products, Hanover Inc. is currently facing a decision on how to
increase its production capacity. Hanover has three fiber optic
products denoted by FA, FB, and FC. Hanover has two existing plants
in Austin, Texas and Paris, France. Hanover plans to keep the
Austin and Paris plants will open, but the production capacity at
these two existing plants can be changed from their current levels
(600,000 units per year). Each plant can make any mix of the three
products. Seven locations are being considered for an additional
new plant. These consist of two cities in the United States
(Charleston, SC and Mobile, AL) and five other locations currently
simply defined by country (Australia, India, Malaysia, South
Africa, and Spain).
The company’s customers have been aggregated onto eight customer
regions (Malaysia, China, France, Brazil, US Northeast, US
Southeast, US Midwest, and US West) and its Planning and
Forecasting department has forecasted demand for each region five
years into the future. The Planning and Forecasting department has
also provided other relevant data to help with the decision on how
to expand capacity given the forecasted demand. Descriptions of the
available data provided in the file Hanover follow:
• Duty: This worksheet contains the duty rate charged from each
plant to each customer region. This rate is multiplied by the
selling price to get the cost per unit paid in duty to ship into
one country from another country.
• Fixed Cost: This worksheet contains the fixed cost of plant
operation including capital costs, insurance, management, etc.
These costs depend on the capacity level of the plant, and costs
for two different levels of capacity are given for each plant
location. The capacities are independent of product mix.
• Forecast: This worksheet contains five-year-out forecasted
demand for each product by customer region.
• F&WH Cost: This worksheet contains freight and warehousing
cost per unit from each plant location to each customer region
(which are independent of product type).
• Price: This worksheet contains the selling price of each
product for each customer region.
• Variable Cost: This worksheet contains the variable cost of
each product at each plant. The vice president of supply chain
management would like you to study this situation using the given
data.
To make a recommendation to Hanover’s vice president of supply
chain management. In particular, make a recommendation regarding
whether or not a new plant is needed and if so, at which of the
seven locations under consideration it should be located. Also,
your report should indicate which capacity levels should be used at
each plant, and how product should be sourced.
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Plant Austin Austin Australia Australia Charleston Charleston India India Malaysia Malaysia Mobile Mobile Paris Paris S Africa S Africa Spain Spain Capacity Fixed Cost 600000 $ 725,000 1,200,000 $1,245,000 600000 $1,037,000 1200000 $1,256,000 600000 $1,082,000 1200000 $1,300,000 600000 $ 960,000 1200000 $1,179,000 600000 $ 959,000 1200000 $1,178,000 600000 $1,057,000 1200000 $1,276,000 600000 $ 875,000 1200000 $ 977,000 600000 $ 801,000 1200000 $1,050,000 600000 $ 994,000 1200000 $1,213,000
Customer Product Forecsted Volume Malaysia A 42900 China A 318830 France A 143600 Brazil A 19350 US Northeast A 9870 US Southeast A 102970 US Midwest A 57490 US West A 183400 Malaysia B 25800 China B 57090 France B 31980 Brazil B 27050 US Northeast B 34320 US Southeast B 71130 US Midwest B 175030 US West B 295230 Malaysia с 133160 China с 165930 France с 182080 Brazil с 77070 US Northeast с 7830 US Southeast с 155230 US Midwest с 224750 US West с 127360
Plant Austin Austin Austin Austin Austin Austin Austin Austin Australia Australia Australia Australia Australia Australia Australia Australia Charleston Charleston Charleston Charleston Charleston Charleston Charleston Charleston India India India India India India India India Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia Mobile Mobile Mobile Mobile Mobile Mobile Mobile Mobile Paris Paris Paris Paris Paris Paris Paris Paris S Africa S Africa S Africa S Africa S Africa S Africa S Africa S Africa Spain Spain Spain Spain Spain Spain Spain Spain Customer Freight & Warehousing Costs (per unit) Malaysia $0.27 China $0.49 France $0.44 Brazil $0.52 US Northeast $0.23 US Southeast $0.17 US Midwest $0.15 US West $0.16 Malaysia $0.34 China $0.36 France $0.40 Brazil $0.46 US Northeast $0.80 US Southeast $0.80 US Midwest $0.82 US West $0.81 Malaysia $0.24 China $0.46 France $0.41 Brazil $0.48 US Northeast $0.19 US Southeast $0.13 US Midwest $0.11 US West $0.12 Malaysia $0.26 China $0.39 France $0.35 Brazil $0.64 US Northeast $0.55 US Southeast $0.55 US Midwest $0.57 US West $0.55 Malaysia $0.17 China $0.25 France $0.39 Brazil $0.66 US Northeast $0.39 US Southeast $0.40 US Midwest $0.41 US West $0.40 Malaysia $0.24 China $0.46 France $0.41 Brazil $0.48 US Northeast $0.19 US Southeast $0.13 US Midwest $0.11 US West $0.12 Malaysia $0.32 China $0.26 France $0.09 Brazil $0.37 US Northeast $0.34 US Southeast $0.34 US Midwest $0.37 US West $0.48 Malaysia $0.58 China $0.61 France $0.45 Brazil $0.25 US Northeast $0.79 US Southeast $0.79 US Midwest $0.80 US West $0.81 Malaysia $0.31 China $0.37 France $0.25 Brazil $0.39 US Northeast $0.48 US Southeast $0.48 US Midwest $0.50 US West $0.51
Customer Malaysia China France Brazil United States Malaysia China France Brazil United States Malaysia China France Brazil United States Product A А. A A А. A B B B B B с С с с с Price / Unit $12.57 $12.57 $12.72 $11.52 $11.13 $12.33 $12.33 $12.45 $11.28 $10.92 $12.84 $12.84 $12.96 $11.79 $11.40
Plant Austin Austin Austin Australia Australia Australia Charleston Charleston Charleston India India India Malaysia Malaysia Malaysia Mobile Mobile Mobile Paris Paris Paris S Africa S Africa S Africa Spain Spain Spain Product Variable Cost (per unit) А. $1.50 B $1.50 с $1.56 A $0.75 B $0.91 С $0.89 A $1.44 B $1.74 с $1.70 A $0.75 B $0.90 с $0.88 A $0.80 B $0.96 С $0.95 A $1.25 B $1.25 с $1.65 A $1.56 B $1.57 с $1.55 A $0.76 B $0.92 С $0.90 A $1.56 B $1.88 с $1.86