Cool Wipes – Case Summary

A company which produces baby wipes and diaper ointments for the entire country. Founded
in the late 1980's.Matt O'Grady being the Vice President of the supply chain at Cool Wipes
Has one facility in Chicago which transports to the whole of America Over time demand
increased and so did the customers geographical location This lead to an increase in
transportation cost by a factor of more than 4 since the birth of the company. Transportation
costs are expected to increase

Cool Wipes has the opportunity to expand base of operations and build a new facility at:

 Princeton
 Atlanta
 Los Angeles

Each new facility can contain and wipe line, ointment line or can produce both products

Facility Capabilities

The wipes line in Chicago has a:

 Capacity of 5 Million Units

 Fixed costs of 5$ Million a year
 Variable costs of 10$ per unit produced

The ointment line in Chicago has a:

 Capacity of 1 Million Units

 Fixed costs of 1.5$ Million
 Variable costs of 20$ per unit produced
 The wipes line at any new plant will have a:
 Capacity of 2 Million Units
 Fixed costs of 2.2$ Million a year
 Variable costs of 10$ per unit produced

The ointment line at any new plant will have a:

 Capacity of 1 Million Units

 Fixed costs of 1.5$ Million a year
 Variable costs of 20$ per unit produced

Assumptions
 Building a new facility incurs no cost

 When adding a new facility for any production line, we can only add one in each new
place
 Cool wipes has one factory at Chicago with one line of wipes and one line of
ointment.

Regional demands are as follows:

Regional Demand

Zone Wipes Ointment

Demand Demand
North-West 5,00,000 50,000
South-West 7,00,000 90,000
Upper 9,00,000 1,20,000
Midwest
Lower 8,00,000 65,000
Midwest
North-East 10,00,000 1,20,000
South-East 6,00,000 70,000
Total 45,00,000 5,15,000

Transportation cost are as follows:

Transportation Cost per unit

(in $)
North- South-West Upper Lower North- South-
West Midwest Midwest East East
Chicago 6.32 6.32 3.68 4.04 5.76 5.96
Princeton 6.6 6.6 5.76 5.92 3.68 4.08
Atlanta 6.72 6.48 5.92 4.08 4.04 3.64
Los 4.36 3.68 6.32 6.32 6.72 6.6
Angeles

 Princeton, Atlanta, and Los Angeles are identified as potential sites for new
plants.
 Capacity and cost of production for Chicago facility and new facility is as below:

Chicago Facility New Facility

Wipes Ointment Wipes Ointment
Capacity (in units) 50,00,000 10,00,000 20,00,000 10,00,000
Fixed Cost per year $50,00,000 $15,00,000 $22,00,000 $15,00,000
Variable Cost per $10 $20 $10 $20
Unit

1) Annual Cost – if only Chicago is open:

Total cost if only Chicago plant is open = $87961.4 (in thousands)

2) Annual Cost: Chicago – Open; Others – May be opened.

Along with Chicago, Princeton and Los Angeles plants can also be used for wipes. But for
ointment only Chicago plant is utilized as others incur higher costs.
If Transportation Costs are halved:

For both ointment and wipes only Chicago plant is utilized as others incur higher costs.

If Transportation costs are doubled:

Along with Chicago, Princeton and Los Angeles plants can also be used for wipes. But for
ointment only Chicago plant is utilized as others incur higher costs.
 3) All plants can be opened:

For wipes all the plants except Chicago can be used. For ointments, using only Chicago plant
gives us an advantage over costs.

Transportation costs – halved:

Transportation cost – doubled:

When the costs are doubled shutting down Atlanta’s plant for wipes can reduce costs. For
ointments, utilizing Chicago’s plant alone is beneficial.

Hot&Cold and CaldoFreddo

• Hot&Cold has plants in France, Germany, and Finland.
• CaldoFreddo has plants in the United Kingdom and Italy.

Country Tax Rate

France 25%
Germany 25%
Finland 30%
UK 30%
Italy 35%

Before the Merger:

Hot&Cold: Min Cost:

Hot&Cold: Max Profit

CaldoFreddo: Min Cost

CaldoFreddo: Max Profit

After Merger:
Min Cost:

Max Profit:

After Merger if plants are allowed to shut down:

Min Cost:

Max Profit:

Speciality Packaging Corporation

• SPC turns polystyrene resin into recyclable/disposable containers for the food
industry.
• Grocery stores, bakeries, and restaurants use clear plastic containers. Demand for
clear plastic containers peaks in the summer months.
• Caterers and grocery stores use the black plastic trays as packaging and serving
trays. Demand for black plastic containers peaks in the fall.
• Capacity is not sufficient to cover demand for sheets during the peak seasons. As
a result, the plant is forced to build inventory of each type of sheet in anticipation
of future demand.
Historical quarterly demand is as follow:
Quarterly
Demand
Black Plastic Clear Plastic
Year Quarter Demand (000 lb) Demand (000 lb)
1 Q1 2,250 3,200
Q2 1,737 7,658
Q3 2,412 4,420
Q4 7,269 2,384
2 Q1 3,514 3,654
 Q2 2,143 8,680
Q3 3,459 5,695
Q4 7,056 1,953
3 Q1 4,120 4,742
Q2 2,766 13,673
Q3 2,556 6,640
Q4 8,253 2,737
4 Q1 5,491 3,486
Q2 4,382 13,186
Q3 4,315 5,448
Q4 12,035 3,485
5 Q1 5,648 7,728
Q2 3,696 16,591
Q3 4,843 8,236
Q4 13,097 3,316
 From data and graph, we can say that peak demand for clear plastic is in Q2 and
for black plastic in Q4.

From above data and graph, we can say that the total demand is increasing YoY.
There is an upward trend in the demand.

As data shows trend and seasonality, we can use winter model to forecast the demand.
By depersonalizing and using regression we get level as 6204.73 and trend as 490.8

By assuming alpha = 0.1, beta =0.1, and gamma = 0.2 we get forecasted values as:
 Year Quarter Forecast
Q1 13,664
6 Q2 22,813
Q3 14,567
Q4 18,429
Q1 16,040
7 Q2 24,278
Q3 16,973
Q4 20,470
Q1 18,411
8 Q2 25,758
Q3 19,367
Q4 22,511
As MAPE of the forecast is not very high we can rely on the forecasted demand.
Graph between forecasted and actual sales as shown below tells us that in few instances
we have over-forecasted and under-forecasted the demand.

ERROR
Error

3,000.00

2,000.00

1,000.00

-
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-1,000.00

-2,000.00

-3,000.00

Fluctuating error shows a good sign of forecast but the errors are bit to high from 5th
period till 16th period.