Here is the information about the case study: It was July 2018, and Alissa Tang, a supply constraint analyst at the General Motors (GM) Global Purchasing and Supply Chain department in Detriot, Michigan, was working on the Chevrolet Bolt EV for the US market and a similar Buick model to be marketed in China. Two years earlier, GM had made a strategic decision to work with only one supplier for the electric vehicles' lithium-ion (Li-ion) battery. Li- ion batteries had one of the most stable battery chemistries, but issues related to design and manufacturing quality had led to overheating and runaway thermal events (i.e., rapid and extreme temperature increases), causing harm to consumers and thereby also to the company's reputation.1 The intention behind GM's sourcing decision was to partner with a supplier equipped with not only proven technology, but also design and manufacturing quality leadership. For its strategic partner in this endeavour, GM chose Morningside Power Storage (MPS) of South Korea, a technology leader that had a sterling reputation for quality. However, since MPS became GM's strategic Li-ion battery provider, several conditions had changed. Consolidations in the ocean freight shipping industry had led to higher shipping costs, and China had introduced new regulations that heavily restricted, taxed, and generally disincentivized the importation of batteries.2 As a result, the new Buick's ownership costs would be relatively high, compared with vehicles offered by Chinese domestic competitors. At the same time, in the United States, the Chevrolet Bolt EV was selling faster than expected, and Chevrolet Marketing was requesting an increase in production. Today, Tang was expecting to receive the MPS proposals on where to locate the manufacturing and assembly capacity. She would then need to decide on the production levels and where the battery cell manufacturing and battery pack assembly capacity should be located to meet the needs of both the Bolt in the United States and the Buick's version of the Bolt in China, all at the lowest cost. FORCES SHAPING THE ELECTRIC VEHICLE (EV) INDUSTRY GM's leadership had been public about the company's commitment to environmental awareness and action. GM was still the only automaker to have signed the Ceres Climate Declaration and was one of the first companies to sign the American Business Act on Climate Pledge.3 GM's commitment to these initiatives was obviously not just to be good stewards of the planet, as important as that was; it was also intended to position the company to seize economic opportunities, win customers for life, and thereby provide employment security and generate value for shareholders. GM had committed to meeting 100 per cent of its electricity needs using renewable energy sources by 2050.4 Evidence of this transformation could be seen at many of GM's factories, where solar farms were quickly becoming the norm. This commitment was also why GM had pledged to offer a fleet of low- and zero-emission products. From the EV-1 in 1980 to the Chevrolet Volt in 2010, and more recently the Chevrolet Bolt in 2016, GM was a leader in the electrification of personal transportation by manufacturing affordable electric cars that reduced or eliminated customers' range anxiety around this technology. GM's latest offering, the Bolt EV, used only electric motors and had an impressive 238-mile (383-kilometre [km]) range on a single charge, with a net price of less than US$30,0005 in the United States. This vehicle exemplified GM's leadership position in reducing the impact of its business on the planet. Profits generated from GM's current lineup of trucks, sport utility vehicles, and crossover vehicles had enabled GM to strategically invest in the new technologies, which were needed for the future. Because of the effects of climate change and the long-term viability of fossil fuels, many citizens were demanding actionand governments were responding. One exception, the US federal government, had recently expressed less concern about the climate and appeared to be abdicating leadership on the issue. This situation would probably be short-lived, and would unlikely alter global progress in a significant way. Other governments continued to move forward on the issue. The two most impactful bodies in the markets where GM competed were the California Air Resources Board (CARB) and the Chinese central government. In California, the Zero-Emission Vehicle (ZEV) program was a state regulation that required automakers to sell electric cars and trucks in California. Nine other states (i.e., Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Vermont) had also adopted the CARB ZEV program. The goal in California was to have 1.5 million ZEVs on the road by 2030. This objective supported the state's goals of, by 2030, reducing petroleum use in California by up to 50 per cent from 2015 levels and reducing greenhouse gas emissions to 40 per cent below 1990 levels.6 China had adopted a policy called National VI, which was modelled after Euro 6. The goal of National VI was to have five million new energy vehicles (NEVs) on their roads by 2020.7 Instead of mandating automakers to produce NEVs, the Chinese government was using consumer incentives and fuel-efficiency mandates to accomplish this goal. The consumer incentives were in the form of new energy credits and government-subsidized licence fees. China had also adopted a fleet-wide fuel-economy requirement equivalent to approximately 47 miles per gallon (or 20 km per litre), to be achieved by 2020.8 To satisfy consumers' demand to access the incentives and to meet the fuel-economy requirements, automakers needed to sell mostly hybrid-electric and full-electric vehicles in China by 2020. Additionally, the Chinese government had placed restrictions on the vehicles being sold in the country. To protect domestic manufacturing, the government imposed prohibitively high taxes and fees on imported vehicles. To avoid these costs, vehicles needed to comprise a minimum of 75 per cent domestic content. The Chinese government also used tariffs and regulations to sanction foreign governments. China currently had sanctions in place to dissuade manufacturers from importing batteries from South Korea. According to GM's marketing team in China, if the company used battery packs imported from South Korea, the current tariff structure would result in a massive 75 per cent fewer sales of the Buick EV in China. THE CHINESE MARKET China was the world's largest vehicle market.9 With more than 1.3 billion people in the country, China's vehicle market was expected to continue to grow as more and more people achieved middle-class status and personal vehicle ownership became attainable. Currently, China had approximately 180 million registered vehicles, and this number was expected to exceed 200 million by 2020. GM sold more cars in China than in any other market, including the United States. To maintain or increase its competitive position, GM planned to produce and sell 10 NEV models in China by 2020. Some of these models had been announced, including the Buick LaCrosse Hybrid with e-assist; plug-in hybrid electric vehicles, including the Cadillac CT6 Plug-In and the Buick Velite 5 (similar to a Chevrolet Volt); and the Buick model that was based on the Chevrolet Bolt platform. GM'S BATTERY ELECTRIC VEHICLE (BEV) PROGRAM The Bolt and its soon-to-be-named Buick cousin in China had a battery pack consisting of 288 Li-ion cells that provided 60 kilowatt hours of energy and 160 kilowatts of peak power.10 The battery pack design was flat and spanned the entire floor of the vehicle. Using a 240-volt wall box, the battery could be recharged after a 50-mile (80-km) commute in less than two hours. Also available was an optional fast-charging system that provided up to 90 miles of charge in 30 minutes. The flat battery pack enabled seating for five passengers and 16.9 cubic feet (0.5 cubic metres) of cargo space behind the rear seat. A 102.4-inch (2.6- metre) wheelbase and wide track gave the vehicles the look of a small crossover. The oversized windows, plunging beltline, and steeply raked windshield provided a progressive profile and emphasized the interior's bright airy feel and spaciousness. The use of lightweight materials contributed to the vehicle's impressive acceleration, of 0 to 60 miles per hour (97 km per hour), in less than 7 seconds and a range of 238 miles (383 km). Currently, the Bolt was being assembled at GM's Orion Assembly plant in Michigan, where the annual capacity was 30,000 units. GM market research in the United States had indicated that current demand was actually 50,000 units. GM China estimated that it could sell 50,000 of the Buick derivative, as soon as they were available. BATTERY INFORMATION GM partnered with MPS for Li-ion battery cell production and battery pack assembly (see Exhibit 1 and Exhibit 2). MPS's annual capacity, which was exclusively in Hwaseong, Korea, was 30,000 packs, matching the Bolt's current requirements. In addition to the Li-ion cells, the bill of material for the battery pack included various other components (see Exhibit 3). MPS was charged to ensure that each supplier had sufficient ability to supply enough components to produce 100,000 battery packs per year in time for the Orion production increase, scheduled to begin in March 2018, and the launch of the Buick in China, slated to begin in January 2019. CONTAINERS AND LOGISTICS Battery packs for the Chevy Bolt were very large; thus, the costs of both packaging (i.e., containers) and logistics were significant factors to consider when contemplating the supplier footprint. The containers were available in three main types, two of which could be used for battery packs: expendable containers (i.e., one-time-use wooden crates) were purchased by the supplier, and the cost was added to the price that GM paid for the part; and specialized containers (i.e., returnable packaging with specific design features to protect the material and increase transport density) were purchased by GM prior to production increases or launches. The trade-off between these containers was the one-way logistics and the added piece cost for expendable containers versus the upfront investment and the round-trip logistics for specialized containers. Currently the program utilized returnable containers, which met all requirements for the shipment of dangerous goods, and had been performing well. TANG'S TASK Tang needed to decide how many battery cells and battery packs GM needed and where the battery cell manufacturing and battery pack assembly capacity should be located to meet, at the lowest cost, the manufacturing needs of both the Bolt in the United States and the Buick version of the Bolt in China. MPS took a firm stance that it did not want to introduce the risk of packaging and transporting battery cells because of the high potential for damage and contamination. According to MPS, packaging and transporting the battery cells would require developing both battery cell packaging and incoming cell inspection procedures, which would still not fully mitigate the risks introduced by separating the battery cell manufacturing from the battery pack assembly. After several meetings to discuss which options should be included, the GM team agreed that having cell manufacturing and battery pack assembly capacity in the same location would be best for both companies. MORNINGSIDE POWER STORAGE OPTIONS FOR INCREASING CAPACITY MPS had developed an efficient and sophisticated battery manufacturing and assembly process for the Chevrolet Bolt battery, with proven results. This process was designed to yield 30,000 battery packs per year. On maximum overtime, this process was capable of producing 34,500 units annually. The cost of manufacturing batteries lay mostly in the equipment and material. Because labour was such a small portion of the total cost, MPS would not charge GM extra, should overtime work be scheduled. To meet the additional units that GM required, MPS proposed installing two additional modules that were identical to the current manufacturing and assembly processes. The first option was to increase battery cell production and pack assembly capacity in Hwaseong, Korea. MPS had sufficient unused space in an adjacent building in its manufacturing campus to add two more sets of equipment and tooling, which would triple the capacity of this plant. Each module could be installed simultaneously. For a 30,000-unit module, the lead time for manufacturing battery cells would be three months and for manufacturing the battery packs it would be one month later. The cost of equipment and tooling would be $30 million for battery cells and $150 million for battery packs. The second option was to establish a new battery production operation in China with either one- or two-cell manufacturing and pack assembly modules. When building a 30,000-unit module, the factory construction could either be one module, which would cost $150 million and take six months to complete, or two modules, which would cost $200 million and take seven months to complete. In either case, six months would be needed to obtain the requisite government permits. For an additional $30 million, the construction project could be expedited by one month. The equipment and tooling installation would be production-ready one month after completion of construction. The cost of tooling and equipment would be $20 million for the battery cells and $100 million for the battery packs. The third option was to expand a current MPS facility in Detroit, Michigan, for battery cell manufacturing and pack assembly, by installing either one- or two-cell manufacturing and pack assembly modules. For a 30,000- unit module, the factory expansion could either be one module (at a cost of $120 million, to be completed in four months) or two modules (at a cost of $180 million, to be completed in five months). There was no appreciable lead time to begin. For an additional $40 million, the construction project could be expedited by one month. Equipment and tooling installation would be ready for production one month after completion of construction. It would cost $50 million for the battery cells and $200 million for the battery packs. DECISIONS Tang needed to provide the Battery Creativity Team with a comprehensive analysis of costs and timing, and a recommendation on how to proceed. Once approved by that team, the proposal would be forwarded to the Global Propulsion Systems Team and eventually to GM and MPS leadership. EXHIBIT 2: SPECIFICATIONS OF THE GENERAL MOTORS LITHIUM-ION BATTERY Inventory carrying cost = 15% General Motors determines the minimum inventory levels (min) based on expedited transit time Maximum inventory (max) allowed = min + one shipment + one standard container Assume hourly production is equal across a working day Warehousing cost in Korea is equivalent to $12 per square foot ($129 per square metre) per month Lifecycle logistics budget for battery transportation = $75 million Battery pack weight: 947 pounds (430 kilograms) Battery pack cost: $8,000 Full battery pack container dimensions (same for returnable and expendable): 90 57.5 25.8 (229 centimetres 146 centimetres 66 centimetres) 1 battery pack per container Battery pack returnable container weight: 125 pounds (57 kilograms) Battery pack returnable container cost: $700 each Battery pack returnable container return ratio: 2:1 Battery pack expendable container weight: 165 pounds (75 kilograms) Battery pack expendable container cost: $50 each Returnable container system size requirement: Must purchase enough to cover transit both ways + inventory and empty containers at each General Motors plant + inventory and empty containers at each supplier plant + 15% to account for delays and shrinkage Current returnable container fleet: 9,150 Note: All currency amounts are in US dollars Source: Created by the authors based on company documents. EXHIBIT 3: GENERAL MOTORS BATTERY PACK COMPONENTS AND THEIR SUPPLIERS Component Cooling tubes Cooling fins Foam insulation Cell carriers Cell connectors Cap with integral wiring Supplier New Center Tube Co. Milwaukee Junction Metal Forming, Inc. Rosedale Park Foam Products Group Lafayette Park Innovative Solutions, Inc. Boston-Edison Electric Connector Co. Eastern Market Manufacturing Co. Location Shanghai, China Buchon, Korea Incheon, Korea Bupeyong, Korea Daegu, Korea Hebei, China please respond to the following questions based on the case study above and course material from the textbook "Operations Strategy" 6th edition by Nigel Slack and Michael Lewis: Questions: 1. Provide an operations strategy map representing GM's Capacity requirements for Battery cell production. 2. Evaluate and assess MPS's location decision, considering the following: a. Capacity Decisions as discussed in Chapter 4. b. Capital Requirements; Cost Factors c. Market Factors d. Risk factors specifically political, economic, social factors e. Quality and Lean Operational decisions 3. Evaluate and assess the operational performance objectives: a. Specifically, compare the different production locations and assess and how might the results of the performance objectives differ based on the different production locations. b. Assess the trade offs that the company(s) are facing when selecting one location over the other. 4. Based on the analysis above, what changes would you make to the production capacity decision ? Why