Team – 12: Hina Arora, Pooja Chaudhary, Ritaja Sharma

BioPharma | Feb 21, 2021

1. Run the Solver for year 2020 scenario, report the results. Which plants and lines do you
keep open? What is the cost?

Based on solver results for 2020, all plants and lines in Japan need to be closed. In addition,
HighCal line in Germany and Relax production in US should be closed. Total cost of this setup
is calculated at $1.216B.

2. Run the Solver for 4 more scenarios corresponding to years 2016-2019. Which plants and
lines do you keep open for most of the scenarios? Which ones do you usually keep closed?
Come up with potential network designs. You may want to use the Solver Table Add-in to
automate the computations. See below.

Based on results – Japan plant is mostly closed across all years except for 2017, when it
should be opened with the Relax production line. This is a problematic observation as the
case mentions that Japan is the most up-to-date plant in terms of technology and shutting
this one might have effects in terms of effective long-term regional production and
distribution. We do note that the Japan plant capacity is lower than the demand, hence
some demand is being met through the plant in India. However, given that India is one of
the outdated plants, it would make sense to shut India and expand capacity in Japan to meet
the region’s demand rather than shutting it down. This might cause higher costs in the
shorter term but would be more effective as a long-term solution considering demand is
expected to grow.

3. One of designs you might have come up with in #2 is to shutdown both lines in Japan,
while keeping other plants/lines open. What is the cost of this strategy, if the exchange
rates turn out to be? 

a. the same as in 2016?

b. the same as in 2020? 

For this, you need to take out of the decision variables the binary variables representing
the network structure (in other words, keep the network structure fixed, and only
optimize the flows given the exchange rates, see the "fixed-network" tab)

a. The total cost of this strategy (with the same network design as in Q2) if the exchange
rates are same as in 2016 is $1264.40M.

b. The total cost of this strategy (with the same network design as in Q2) if the exchange
rates are same as in 2020 is $1215.90M.

4. Suppose that independent of the exchange rate, there is a 50% chance of an additional
10% tariff on shipments between Europe and North America, in both directions (change
cell G47). How would your answer to questions 1-2 change?

a. Total cost in 2016 without tariff: $1251.4M and Total costs in 2016 with tariff is
$1261.97M. There is a difference of $10.56M between the two. As shown in the excel, the
difference between with and without tariff consideration lies in:

1. Shutting/Usage of Germany HighCal plant

2. Switching between HighCal and Relax in US

Team – 12: Hina Arora, Pooja Chaudhary, Ritaja Sharma
BioPharma | Feb 21, 2021

b. Total cost in 2020 without tariff: $1215.90M and Total costs in 2016 with tariff is
$1216.80M

There is a difference of $0.9M between the two. As shown in the excel, the difference
between with and without tariff consideration lies in:

1. Shutting/Usage of US Relax plant

The overall difference between two years is there because of:

1. Conversion rate

2. Network design changes – HighCal has higher fixed and variable production cost
in Germany than in the US. Importing HighCal from Germany to US has multifold
impact in terms of inc in production as well as tariff applied on import.

5. With the tariff uncertainty, what strategy would you ultimately recommend to Biopharma:
which plants/lines should it keep open? Defend your recommendation (you may disregard
growth in Asia in your baseline analysis).

In 2020, as mentioned in Q4, with or without tariff we see a diff of 0.9M which seems
relatively insignificant. If we base our decision on lowest cost, our solver solution is below:

A Without Tariff – (Japan, Germany HighCal, US Relax) Close + Rest (Open) -> 1215.9M

B With Tariff – (Japan, Germany HighCal) Close + Rest (Open) -> 1216.8M

C Without Tariff – (Japan, Germany HighCal) Close + Rest (Open) -> 1216.25M

D With Tariff – (Japan, Germany HighCal, US Relax) Close + Rest (Open) -> 1217.3M

Based on this with 50% chance of having tariff our best-case scenario is 1215.9M and worst
is 1217.3M. But if we go with keeping US Relax open as in B and C we have almost 1216M in
cost and thus we hedge the risk of gaining 2M in cost (as in A and D).

But if cost is not the only concern and we wish to keep ourselves in pace with the growing
needs of Asian market by making use of Japan and India’s capacity plus Japan’s advance
technology – we can go ahead with closing Germany HighCal only. In this case the total cost
would be – 1229.58M.

Attaching Excel for reference

Biopharma2021_stud
ents_vf_2102.xlsx