Company PlainSteel wants to re-design its supply chain

Company PlainSteel wants to re-design its supply chain network in Europe. As the employees do not have the required expertise, they approach you to consult them based on your recently acquired knowledge. A few meetings with the management team of PlainSteel allowed you to collect the following information and data.

The current supply chain network of PlainSteel has been established over a long time and has been extended over this period using rules of thumbs instead of appropriate quantitative methods. This has already led to problems due to sub-optimal usage of the available facilities and resources. The management team of PlainSteel would like to evaluate some of their previous decisions and make better ones in the future when re-designing and extending their supply chain network.

PlainSteel is currently producing a single product called RawSteel50 in its four factories lo- cated in Amsterdam (AMS), Munich (MUN), Paris (PAR), and Vienna (VIE). Fixed costs, unit production costs, and production capacities of these factories are given in Table 1. PlainSteel is selling RawSteel50 to several retailer via central distribution centers. One such distribution center currently exists in each of the following five countries: Austria (AUT), Belgium (BEL), France (FRA), Germany (GER), and Sweden (SWE). Besides fixed costs for these distribution centers, the management team of PlainSteel has also estimated the variable costs per product handled at a center. Table 2 summarizes these costs for each of the five distribution centers.

PlainSteel currently sells RawSteel50 to ten retailers in the five countries mentioned above, see Table 3 for their demands and locations (countries). The current policy is that each retailer collects the required quantity of RawSteel50 from the distribution center located in the same country. Transportation costs between the distribution centers and the retailers are paid by the retailers. However, PlainSteel needs to pay the transportation costs for shipping products between its factories and distribution centers. Costs for these shipments depend on the factory and distribution center and occur per unit of product and km of distance. Distances between factories and distribution centers are given in Table 4 while costs per unit and per km are given in Table 5.

So far, one main goal of PlainSteel was to reduce the complexity of managing its supply chain network. Thus, they established a policy called SIMPLE. In SIMPLE, each distribution center is supplied by the factory in the same country if such a factory exists. The distribution centers in Belgium and Sweden are supplied from the factory in Amsterdam. The impact of this policy should now be quantified. To do so, its outcome should be compared to policy NORM in which all factories and distribution centers must remain open, but each distribution center can be supply from every factory (and possibly from more than one). In addition, the management team of PlainSteel also wants to consider a variant of NORM called NORM+ in which factories may be closed. You should answer the following questions:

Question 1: How much money could PlainSteel save by using policy NORM instead of SIMPLE when the goal is to minimize to total costs?

Question 2: Should PlainSteel consider policy NORM+ instead of NORM or SIMPLE when the aim is to minimize the total costs?

Don’t forget to include the resulting configuration of the supply chain network (used factories, shipped products) of PlainSteel in addition to the total costs in your answers. For these questions the demands of retailers should be fully satisfied.

Question 2 only