Applichem case discusses about Supply Chain issues related to Market fluctuations in exchange rate and an optimal SC model for a Global setup. In this presentation, our group has analyzed the optimal solution through simplex LP and checked its robustness in event of market exchange rate fluctuations.

1. Applichem Case Analysis
Team 7
Rautela, Apoorva
Nagpal, Neha
Narwal, Shagun
Shrivastava, Jyotsana

2. Agenda
• About Applichem
• Present Day Challenges
• Model Approach
• Proposed Supply Chain Model
• Market fluctuations
• Recommendations

3. Applichem
Adhesive solution company with largest market share in Release-ease, plastic mold cleaner
“The Gary kid”
Gary, Indiana
“Exporter”
Mexico
“No-frills design”
Canada “Manufacturing
efficiency”
Frankfurt
“No
improvements in
18yrs”
Venezuela
“Market
monopoly” Japan33% of demand
from US
Closest
Competitor in
Luxembourg
Applichem formed in 1952 post World War II in Chicago

4. Applichem Plants Quick Overview
Plant Gary Canada Mexico Venezuela Frankfurt Japan
Capacity (Mn lbs) ~
100
18.5 3.7 22 4.5 47 5
Product variety 20 5 7 2 13 2
Capacity Utilization 75.7% 70.3% 78.2% 91.1% 80.9% 80%
Product Cost 102.93 97.35 95 116.34 76.69 153.80
Number of people at
each operation at each
plant
58.3 27.7 44.4 23.9 86.1 31
Labor 1000 non-
union loyal
workers
Non-union,
quality
conscious
Low worker
education, serves
far east market
Low worker
education, old
equipment
600 workers, 2
processes
No union. More
test labs
Technically sound
Year since Operational 1905
(bought by
Applichem in
1951)
1955 1968 1964 1961 1957

5. Present Day Challenges
• Operational In-efficiency at core Gary plant
• Stagnant demand of Release-ease for next 5 years
• Market Variability & increased costs
• Profitability in 1982
Total Cost : $83Mn for production and shipment worldwide
Total Sales : $1.01 * 79.9Mn pound = $ 80.70Mn
Loss : $3Mn
Production optimization at
plants basis total costs
Make Gary look good again!

6. Model Approach & Assumptions
• Objective:
• Minimize Total Cost = Production + Shipping + Import costs
• Subject to Constraints :
• Total Units Shipped from plant <= Plant Capacity
• Total Units Produced = Total Demand
• To achieve the optimized solution we used Simplex LP method
• Assumptions :
• Demand at each location is calculated basis production at each plant – exports +
imports
• The value of Release-ease imported is calculated as function of production and
shipping cost

7. Applichem Supply Chain Model
Total Units (in millions of pounds) shipped from Plant to Country
Total Cost incurred (in 10K)
From Plant/ ToCountry Mexico Canada Venezuela Europe
United
States
Japan Total
Mexico City 3.0 6.3 7.9 17.2
Windsor, Ontario 2.6 2.6
Caracas, Venezuela 4.1 4.1
Frankfort, Germany 5.6 20.0 12.4 38.0
Gary, Indiana 14.0 14.0
Osaka, Japan 4.0 4.0
Requirements 3.0 2.6 16.0 20.0 26.4 11.9 79.9
Total Demand :
$79.9 Mn of pounds
Cost Incurred Mexico Canada Venezuela Europe
United
States
Japan
Total
Cost
Mexico City $285.0 $0.0 $964.0 $0.0 $0.0 $912.8 $2,161.87
Windsor, Ontario $0.0 $253.1 $0.0 $0.0 $0.0 $0.0 $253.11
Caracas, Venezuela $0.0 $0.0 $477.0 $0.0 $0.0 $0.0 $476.99
Frankfort, Germany $0.0 $0.0 $749.2 $1,533.8 $1,138.9 $0.0 $3,421.87
Gary, Indiana $0.0 $0.0 $0.0 $0.0 $1,441.0 $0.0 $1,441.02
Osaka, Japan $0.0 $0.0 $0.0 $0.0 $0.0 $615.2 $615.20
Total $8,370.07
Total Cost Incurred:
$83.7 Million

8. Model Approach & Assumptions
=xTotal units
Plant/Country Mexico Canada Venezuela Europe
United
States
Japan
Idle
Capacity
Total
Shipped
Mexico City 3.0 0.0 0.0 0.0 3.2 0.0 15.8 6.2
Windsor Ontario 0.0 2.6 0.0 0.0 1.1 0.0 0.0 3.7
Caracas, Venezuela 0.0 0.0 4.5 0.0 0.0 0.0 0.0 4.5
Frankfort, Germany 0.0 0.0 11.5 20.0 3.6 11.9 0.0 47.0
Gary, Indiana 0.0 0.0 0.0 0.0 18.5 0.0 0.0 18.5
Osaka, Japan 0.0 0.0 0.0 0.0 0.0 0.0 5.0 0.0
Requirements 3.0 2.6 16.0 20.0 26.4 11.9 20.8 79.9
Final Actual Costs
Cost Incurred Mexico Canada Venezuela Europe
United
States
Japan
Mexico City 285 0 0 0 354 0
Windsor, Ontario 0 253 0 0 119 0
Caracas, Venezuela 0 0 524 0 0 0
Frankfort, Germany 0 0 1,539 1,534 331 1,135
Gary, Indiana 0 0 0 0 1,904 0
Osaka, Japan 0 0 0 0 0 0
Total $7,977
Total Costs per 100lb = (Production Cost + Shipping Cost)*(1 + Import Duty)
Plant/Country Mexico Canada Venezuela Europe
United
States
Japan
Mexico City 95.01$ 106.41$ 153.02$ 116.08$ 110.78$ 115.55$
Windsor, Ontario 173.36$ 97.35$ 159.53$ 119.19$ 108.00$ 116.97$
Caracas, Venezuela 197.34$ 126.34$ 116.34$ 141.63$ 132.44$ 138.48$
Frankfort, Germany 138.70$ 88.19$ 133.79$ 76.69$ 91.85$ 95.39$
Gary, Indiana 180.69$ 108.93$ 170.90$ 123.66$ 102.93$ 122.36$
Osaka, Japan 268.48$ 166.80$ 249.45$ 183.96$ 174.31$ 153.80$
Goal – To Optimally produce the product such that we reduce the total production cost
(includes production, shipping, import duty etc.)
Minimize Cost

9. Proposed Supply Chain Model
Total Units (in millions of pounds) shipped from Plant to Country
Total Cost incurred (in 10K)
Cost Incurred Mexico Canada Venezuela Europe United States Japan
Total
Cost
Mexico City $285.03 $0.00 $0.00 $0.00 $354.50 $0.00 $639.53
Windsor, Ontario $0.00 $253.11 $0.00 $0.00 $118.80 $0.00 $371.91
Caracas, Venezuela $0.00 $0.00 $523.53 $0.00 $0.00 $0.00 $523.53
Frankfort, Germany $0.00 $0.00 $1,538.53 $1,533.80 $330.64 $1,135.13 $4,538.10
Gary, Indiana $0.00 $0.00 $0.00 $0.00 $1,904.21 $0.00 $1,904.21
Osaka, Japan $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Total $7,977.28
Total Cost incurred as per Apichem Strategy $83,700,729
Total Cost incurred as per recommended Strategy $79,772,768
Total $ Saved : $3,927,961
% $ Saved : 5%
Total Savings
Plant/Country Mexico Canada Venezuela Europe United States Japan
Total
Shipped
Mexico City 3.0 0.0 0.0 0.0 3.2 0.0 6.2
Windsor Ontario 0.0 2.6 0.0 0.0 1.1 0.0 3.7
Caracas, Venezuela 0.0 0.0 4.5 0.0 0.0 0.0 4.5
Frankfort, Germany 0.0 0.0 11.5 20.0 3.6 11.9 47.0
Gary, Indiana 0.0 0.0 0.0 0.0 18.5 0.0 18.5
Osaka, Japan 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Requirements 3.0 2.6 16.0 20.0 26.4 11.9 79.9
Total Cost : $79.7 Mn for production and shipment
worldwide
Total Sales : $1.01 * 79.9Mn pound = $ 80.70Mn
Profit : $1Mn

10. Market Fluctuations
Variations in Exchange Rate
• As a company supplying multiple regions of the world, exchange rates could have a
significant impact on Applichem’s profits.
• For instance, the Mexican Peso depreciated a lot in 1982( the exchange rate went
from 26.2 Mexican peso/dollar to 96.5).

11. Impact of Exchange Rates
Average Annual Exchange Rates: (currency/$1 U.S.)
Year Mexico Canada Venezuela Germany U.S. Japan
1979 22.8 1.17 4.3 1.73 1 239.7
1982 96.5 1.23 4.3 2.38 1 235
Average Annual Price Indices
Year Mexico Canada Venezuela Germany U.S. Japan
1979 80.3 88.1 83.3 93 86.1 84.9
1982 194.2 116.8 123 114.1 113.7 103.2
Total Cost (in 10K) incurred through Proposed Supply Chain Model
Cost Incurred Mexico Canada Venezuela Europe United States Japan Total Cost
Mexico City $498.83 $0.00 $0.00 $0.00 $620.40 $0.00 $1,119.23
Windsor, Ontario $0.00 $200.71 $0.00 $0.00 $94.20 $0.00 $294.91
Caracas, Venezuela $0.00 $0.00 $354.55 $0.00 $0.00 $0.00 $354.55
Frankfort, Germany
$0.00 $0.00 $1,725.18 $1,719.88 $370.75 $1,272.84 $5,088.65
Gary, Indiana $0.00 $0.00 $0.00 $0.00 $1,441.97 $0.00 $1,441.97
Osaka, Japan $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Total $8,299.31
Total Cost (in 10K) incurred by Applichem Supply Chain Model
Cost Incurred Mexico Canada Venezuela Europe
United
States
Japan Total Cost
Mexico City $498.8 $0.0 $1,687.1 $0.0 $0.0 $1,597.6 $3,783.46
Windsor, Ontario $0.0 $200.7 $0.0 $0.0 $0.0 $0.0 $200.71
Caracas, Venezuela $0.0 $0.0 $323.0 $0.0 $0.0 $0.0 $323.04
Frankfort, Germany $0.0 $0.0 $840.1 $1,719.9 $1,277.0 $0.0
$3,837.00
Gary, Indiana $0.0 $0.0 $0.0 $0.0 $1,091.2 $0.0 $1,091.22
Osaka, Japan $0.0 $0.0 $0.0 $0.0 $0.0 $496.2 $496.19
Total $9,731.62
Total Savings
Total Cost incurred as per Apichem Strategy $97,316,151
Total Cost incurred as per recommended Strategy $82,993,111
Total $ Saved : $14,323,040
% $ Saved : 15%

12. Market Fluctuations
Variations in Demand
• An increase / decrease in demand may lead to a change in the production amounts in
the plants, which will in-turn impact the profit.
Variations in Tariff
• Increased tariffs make it expensive to procure the raw materials / ship the products to
the customers.

13. Recommendations
• Production Increase in Frankfurt : Lower production
costs & state of art technology
• Production decrease in Mexico : Higher market
fluctuations.
• Production Increase in Gary to cater to entire US
demand & reduce import duty & shipping costs
• Leverage Japan plant for R&D purposes only. Asian
market demand to be catered by Frankfurt plant
• Slight increase the production in Ontario and
Venezuela plants to compensate for the production
decrease in Mexico
Plant/Country
Applichem
Solution
Recommended
Solution
Change
Mexico City 17.2 6.2 -11.0
Windsor Ontario 2.6 3.7 1.1
Caracas,
Venezuela
4.1 4.5 0.4
Frankfort,
Germany
38.0 47.0 9.0
Gary, Indiana 14.0 18.5 4.5
Osaka, Japan 4.0 0.0 -4.0
Requirements 79.9 79.9 0.0
Total Shipped

14. Q & A