Biopharma Case Study

Topics: Costs, Economics of production, Tariff Pages: 5 (1265 words) Published: November 22, 2011
Isaac Walker
BioPharma, Inc. case study
October 20, 2011

A. Set 1 Questions:

1. Discuss the financial status of BioPharma, Inc. in 2009

As of 2009, BioPharma is looking to reduce costs across the board. Profits have been steeply declining while production costs are high, especially at its German and Japanese facilities. With exception of India, demand is expected to remain relatively stable for the short-term future, so BioPharma can no longer afford its costly surplus capacity. BioPharma produces and sells two chemicals in bulk. Each plant they currently have is capable of producing both chemicals. They are willing to idle production at the Germany and Japan plants on one or both chemicals in order to reduce costs. They are also willing to reallocate which plant makes how much of each chemical and where they are distributed to.

2. Map the supply chain network of BioPharma, Inc.

See attachment

B. Set II Questions:

1. How should BioPharma have used its production network in 2009? Should any of the plants have been idled? What is the annual cost of your proposal, including import duties?

Optimization was performed using Excel to determine what production/distribution allocation would minimize the overall cost while accounting for fixed and variable cost of production, as well as transportation and import costs. My particular optimization determined that Japan should be idled on production of both chemicals while Germany (Europe) should be idled on production of Relax. The following shows the amount of each chemical that each region should make as well as plant capacity in millions of kg.

|Region |Plant |Capacity |Highcal |Relax | |Latin America |Brazil |18 |12 |6 | |Europe |Germany |45 |17 |0 | |Asia |India |18 |6 |12 | |Japan |Japan |10 |0 |0 | |Mexico |Mexico |30 |15 |15 | |U.S. |U.S. |22 |5 |17 |

Based on these levels of production and cost factors, it was determined that the following distribution patterns should be made in order to minimize overall cost.

Production (Million kg) |H |R |H |R |H |R |H |R |H |R |H |R | |From/To |LA |LA |Eu |Eu |A |A |J |J |M |M |US |US | |L. America |6 |6 |0 |0 |0 |0 |5 |0 |0 |0 |1 |0 | |Europe |0 |0 |15 |0 |0 |0 |2 |0 |0 |0 |0 |0 | |Asia |0 |0 |0 |1 |5 |2 |0 |7 |0 |0 |1 |2 | |Japan |0 |0 |0 |0 |0 |0 |0 |0 |0 |0 |0 |0 | |Mexico |1 |0 |0 |11 |0 |0 |0 |1 |3 |3 |11 |0 | |US |0 |1 |0 |0 |0 |1 |0 |0 |0 |0 |5 |15 | | If you include import tariffs, this scenario would have an annual cost of $1,308,100,000. Please see the attached printouts for a breakdown of how that cost is distributed amongst fixed, variable, transportation, and import costs.

2. How should Phil structure his global production network? Assume that the past is a reasonable indicator of the future in terms of exchange rates.

Phil should try to allow those countries with lower variable rate cost on raw materials and production to produce the supplies for their own regions as much as possible. This will help reduce transportation and tariff costs. These countries also have lower demand, so an excess production can be used to supply the needs of larger demand regions such as Europe, US, and Japan. Based on the history of exchange rates, this would...
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