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Outline
x The Impact of Globalization on Supply Chain Networks x The Offshoring Decision: Total Cost x Risk Management in Global Supply Chains x The Basic Aspects of Evaluating Global Supply Chain Design x Evaluating Network Design Decisions Using Decision Trees x AM Tires: Evaluation of Global Supply Chain Decisions Under Uncertainty in Practice x Summary of Learning Objectives
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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NPV = the net present va lue of this stream of cash flows k = rate of return
Compare NPV of different supply chain design options The option with the highest NPV will provide the greatest financial return
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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The NPV of signing the lease is $54,711 higher; therefore, the manager decides to sign the lease However, uncertainty in demand and costs may cause the manager to rethink his decision
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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Representations of Uncertainty
x Binomial Representation of Uncertainty x Other Representations of Uncertainty
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x In general, for the additive binomial, period T has all possible outcomes P+tu-(T-t)d, for t=0, 1, , T
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Trips Logistics
x 1000 sq. ft. of warehouse space needed for 1000 units of demand x Current demand = 100,000 units per year x Binomial uncertainty: Demand can go up by 20% with p = 0.5 or down by 20% with 1-p = 0.5 x Lease price = $1.00 per sq. ft. per year x Spot market price = $1.20 per sq. ft. per year x Spot prices can go up by 10% with p = 0.5 or down by 10% with 1-p = 0.5 x Revenue = $1.22 per unit of demand x k = 0.1
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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D=100 p=$1.20
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D=80 p=$1.32
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D=80 p=$1.32
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D edicated P lant F lexible P lant F ixed C ost V ariable C ost F ixed C ost V ariable C os U S 100,000 $1 m illion/yr. $15 / tire $1.1 m illion $15 / tire / year M exico 4 m illion 110 pesos / 4.4 m illion 110 pesos / 50,000 pesos / year tire pesos / year tire
U.S. Expected Demand = 100,000; Mexico Expected Demand = 50,000 1US$ = 9 pesos Demand goes up or down by 20 percent with probability 0. exchange rate goes up or down by 25 per cent with probabi
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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AM Tires
Period 0 Period 1
RU=120 RM = 60 E=11.25 RU=120 RM = 60 E=6.75 RU=120 RM = 40 E=11.25 RU=100 RM=50 E=9 RU=120 RM = 40 E=6.75 RU=80 RM = 60 E=11.25 RU=80 RM = 60 E=6.75 RU=80 RM = 40 E=11.25 RU=80 RM = 40 E=6.75
Period 2
RU=144 RM = 72 E=14.06 RU=144 RM = 72 E=8.44 RU=144 RM = 48 E=14.06 RU=144 RM = 48 E=8.44 RU=96 RM = 72 E=14.06 RU=96 RM = 72 E=8.44 RU=96 RM = 48 E=14.06 RU=96 RM = 48 E=8.44
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AM Tires
Four possible capacity scenarios: Both dedicated Both flexible U.S. flexible, Mexico dedicated U.S. dedicated, Mexico flexible For each node, solve the demand allocation model:
Plants U.S. Mexico
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.
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