MT498 Unit 10 Network Redesign Report Example

Move Three Pleating Lines to Ohio: An MT498 Unit 10 Network Redesign Report for Lowry Filter Company

[Student Name]

Purdue University Global

MT498: Bachelor's Capstone in Supply Chain Management

Unit 10 Network Redesign Report

[Instructor Name]

[Date]

Lowry Filter Company, its sites, suppliers, customers and every figure are composite; the sources cited are real.

Executive Summary

Recommendation: lease and fit out a pleating site in Groveport, Ohio, and move three of Salina's six lines there in three gated phases over twelve months, ending the Columbus warehouse lease.

The case in three numbers: landed cost per eastern case falls from $32.30 to $30.60, about $673,200 a year on 396,000 cases; projected eastern fill rate rises from 93.1 to 97.6 percent, above the 97.5 percent the largest account requires; and the one-time cost of $1,676,300, including three months of lease overlap, pays back in about 2.49 years, inside the $2 million capital limit.

What it puts at risk: higher labor cost in Ohio, overhead left behind in Salina and the execution risk of moving lines. The saving survives each of these within reasonable ranges, and the phasing plan pauses whenever service slips.

A separate recommendation: qualify a second standard media mill, about $68,000 once and $59,800 a year, because a single mill is the network's largest exposure under every option.

Scope and Starting Point

The project studied the flow of 396,000 cases a year from the Salina, Kansas, plant to eastern customers, the larger part of the company's 650,000 cases. Today, standard media travels 1,070 miles west from North Carolina to Kansas, and finished filters travel 850 miles back east to a leased Columbus warehouse, about seven trailers a week that fill with space at a fifth of their weight limit. About five weeks of stock sit in that pipeline, and eastern fill rate still trails the west by almost five points.

The Problem

Eastern fill rate averaged 93.1 percent over twelve months against a 97.5 percent requirement, leaving 27,324 cases short and costing about $407,494 a year in lost contribution, chargebacks and expedites. The target was paired: reach 97.5 percent without raising landed cost above $32.30 a case.

Alternatives and Comparison

Four options were compared, each costed on the same nine rows from purchase through stockouts.

1. Keep today's network: $32.30 a case; 93.1 percent fill; 4.2-day order cycle; no one-time cost; worst resilience gap 48 days.

2. Close Columbus, ship from Salina: $31.40; 91.8 percent; 4.9 days; $390,000; 48 days.

3. Three lines to Groveport: $30.60; 97.6 percent; 2.6 days; $1,676,300; 21 days, closed by a second mill.

4. York contract pleater: $32.14; 95.4 percent; 3.4 days; $240,000; 35 days.

Closing Columbus is cheaper to run than today but worse for customers, and it fails the service target. The contract pleater improves service but not enough, and its price leaves almost no saving once Salina's stranded overhead is counted. Only the Ohio site passes both sides of the target.

The Ohio design wins on freight, not on labor, and it wins by enough to carry its own costs.

Why the Ohio Site Wins

One cost row decides the comparison. Shipping finished filters east costs $1.89 less per case, roughly $748,440 a year, because eastern filters are made a day from their customers instead of five, and the trailer run from Kansas ends. Ballou (2004) notes that light, bulky goods are among the most expensive to move per unit of value, and this product is a strong example.

Shorter replenishment also explains the service gain. With eastern stock replenished from Ohio, the network needs less safety stock to reach the same fill rate, carrying cost falls, and the stockout cost row drops from about $407,494 a year to about $130,346. Chopra and Meindl (2016) describe the facility decision as a trade between the cost of an extra site and the responsiveness it buys, and here the extra site pays for itself in freight before responsiveness is counted.

Costs Working Against the Case

Three costs work against the recommendation, and they are stated together. Ohio conversion costs about 45 cents a case more than Salina's, about $178,200 a year. About $356,400 a year of Salina overhead stays behind when three lines leave. And the phased move requires three extra months of the Columbus lease, about $149,500 once. The freight saving outweighs the first two, and the third is included in the payback.

Sensitivity testing shows how far the inputs can move. If freight rates fell 20 percent, the Ohio site would still save about $499,752 a year. If stranded overhead were twice the estimate, it would still save about $316,800. The saving disappears only if Ohio conversion exceeded about $9.57 a case, about $1.70 above the estimate, which is the input the company should confirm first.

Resilience

The redesign's largest resilience gain is that two plants can back each other up. If the Ohio site were out for eight weeks, Salina could make all 650,000 cases on three shifts at about 86 percent of capacity, at a cost of about $135,800 per event and with no stock gap. Today, a twelve-week Salina outage would leave a 48-day gap. The weakest point after the redesign is the single standard media mill, whose 35-day recovery exceeds the 21 days of media held in Ohio and 14 in Salina. Simchi-Levi et al. (2014) argue that the risks worth funding are those where recovery outlasts survival, and the second mill closes that gap for less than deeper buffers would cost. Every option shares that mill, so the remedy is proposed on its own and left out of the ranking.

Implementation

Eastern volume moves to Ohio in three phases, one line at a time, after three months of building fit-out. Phase one moves the 14 highest-volume standard sizes, phase two most remaining standard volume and phase three the premium filters, once 35 days of premium media and a Norfolk booking are in place. Each phase opens only after four weeks at target on fill rate, scrap and conversion cost; a missed gate pauses the sequence while Salina keeps supplying. About 38 people are hired in Ohio; Salina staffing effects are listed for the company to decide.

Changes Since Earlier Units

The payback rose from 2.27 to 2.49 years when the phasing plan added the lease overlap, and the revised figure is used throughout. The carrying cost row includes the premium media buffer added after the port closure seminar. A reconciliation table in the appendix lists each change and its cause.

Limitations

Several inputs are estimates awaiting company confirmation, ranked by their effect on the result. Ohio conversion cost leads the list, since the saving vanishes above about $9.57 a case. Stranded Salina overhead and the stockout cost per case come next. Fill-rate projections rest on replenishment lead times, not on a simulation of daily demand. And the analysis covers eastern volume only. The report recommends; the decision belongs to the company.

References

Ballou, R. H. (2004). Business logistics/supply chain management (5th ed.). Pearson Prentice Hall.

Chopra, S., & Meindl, P. (2016). Supply chain management: Strategy, planning, and operation (6th ed.). Pearson.

Simchi-Levi, D., Schmidt, W., & Wei, Y. (2014). From superstorms to factory fires: Managing unpredictable supply-chain disruptions. Harvard Business Review, 92(1/2), 96-101.