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In 2005, Phillip (Phil) Landgraf faced several glaring problems in the financial performance of his company, BioPharma, Inc. The firm had experienced a steep decline in profits and very high costs at its plants in Germany and Japan. Landgraf, the company's president for worldwide operations, knew that demand for the company's products was stable across the globe. As a result, the surplus capacity in his global production network looked like a luxury he could no longer afford. Any improvement in financial performance was dependent on having the most efficient network in place, because revenues were unlikely to grow.. Cutting costs was thus a top priority for the coming year. To help design a more cost-effective network, Landgraf assigned a task force to recommend a course of action. BACKGROUND

BioPharma, Inc., is a global manufacturer of bulk chemicals used in the pharmaceutical industry. The company holds patents on two chemicals that are called Highcal and Relax internally. These bulk chemicals are used internally by the company's pharmaceutical division, and are also sold to other drug manufacturers. There are distinctions in the precise chemical specifications to be met in different parts of the world. All plants, however, are currently set up to be able to produce both chemicals for any part of the world. For 2005, sales of each product by region and the production and capacity at each plant are shown in Table 6-19. The plant capacity, measured in millions of kilograms of production, can be assigned to either chemical as long as the plant is capable of producing both. BioPharma has forecast that its sales for the two chemicals are likely to be stable for all parts of the world, except for Asia without Japan, where sales are expected to grow by 10 percent annually for each of the next five years before stabilizing. The Japanese plant is a technology leader within the BioPharma network in terms of its ability to handle regulatory and environmental issues. Some...
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