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Global Production Cost Analysis

1. Sun Oil has annual demand for oil in five regions and is considering building production plants in four regions to meet this demand at lowest cost. 2. The table provides production and transportation costs for each supply region to meet demand in each of the five demand regions. 3. Sun Oil must choose between building low or high capacity plants in each supply region, or some combination, to design the lowest cost network.

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ANEESH KHANNA
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126 views2 pages

Global Production Cost Analysis

1. Sun Oil has annual demand for oil in five regions and is considering building production plants in four regions to meet this demand at lowest cost. 2. The table provides production and transportation costs for each supply region to meet demand in each of the five demand regions. 3. Sun Oil must choose between building low or high capacity plants in each supply region, or some combination, to design the lowest cost network.

Uploaded by

ANEESH KHANNA
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Network Design

1.. Following are the Cost and Demand details for Sun Oil. They have demand in 5 regions. North America,
South America, Europe, Africa and Asia. The annual demand in each region is given in the last row of the
following table. The table also give the details of the production, inventory and transportation cost (including
tariffs and dues) of producing in one region to meet demand in each individual region. For example, it costs $81
to produce one million units in North America and sell them in North America. Similarly it costs $117 to produce
one million units in South America and sell them in North America.

Demand Region : Production and


  Transportation Cost per 1,000,000 units   
Supply S. Fixed Low Fixed High
Region N. America America Europe Asia Africa Cost ($) Capacity Cost ($) Capacity
N.
America 81 92 101 130 115 6000 10 9000 20
S.
America 117 77 108 98 100 4500 10 6750 20
Europe 102 105 95 119 111 6500 10 9750 20
Asia 115 125 90 59 74 4100 10 6150 20
Africa 142 100 103 105 71 4100 10 6000 20
Demand 12 8 14 16 7        

The company is considering two different plant sizes in each location. Low-capacity plants can produce 10 million
units a year, where as high capacity plants can produce 20 million units a year. High-capacity plants exhibit some
economies of scale and have fixed costs that are less than twice the fixed cost of a low-capacity plant. All the fixed
costs are annualized. Design the lowest cost network for the company? (Each location can have either a high
capacity plant or low capacity plant or both or none)

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