CASE STUDY BioPharma, Inc. In $2013,$ Phillip $($Phil$)$ Landgraf faced several glaring For $2013,$ sales of each product by region and the problems in the financial performance of his company, production and capacity at each plant are shown in BioPharma, Inc. The firm had experienced a steep Table $6-18.$ The plant capacity, measured in millions of decline in profits and high costs at its plants in Germany kilograms of production, can be assigned to either chem$-$ and Japan. Landgraf, the company's president for world$-$ ical, as long as the plant is capable of producing both. wide operations, knew that demand for the company's BioPharma has forecast that its sales for the two chemi$-$ products was stable across the globe. As a result, the sur$-$ cals are likely to be stable for all parts of the world, plus capacity in his global production network looked except for Asia without Japan, where sales are expected like a luxury he could no longer afford. to grow by $10$ percent annually for each of the next five Any improvement in financial performance was years before stabilizing. dependent on having the most efficient network in place, The Japanese plant is a technology leader within because revenues were unlikely to grow. Cutting costs the BioPharma network in terms of its ability to handle was thus a top priority for the coming year. To help regulatory and environmental issues. Some develop$-$ design a more cost$-$effective network, Landgraf assigned ments in the Japanese plant had been transferred to other a task force to recommend a course of action. plants in the network. The German plant is a leader in terms of its production ability. The plant has routinely Background had the highest yields within the global network. The BioPharma, Inc. is a global manufacturer of bulk chemi$-$ Brazilian, Indian, and Mexican plants have somewhat cals used in the pharmaceutical industry. The company outdated technology and are in need of an update. holds patents on two chemicals that are called Highcal Current Plant Costs at BioPharma and Relax internally. These bulk chemicals are used by the company's pharmaceutical division and are also sold After considerable debate, the task force identified the to other drug manufacturers. There are distinctions in the cost structure at each plant in $2013$ U$.$S$.$$ are as shown in precise chemical specifications to be met in different Table $6-19.$ Each plant incurs an annual fixed cost that is parts of the world. All plants, however, are currently set independent of the level of production in the plant. The up to be able to produce both chemicals for any part of fixed cost includes depreciation, utilities, and the sala$-$ the world. ries and fringe benefits of employees involved in general TABLE $6-18$ Sales by Region and Production$/$Capacity by Plant of Highcal and Relax $($in Millions of Kilograms$)$ Highcal Relax $2013$ Sales Plant $2013$ Production $2013$ Sales $2013$ Production Region Capacity Latin America Brazil $18\mathrm{.}0$