CASE STUDY: BIOPHARMA INC. 2
CASE STUDY: BIOPHARMA INC. ASSIGNMENT INSTRUCTIONS
OVERVIEW
This week we identify and discuss the various factors that influence facility location, capacity,
and market allocation when designing a supply chain network. Also, there is a focus on the
sources of risk for global supply chains, risk mitigation strategies, and the methodologies used to
evaluate network design decisions and improve global supply chain decisions. The goal of
network design is to maximize the supply chain’s long-term profitability. The process starts by
defining the supply chain strategy. Good network design decisions increase profits and support
the strategy. Decision trees can be used to evaluate supply chain decisions under uncertainty.
INSTRUCTIONS
Each question must be answered thoroughly, and the responses must be supported by the
concepts introduced in the reading/study materials. Each question/answer must be delineated
under a heading in current APA format. The overall format of the assignment should include an
appropriate introduction (or abstract) and a conclusion. Provide well-supported ideas and relate
the course content to practical examples and applications. Include a title page and reference page
also in the current APA format. Incorporate a minimum of 5 peer-reviewed sources with at least
1 source per question. All work should be submitted in a Word document.
CASE STUDY: BIOPHARMA INC. 3
How should BioPharma have used its production network in 2013? Should any of the plants have
been idled? What is the annual cost of your proposal, including import duties?
1. **Utilization of Production Network in 2013 and Consideration of Idling Plants:**
- Evaluate the demand for Highcal and Relax in each region compared to the production
capacity and actual production at each plant.
- Identify any plants with excess capacity or high production costs relative to sales in their
respective regions.
- Calculate the total cost of operating each plant, including fixed and variable costs, as well as
import duties incurred for transporting products.
- Consider the option of idling plants that have low utilization rates or high production costs,
especially if the import duties and transportation costs outweigh the benefits of keeping the plant
operational.
How should Landgraf structure his global production network? Assume that the past is a
reasonable indicator of the future in terms of exchange rates.
2. **Structuring the Global Production Network:**
- Analyze historical exchange rates and import duties to determine the cost implications of
locating production facilities in different regions.
- Consider the stability of past exchange rate trends and import duty policies to inform
decisions about future production network structure.
- Evaluate the efficiency and cost-effectiveness of different production locations based on
factors such as labor costs, regulatory environment, and transportation costs.
CASE STUDY: BIOPHARMA INC. 4
Is there any plant for which it may be worth adding a million kilograms of additional capacity at
a fixed cost of $3 million per year?
3. **Adding Capacity to Plants:**
- Assess the demand forecast for Highcal and Relax in each region to identify potential
opportunities for increasing production capacity.
- Calculate the return on investment for adding capacity to specific plants, considering the
fixed cost of $3 million per year per million kilograms of additional capacity.
- Determine if the incremental revenue generated from increased production justifies the
additional fixed costs.
How are your recommendations affected by the reduction of duties?
4. **Impact of Reduction of Duties:**
- Evaluate how the reduction in import duties affects the cost structure and competitiveness of
each plant in the production network.
- Consider whether the reduction in duties changes the optimal locations for manufacturing
facilities or the decision to idle or expand capacity at specific plants.
- Calculate the potential cost savings resulting from reduced import duties and assess their
impact on overall profitability.
The analysis has assumed that each plant has a 100 percent yield (percentage output of
acceptable quality). How would you modify your analysis to account for yield differences across
plants?
CASE STUDY: BIOPHARMA INC. 5
5. **Accounting for Yield Differences Across Plants:**
- Modify the analysis to account for yield differences by adjusting production costs and output
volumes accordingly.
- Consider the impact of yield variations on the overall cost-effectiveness and profitability of
each plant in the production network.
What other factors should be accounted for when making your recommendations?
6. **Other Factors to Consider:**
- Regulatory compliance: Assess the regulatory environment in each location, including quality
standards and approval processes for pharmaceutical products.
- Supply chain resilience: Consider the robustness of the supply chain in each location,
including potential risks such as natural disasters or geopolitical instability.
- Market dynamics: Evaluate market trends and competitive factors that may influence demand
for pharmaceutical products in different regions.
- Technological advancements: Consider how advances in technology may impact production
processes and efficiency over time.
By carefully analyzing these factors, Landgraf and the task force can make informed decisions to
optimize BioPharma's production network and improve its financial performance.
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