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International Textile Company (Business Optimization)

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Alexandra holtz

on 7 November 2014

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Transcript of International Textile Company (Business Optimization)

International Textile Company Inc.
Alexandra Holtz (S2830895)
Khunikorn Nahom (s2880052)
Chen Jia (s2882176)

International Textile Company (ITC) produces and
distributes textiles worldwide. ITC produces and distributes:
cotton, polyester and silk.

ITCs current distribution system has several improvements
that can be made to: decrease cost, improve efficiency,
reduce waste and better use of the current Mills capacities.

This project will optimize the current network using Linear Programming and provide recommendations for future improvements.


Introduction
Options
Once the spreadsheet was modeled,
we used the solver to optimize the
model and received the following
result for cotton.




The total cost was: $15.400
Base Model, Cotton
Bahamas
Nigeria
Hong Kong
Korea
Venezuela
Mexico City
Los Angeles
New York
London
Rome
Manila
Tokyo
Chicago
We used the data provide to us, and
translated it into a spreadsheet in
Excel.
Base Model , Polyester
Capacity was more than demanded, we had to create a new "company" called not satisfied.
Presentation Outline
-Introduction
-The 4 different scenarios or "What if analysis"
1.Original model
2.Adding new mill (Silk)
3. Redistribute demand
4. Overtime Production
-
Other Recommendations

Original Model, Polyester
Original Model, Silk
Silk also had more demand than capacity to meet demand. Therefore, we had to add another "Not Satisfied" to meet demand.
Total Cost: $5000.00
As you can see in
the chart, no bolts are distributed to Rome.

However, this is were
the "Not Satisfied"
company steps in.
Total Cost: $40.300
2. Adding a new mill (Silk)
ITC considered opening a new Silk production factory in Nigeria, that has the capacity to produce and additional 1000 bolts.

It would include a one time additional cost of $2000.
ITC wondered if adding the new mill would be a feasible solution
Comparison
Total Cost:$10.050
Total Cost: $5000.00
1 Time Cost:$2000.00
Normal Cost:$8050.00
Opportunity Cost:$22.500
4.Overtime Production
Opportunity cost for cotton would be $10/ bolt if they can not produce enough to meet demand. However, that is not necessary in this case as cotton can meet demand
Polyester should go ahead and produce temporary on overtime as they would make a profit of: $8300.00. However they should consider a more sustainable option for the future.
Likewise for silk, which would make a profit of $11.250
3.Redistribute demand
If a new customer is obtained, the demand for cotton in Manila and Mexico City will increase by 10%.
Meanwhile, a customer from New York might cut back demand for polyester by 10%.
The distribution schedule and cost would change as follow:

Cotton:
Manila: 0.10*800= 80
Mexico City: 0.10*900=90

Polyester:
0.10*2500=250
3. Cotton Comparison
3. Comparison Polyester
Recommendations

Outsourcing (Quinn & Himler, 1994; Luo, Zheng, Jayaraman, 2010)
Other Recommendations
Though there are obvious trade-offs such as: Longer lead-time, risk, inventory carrying cost, weather conditions.

ITC could possibly transport more bolts than demanded and carry more inventory.




Close all mills and expand in Bahamas
Bahamas has the overall cheapest producing/shipping rates
The trend today is to generally decrease the amount of manufacturing plants.
As the rest of the costs in other mills such as: Labour, transportation, electricity, water, rent etc would decrease. We believe that the costs to expand in Bahamas will be an excellent payoff.
In fact, using the numbers available, producing all bolts in Bahamas would result in the following reductions:
Advantages

Reduce

Cost
Carbon emissions (Sustainability)
Transport
Directional Imbalance
Increase
Services
Reverse Logistics
Flexibility and Reliability
Value added activities (Sorting of products, pricing, labeling)

Considerations:
Risks, import/export tax, legislation, port/terminals

Considerations

Risk (Piracy, Theft)

Port and Terminals (Sea Transport)

Renting warehouse or owning, (Cheaper, Less Control, less responsibility) VS (Higher fixed cost, more control, more responsibility)

Export/Import Tax

Laws and Regulations


Example shipping costs (40 foot container)
L.A-Tokyo= $1332, (15 Days)
Miami-Le Havre=$1221 (19 Days)
Miami-Kanas City= $688 (Fuel) (1.5 Days)
Kansas City- L.A= $656 (Fuel) (1.5 Days)

Example: Total cost L.A-Tokyo: $2000
2000/7000= $0.28/ Each


Close the Nigeria mill
Transportation (Air VS Sea)
Close all mills and expand in Bahamas (
Bahamas has the overall cheapest producing/shipping rates). Eventually expand production to China.
Open warehouse in France + China


References
Quinn, J.B., & Himmler, F.G., (1994).Strategic Outsourcing.
Sloan Management Review,
35
(4), 43. Retrieved from: [http://search.proquest.com.libraryproxy.griffith.edu.au/docview/224960020?accountid=14543]

Yadong, L., QinQin, Z., & Vaidyanathan, J., (2010). Managing Busines Process Outsourcing. Organizational Dynamics, 39(3), 205-217. DOI: 10.1016/j.orgdyn.2010.03.005

http://www.icontainers.com/us/rates/FCL/USKCK/JPTYO
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