FIGHT AGAINST THE VIRUSManaging Global Supply Chain Risk at GIDGET – The Coronavirus Impact

VIKRAM GOLCHHA

RUIHAN DING

Who We Are?

RASHI BAGADIA

-MS in Global Supply Chain Management

-Interned at Teradata, Honeywell

YISHAN CHEN

-MS in Global Supply Chain Management

-Worked at Unilever

-MS in Global Supply Chain Management

-Worked at Ford Motor

-MS in Global Supply Chain Management

-Interned at Accenture, PwC

1. Executive Summary

2. Base Model

3. Assumptions

4. Analysis

5. Recommendations

6. Risk Mitigation of Recommendations

TABLE OF CONTENT

● The disruption of supply chain caused by the spread of the coronavirus

● The inability of chinese factory to meet the demand globally

● Resources allocation based on different scenarios ● Whether to close factory in China permanently or temporarily?

● Optimizing the profit● Mitigation of the global supply risk due to Coronavirus

EXECUTIVE SUMMARY

Challenges

Key Focus

Goals

Recommendations

● GIDGET should discontinue its policy of meeting all demands.● GIDGET should keep the facility in China despite production &

demand halt in China due to the virus● GIDGET should sell off 25% of Chinese plant capacities

Company ● Global widget manufacturer GIDGET

BASE MODEL

Background Case

● Optimizing operation plan to maximize profits considering the uncertainties in 3-demand and 2-currency exchange.

● Multiple variables such as Capacity, Production cost, Exchange rate, Transportation cost

Model● Two stage linear programming

○ Stage-One: Long-term decision of opening/closing plants

○ Stage-Two: 6 possible scenarios

ASSUMPTIONS

C. Every variables is uniformly distributed through the years.

D. Selling the capacity would not generate extra cost.

B. After the virus, the demand and productivity would recover back to normal level.

A. The variables in the case phase 1 remains the same in conditionsof with/without virus in China.

Satisfying or Not Satisfying Demand?

Roadmap of Thinking

Close or Keeping the Plant in China?

Keep the Plant in China Fully or Partially?

● Without China being affected by Coronavirus

not satisfying all demandsatisfying all demand

● After China is affected by Coronavirus

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 1

PROFIT

$24,293,210

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 1

Ankara, Turkey 1

Ningbo, China 1

PROFIT

$13,080,710

PROFIT

$20,152,377

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 0

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 1

Ankara, Turkey 1

Ningbo, China 0

PROFIT

$(10,378,567)

not satisfying all demandsatisfying all demand

Quote from the case: “Bill Bowden continued to preach the benefits to not satisfying all demand”

Satisfying or Not Satisfying Demand?

Roadmap of Thinking

Close or Keep the Plant in China?

Not Satisfying

Keep the Plant in China Fully or Partially?

Expected profit of closing the plant in China

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 0

Annual Profit= $ 20,152,377

End of Virus

Time

Decision point

Production in China=0Demand in China=0

Production in China= 0Demand in China >= 0

Expected profit of keeping the plant in China

Annual Profit= $17,152,377

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 1

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 1

Annual Profit= $24,293,210

End of Virus

Time

Decision point

Production in China=0Demand in China =0

Production in China > 0Demand in China > 0

$20,152,377 <profit for closing plant

<

Profit Breakeven Analysis of close/open plants

● t= time taken for virus to end

● t’= time taken to reach the profit break even point

t’ = 1.75 * t

t=6 months, t’=6*1.75 = 10.5 monthst=12 months, t’=12*1.75 = 21 months

Satisfying or Not Satisfying Demand?

Roadmap of Thinking

Close or Keep the Plant in China?

Not meeting

Keep the Plant in China Fully or Partially?

Open

Expected profit of keeping China’s plant fully/partially

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 1

Annual Profit= $24,293,210

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 0.75

Annual Profit= $24,749,877<Selling 25% of Chinese plant will bring us higher annual profit

Keep Ningbo plant fully Keep Ningbo plant partially

Shall we consider Carly’s suggestion, letting Ningbo only meet Chinese demand?

From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 0.75

Annual Profit= $24,749,877 Annual Profit= $23,922,377

<From Location Y/N

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 0.75

Open partially with exportCarly’s suggestion:Open partially without export

We shouldn’t consider Carly’s suggestions!

Sell off 25% of Chinese plant capacities

RECOMMENDATIONS

Keep the facility in China despite production & demand halt in China due to the virus

Discontinue to meeting all the demand

1. 2. 3.

RISK MITIGATION

Potential Risks:

1. A cut to capacity cannot easily be reversed if demand fluctuate.

2. Low working efficiency of the employees since the long time of unemployment .

3. Reluctance of employees to return to work since the psychological fear of coronavirus.

Mitigation Actions:

1. Enhancing communications to eliminate the bullwhip effect and facilitate the lead time

2. Implementing Lean and Six Sigma in production to optimize the productivity

3. Launching short training to re-educate the employees

4. Providing incentives to employees for motivation

Thank you!

Appendix

Without Coronavirus – not satisfying all demands

Without Coronavirus – satisfying all demands

With Coronavirus – not satisfying all demands

With Coronavirus – satisfying all demands

With Coronavirus – Keeping facility in China

Without Coronavirus – Partially keeping facility in China with export

Without Coronavirus – Partially keeping facility in China without export

TWO-STAGE LINEAR PROGRAMMING FORMULATION CONSIDERING FUTURE SCENARIOS WHEN MEETING ALL THE

DEMAND

Constraints:

TWO-STAGE LINEAR PROGRAMMING

FORMULATION CONSIDERING FUTURE SCENARIOS WHEN MEETING ALL THE DEMAND

DECISION OF SOURCING LOCATIONS

From Location YES/NO

Indianapolis, USA 1

Cholula, Mexico 1

Ankara, Turkey 1

Ningbo, China 1

STATE IN FUTUREFrom / To

Indianapolis,

USA

Cholula,

Mexico

Ankara,

Turkey

Ningbo,

China

STATE 1

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 100,000 50,000 0 0

Ankara, Turkey 0 0 50,000 0

Ningbo, China 0 0 0 200,000

STATE 2

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 125,000 25,000 0 0

Ankara, Turkey 0 0 25,000 0

Ningbo, China 75,000 0 0 100,000

STATE 3

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 0 50,000 0 0

Ankara, Turkey 0 0 50,000 0

Ningbo, China 0 0 0 300,000

STATE IN FUTUREFrom / To

Indianapolis,

USA

Cholula,

Mexico

Ankara,

Turkey

Ningbo,

China

STATE 4

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 100,000 50,000 50,000 200,000

STATE 5

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 200,000 25,000 25,000 100,000

STATE 6

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 0 50,000 50,000 300000

Constraints:

TWO-STAGE LINEAR PROGRAMMING FORMULATION CONSIDERING FUTURE SCENARIOS WITHOUT THE POLICY OF

MEETING ALL THE DEMAND

RESULTS OF 2-STAGE LINEAR PROGRAM CONSIDERING FUTURE

SCENARIOS WITHOUT THE POLICY OF MEETING ALL THE DEMAND

DECISION OF SOURCING LOCATIONS

From Location YES/NO

Indianapolis, USA 1

Cholula, Mexico 0

Ankara, Turkey 0

Ningbo, China 1

STATE IN FUTUREFrom / To

Indianapolis,

USA

Cholula,

Mexico

Ankara,

Turkey

Ningbo,

China

STATE 1

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 0 50,000 0 200,000

STATE 2

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 0 25,000 0 100,000

STATE 3

Indianapolis, USA 300,000 0 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 0 50,000 0 300,000

STATE IN FUTUREFrom / To

Indianapolis,

USA

Cholula,

Mexico

Ankara,

Turkey

Ningbo,

China

STATE 4

Indianapolis, USA 250,000 50,000 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 0 0 50,000 200,000

STATE 5

Indianapolis, USA 275,000 25,000 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 0 0 25,000 100,000

STATE 6

Indianapolis, USA 250,000 50,000 0 0

Cholula, Mexico 0 0 0 0

Ankara, Turkey 0 0 0 0

Ningbo, China 0 0 50,000 300,000

To maximize the profit, GIDGET should open plants in USA and China. We have 6 scenarios because of two possibilities on exchange rate and three possibilities on demand.

After deciding shun down of unnecessary plants, we adjust our unit flow plan according to which of the 6 scenarios we actually face in the real world. The unit flow plan for each of the 6 scenarios is shown in the orange/yellow cells in the previous slide.

Optimal Profit = (Sales) - (Production Cost) - (Duties) - (Transportation cost) - (Fixed Cost)

= $24,293,210 > $13,080,710 Close Mexico and Turkey plants

RESULTS OF 2-STAGE LINEAR PROGRAM CONSIDERING FUTURE SCENARIOS WITHOUT THE POLICY OF MEETING ALL THE

DEMAND (cont.)

85.72% Increase in Optimal Profit