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Chapter o • I n.

186

CASE STUDY
BioPharma Inc*
,In «
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^ot n>
2009. Phillip (Phil... . ,f rmance
Uodgr . , glaring
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cap
of each prod « by
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problems tin.
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nt

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had experienced
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a s
p
V
* Table o-
kilograms
l g
» - The
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of P>
pi
. P '
'
,jllf tion can be assigned to ein,
'

{he p | ant js capable ot


S«M
producin '

BioPharma n • high costs at its P J •
^ chemical as ong _
forecast that its sales for the tv !
GerntTny' and Japan Landgrafkne. a
for worldwide operations
stable
Bproduction
chem
e
As a*
wor d e« P . fof
,
Asia
®
* abj
be
without
C
Japan ” ^
where '
sales *arc
) f

company
result,
'
the
s products
surplus
was
capacity m 8 , er afford, expects 8 by
' Q percent
stabilizing
annually
,
tor

,
each of n

, *

—- — — ..
cod bdore
network looked like a luxury he
erforIJancc was next five yt
p ant is a technology leader wi hln

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-
Any improvement in ftnan P' The J P ^
jn placc> R jn terms 0f its ability to handle
sr s Ä
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ot Sitsfe
Ä ÄÄ -;
: :« JÄ
Ä
p
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Background
,
, ,
B Pharma. Inc., is a global m aut c
chemicals used in the pharmaceutical
are of
industry
.
balk ,
.
,
„ .indian .
, ,
c
«
.
Bmrilian
Jated technolog
and
and
Mexican
are n
plan have
need of an up a «

-—
chemicals that are called BloPhdt plant Costs at RinPharma
company holds patents
Highcal and Relax
on two
internally.
,
These hulk chemicals are
- , Current
' d b edebate, the task force idei edtheost
used internally b the company's pharmaeeancal
. «

- - --
2009 »
division and are also sold to other drug manu ac •

There are distinctions in the precise chemical specif ca-


cost is *
* that ,.dependent
,, ,
«

:äS Ä X^* J ed
jn the planl. Tt f

*r
1

general manage ,
chemicals for any part of the world. benefits of employees involved in

| Sales by Region and Production/Capacity by Plant of Highcal


and Relax in Million Kilograms
Highcal Relax
2009 2009 2009 2009
Region Plant Capacity Sales Production Sales Production
Latin America Brazil 18.0 ~
7.0 11.0 7.0 7 CT
Europe Germany 45.0 15.0 15.0 12.0 0.0
Asia w/o Japan India 18.0 5.0 100 3.0 8.0
Japan Japan 100 7.0 2.0 8.0 0.0
Mexico Mexico 30 0 3.0 12.0 3.0 18.0
US. U. S. 22.0 18.0 5.0 17.0 17.0

i
This case was inspired by AppUchem ( A ), Harvard Business School Case 9 -
.
685-051 19X 5.
^ h‘
iptei 6 • Designing Global
Supply Chain Networks 187

I Fixed and Variable


Production r 0sts at Each BioPharma Plant in 2009 (US$)
Plant Highcal Relax
Highcal
Fixed Cost
Piant_ (million $) JiX" d Cost
Fixed Cost
Raw
Material
($ / kg)
Production
cost
Raw
Material
Production
cost
Brazil 20.0 ( S / kg) ( S / kg) ( S / kg)
Germany 45.0
iS 3.6 5.1 4.6 6.6
130 14.0
18.0 3.9 7.0 5.0 8.5
India 4.0 4.0 3.6 4.5 4.5 6.0
Japan 17.0 6.0 6.0 3.9 7.5 5.1 9.0
Mexico 30.0 6.0 6.0 3.6 5.0 4.6 6.5
U. S. 21.0 5.0 5.0 3.6 5.0 4.5 6.5

scheduling, expediting, accounting, maintenance, and so


BioPharma transports the chemicals in specialized
forth. Each plant that is capable of producing either containers by sea and in specialized trucks on land.
Highcal or Relax also incurs a product-related fixed cost The transportation costs between plants and markets are as
that is independent of the quantity of each chemical shown in Table 6-20. Historical exchange rates are shown
produced. The product-related fixed cost includes depreci ¬
in Table 6-21 and the regional import duties in Table 6- 22.
ation of equipment specific to a chemical and other fixed Given regional trade alliances, import duties in reality vary
costs that are specific to a chemical. If a plant maintains based on the origin of the chemical . For simplicity '
s sake,
the capability to produce a particular chemical, it incurs however, the task force has assumed that the duties are
the corresponding product -related fixed cost even if the driven only by the destination. Local production within
chemical is not produced at the plant. each region is assumed to result in no import duty . Thus,
The variable production cost of each chemical production from Brazil, Germany, and India am be sent to
consists of two components: raw materials and production Latin America, Europe, and the rest of Asia excluding
costs. The variable production cost is incurred in propor
¬
Japan, respectively, without incurring any import duties.
tion to the quantity of chemical produced and includes Duties apply only to the raw material, production, and
direct labor and scrap. The plants themselves can handle transportation cost component and not to the fixed cost
can also be idled component. Thus, a product entering Latin America with a
varying levels of production. In fact , they
the fixed cost, raw material, production, and transportation cost of $ 10
for the year, in which case they incur only
n ne of the variable cost .
incurs import duties of $3.
°
Costs from Plants to Markets ( US $ /kg)
Transportation
® Asia w / o Japan Japan Mexico U.S.
From/ To utinArnenca
FuroDe

0.45
—0.50 —
0.40 0.45
Brazil 0.20 040 0.30 0.30
0.20 0.35
Germany 0.45 0.20 0.30 0.50 0.45
0.50 0.35
India 0.30 0.10 0.45 0.45
0.40
Japan 0.50 0.50 0.45 020 025
0.40
0.30
Mexico 0.45 0.45 0.25 0.20
0.30
U . S. 0.45 { conti nurd )
\

jgg i > spM b • IVMIUIMW (.» loKil Supply 1 h un »

l „s„,v
:

Brazilian Real E uro


ft*« » Cuireocv/USS
Indian Rupee
« M »
** *
Japanese Yen
<.> « E*»
* »
Mexican Peso
• •
U .S. Dollar

; ?o 0 74 43 47 103 11 » 1 21 1.00
iW*
10 / 00 11 22 1.00
2008 2 90 0.80 45.60
10 38 1 00
200/ t SO 0.96 48 00 119 25
13176 9 12 1.00
2006 2 30 VII 48 27
9 72 1.00
I 91, \ 0t> 4675 114 73
43 55 102 33 948 1 00
2004 1 81 0 99

ttuifts OYncentago of Value of Product Imported. Including


I Latin America
ti ? ; po ' i
Transportation)
Europe Asia w / o Japan Japan Mexico U.S.

30% 3% 27 % 6% 35% 4%

Network Options Under Consideration Questions


Ihc task force IN considering a variety of options for .
1 How stum Id BioPhunnu have used its production network
u \ analysis OHO option IN to koop the global network in 2009? Should any of the plants have been idled - What is
.
with tiN current structure uni capabilities Other the annual cost ot your proposal, including import duties?
options include shutting down Nome plums or ( muting 2. How should Landgraf structure his global production £

the capability of some plants to producing only one network ’ Assume that the past is a reasonable indicatorot
the future in terms of exchange rates .
chemical loosing down u plum eliminates all variable
3. Is there any plant tor which it may be worth adding a
costs and Naves SO percent of the annual fixed costs
million kilograms of additional capacity at a fixed cost of
< the remaining '0 percent accounts for costs that are S3 million pet year “
Hktmvd telated to tin* plant shutdown ) . Similarly , it a ’
4. How are your recommendations affected by the reduction
plant IN limited to producing only one chemical , the of duties?
plant VOON SO percent of the fixed cost associated w ith 5. The analysis has assumed that each
plant has a 100 percent
the chetmeal that IN no longer produced The two > tdd ( percent output
of acceptable quality ). How would
opiums being seriously considered me shutting the > ou modify your analysis to account for yield difference*
Japanese plant and limiting the German plant to a acioss plants ?
single chemical b. \ \ hat other I actors should be
accounted for when ntufcin #
vom recommendations?

CASE STUDY
Global Supply Design for the Future: Nokia
Background emerging economies such # hi .
, a« a India . ApPlc