Blog 4: Another Factory Closing

Situation
GPX, an international tire corporation announced the closing of its production facility in Mississauga, Canada. The company plans to consolidate its manufacturing operations in its other three plants in Maine, Pennsylvania, and China. In the past, GPX has only ran its manufacturing operations in the U.S. four days a week. When their Canadian plant closes, they plan to manufacture products 5 days a week.

Closing a facility is a huge decision. Sometimes, I still wonder if companies make the right judgment when they choose to relocate or close a facility. When making this type of decision, a network optimization model can help top management decide what is best for their company. Network optimization models help businesses decide possible facility locations, size, and the optimal number of facilities in their distribution network. In a typical company's distribution network, a company's facilities include suppliers, manufacturers, distributors, warehouses, distribution centers, wholesalers/retailers, and customers.

Modeling GPX's Situation
Transportation data files are needed in the optimization model to represent flows relating to the inbound shipments, interplant transfers, plant to distribution center (DC), DC transfers, and outbound shipments. Transportation files can help reflect a company's freight cost and to configure an optimal freight system. In addition, operating costs such as fixed facility costs and variable costs are inputted into the model for comparison of new facility costs if the Canadian plant is closed.

How Can GPX Make a Decision Based on a Network Optimization Model
The model results show the change of customer service levels, increase/decrease of transportation costs, and increase/decrease in operating costs. The model can also recommend a center of gravity plant that is the best location based on the distance from customers. In addition, GPX should consider special discounts that the Canadian plant receives, and if it closes, what is the forseen costs in the future? For example, the Canadian plant receives a discount from a local vendor, in which, the vendor will not continue the discount if shipping materials to a plant in the U.S. or China.

A network optimization model is a decision support system that uses linear or multi-linear software to physically find the best facility location(s), facility size(s) (square footage), number of facilities, and even optimal inventory levels. Results such as transportation costs, operating costs, and inventory levels can help top management to make legitimate choices for cutting costs and/or increasing sales.


References
GPX to Close Canada Factory. Tire Review. 25 February 2008. Retrieved February 27, 2008 from
http://www.tirereview.com/default.aspx?type=wm&module=4&id=2&state=DisplayFullText&item=10661