Case Study:

Designing the production network at BSRM

Mr. Hasan Tareq, vice president of supply chain at BSRM, thought that his current production
and distribution network was not appropriate, given the significant increase in transportation
costs over the past few years. Compare to when the company had set up its production facility in
Chittagong, transportation cost had increased by a factor of more than four and were expected to
continue growing in the next few years. A quick decision on building one or more new plants
could save the company significant amounts of transportation expense in the future.

BSRM

BSRM was founded in the late 1980s and produced steels. Demand for the product was as shown
in the following table 1:

Table 1: Regional demand in thousand ton

Zone Chittagong Dhaka Rajshahi Sylhet Barisal Khulna
Demand 500 1000 800 900 700 600

The company currently had one factory in Chittagong that produced quality steels. The
Chittagong facility had a capacity of 5 million tons, an annualized fixed cost Tk. 5 million a year,
and a variable cost of TK 50,000 per ton. The transportation costs per ton are shown in table 2.

Table 2: Transportation costs in Taka per ton

Chittagong Dhaka Rajshahi Sylhet Barisal Khulna
Chittagong 400 632 800 500 700 1000
Narayangon 500 300 600 400 600 800
j
khulna 1200 800 500 1400 400 300
Barisal 900 500 800 1200 400 600

New Network options:

Mr. Hasan had identified Narayangonj, Barisal, and Khulna as potential sites for new plants.
Each new plant could have capacity of 2 million tons, an annual fixed cost of Tk. 2.2 million,
and a variable production cost of Tk. 50,000 per ton. The transportation costs per ton are shown
in table 2. Mr. Hasan had to decide whether to build a new plant.
Study questions:
1. To choose the new plant location what factors of each location should be considered by
BSRM.
2. What is the annual cost of serving the entire nation from Chittagong?
3. Do you recommend adding any plant(s)? If so, where should the plant(s) be build? What
is your logic for giving your recommendation?