Case 1: Network Design in the Supply Chain

Both TelecomOne and HighOptic are manufacturers of the latest generation of telecommunication equipment. TelecomOne has focused on the eastern half of the United States. It has manufacturing plants located in Baltimore, Memphis, and Wichita and serves markets in Atlanta, Boston, and Chicago. HighOptic has targeted the western half of the United States and serves markets in Denver, Omaha, and Portland. HighOptic has plants located in Cheyenne and Salt Lake City.

Plant capacities, market demand, variable production and transportation cost per thousand units shipped, and fixed costs per month at each plant are shown in Table 5-2.

Suppose Management executives at both TelecomOne and HighOptic have decided to merge the two companies into a single entity to be called TelecomOptic. Management believes that significant benefits will result if the two networks are merged appropriately. TelecomOptic will have five factories from which to serve six markets. Management is debating whether all five factories are needed. It has assigned a supply chain team to study the network for the combined company and identify the plants that could be shut down. The spreadsheet area for decision variables is shown in Figure 5-2.

Figure 5-2 Spreadsheet Area for Decision Variables for TelecomOptic

Study Questions

What is the optimal demand allocation for TelecomOne and HighOptic respectively before they merge?

What is the optimal demand allocation for TelecomOptic?

Compared with the separate operation of TelecomOne and HighOptic, has TelcomOptic made significant benefits after the merge? If yes, how much has TelcomOptic saved?

Table 5-2 Capacity, Demand, and Cost Data for TelecomOne and HighOptic Demand City 11 Decision Variables