyone is looking to you to deliver the products those new stores will need.
Case Study Introduction
This case study simulation explores possible options for expanding a North American business into Europe. The simulation is based on a fictional company named Fantastic Corporation, and it demonstrates the supply issues involved in supporting the expansion of a business on a global scale. When transportation suddenly becomes significantly more expensive or time consuming, it creates a new set of conditions different from those encountered during expansion of a company within a single country.
You will get to practice setting up and managing a supply chain that is global in scope. As the supply chain grows, product lead times can be much longer than is the case in local or regional supply chains. You need to look into ways to increase the speed and volume of products flowing through the supply chain. When increased speed and just-in-time deliveries add too much cost, you can also look at ways to use higher levels of safety stock inventory to ensue that facilities doesn’t run out of inventory. And you will see how inventory can easily build up to levels that are beyond what is needed for safety stock and become a significant expense to maintain.
This simulation exercise begins with the existing supply chain that has grown up to support Fantastic Company operations and sales. Factories of suppliers in Japan, China, Vietnam and Singapore manufacture component parts that Fantastic needs to build its home entertainment centers. These parts are shipped (using ocean freight and air freight) across the Pacific Ocean to facilities in Tacoma and Los Angeles. Further assembly of parts is done in Tacoma, and from there, sent by railroad down to a factory in Los Angeles where final assembly of home entertainment systems happens.
FIRST CHALLENGE — Get the existing supply chain and assembly operations to run for 30 days and keep North American customers supplied with product over a 30 day period. Fantastic Corp uses a 30 day S&OP (sales and operations planning) cycle. What changes do you need to make to delivery schedules and delivery amounts to the different facilities? Do whatever you think is needed and see what happens. Experiment with different ideas and see what works best.
You can use the default values that come with this model, or you can do some research to get more current numbers (ask your instructor). If you do use new technologies such as robots, driverless vehicles, 3D printing and artificial intelligence, then edit the values for facilities, vehicles and routes to reflect this. Those technologies can change facility operating costs and product production rates. They can also change costs and speeds of vehicles, and decrease the delay between departure for vehicles which increases delivery frequencies on routes.
Ideas for how you could use new supply chain technologies to improve the flow of products through this supply chain can be found in the SCM Globe blog article titled “Five New Supply Chain Technologies and How to Use Them”
If you do research to update the default values that come with this model focus your effort and set a limit on the amount of time you spend. Do web searches on key words and phrases. Precise numbers are hard to find and in times of rapid change like now, it is more important to find good estimates rather than exact answers (because exact answers keep changing as technology changes). Base your estimates on the data you find in your research and identify the data sources you used.
TIP: Save backup copies of your supply chain model from time to time as you make changes. Then if a change doesn’t work out, you can restore from a saved copy.
SECOND CHALLENGE — Once you have the existing supply chain running for 30 days, expand the supply chain to support new stores in Europe. How will you prepare for the move into Europe? What steps will you take to support the opening of the initial four European stores?
You’ll need to create a European distribution center and stock it with enough inventory to support sales at the four stores for at least the length of time it will take for more product to be shipped from the United States. Assume sales demand at the four stores to be the same as for the New York store. To ship products from the United States to Europe you have two choices: 1) use air freight; 2) use ocean shipping. You need to evaluate these two options and explain why you chose one or the other.
To meet this second challenge it will help to consider issues such as:
- The location of the new European DC. Which mode of shipping from America to Europe will you choose? If you choose air freight you probably want to locate the European DC near an airport. If you choose ocean shipping then you probably want to choose a location near a port. How much storage capacity do you need at the new DC and why?
- Should the European DC be near the port or airport where products are shipped from America or nearer to the stores it serves?
- You also want to consider how best to maintain inventory in the new DC. To do this you need to ramp up production of home entertainment centers in your LA factory, and this means increasing transportation activity and costs to bring in more component parts for assembly and move finished products from LA to the new DC.
- Can you use existing facilities in North America to support business expansion or do you need to open a new facility from which to ship products to Europe?
- Do you want to maintain existing product assembly activities on the west coast or do you want to open a new assembly facility on the east coast or in Europe?
- What would be the effects of applying combinations of new technologies such as robots, drones and 3D printing?
THIRD CHALLENGE — Once your expanded supply chain runs for 30 days, then improve your design to get it to run at lowest transportation and operating costs while also using the lowest amounts of on-hand inventory across the supply chain.
- Experiment with ways to simplify the supply chain. Look for ways to smooth out the flow of products and reduce transportation costs
- Consider consolidating the product assembly facilities in the United States. If you did this the combined facility would need storage capacity equal to the separate storage capacities of the two current facilities.
- The workforce of a combined facility could be consolidated somewhat so daily operating costs of the combined facility would be 10 percent less than the combined operating costs of the two current facilities
- If you did consolidate product assembly into one facility, where would you locate that facility? Do some research on the websites of commercial real estate brokers to find possible locations. Use the satellite view and zoom in to see actual facilities. Make sure they are big enough and make sure they are in convenient places near major transportation arteries.
NOTE: Find useful ideas for reducing inventory and for calculating optimum product delivery amounts and schedules by reading “Cutting Inventory and Operating Costs” in the online guide. For ideas on how to expand this supply chain see “Tips for Building Supply Chain Models” for useful techniques.
There is a lot going on here. This is where you get to show you understand the relevant supply chain and logistics principles, and show you can apply them to solve problems in this demanding case study. Fantastic Corporation does not run all of the facilities in this supply chain (such as the factories of suppliers and the stores or retailers) but there are operating estimates entered for those facilities anyway so you can get an idea of how profitable your business is for those suppliers and retailers.
For ideas on how to start expanding this supply chain see SCM Globe online user guide section “Tips for Building Supply Chain Models“. In particular, scroll down to the “Vehicles” section and read the techniques for modeling deliveries made by ocean shipping or air freight. For the sake of accuracy, those techniques are used in this model when you import it from the library. The speed of ocean vehicles has been increased to model weekly shipments and deliveries and the cost per kilometer of ocean and air freight has been cut in half to model the use of one-way shipping containers.
This case study continues with a second case that explores supply chain risk management and business continuity issues. This second case is titled “Fantastic Corporation – Unexpected Events“.
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