Aims 3770 production operations analysis

AIMS 3770 Production Operations Analysis

Class Exercise #1:  Selecting a Location for the New European Distribution Center

Case Problem: Selecting a European Distribution Center Location for American International Automotive Industries

American International Automotive Industries (AIAI) manufactures auto and truck engine, transmission, and chassis parts for manufacturers and repair companies in the United States, South America, Canada, Mexico, Asia and Europe.  The company transports to its foreign markets by container ships.  To serve its customers in South America and Asia, AIAI has large warehouse/distribution centers.  In Europe it ships into Hamburg and Gdansk, where it has contracted with independent distribution companies to deliver its products to customers throughout Europe.  However, AIAI has been displeased with a recent history of late deliveries and rough handling of its products which causes products to be delivered in poor condition.  For a time AIAI was not overly concerned since its European market wasn’t too big and its European customers didn’t complain.  Plus, it had more pressing supply chain problems elsewhere.  But since trade barriers have fallen in Europe and Eastern European markets have opened up, its European business has expanded, as has new competition, and its customers have become more demanding and quality conscious.  As a result, AIAI has initiated the process to select a location for a new European warehouse/distribution center.  Although it provides parts to a number of smaller truck and auto maintenance and service centers in Europe, it has seven major customers in Vienna, Leipzig, Budapest, Prague, Krakow, Munich, and Frankfurt.  Its customers in Vienna and Budapest have adopted manufacturing processes requiring continuous replenishment of parts and materials.

 AIAI’s European headquarters is in Hamburg.  The vice-president for construction and development in Dayton, Ohio has asked the Hamburg office to do a preliminary search for a distribution center location based on geography, transportation, proximity to customers, and costs.  The Hamburg office has identified five possible cities for further consideration: Dresden, Lodz, Hamburg, Gdansk, and Frankfurt.  The Hamburg office has forwarded information about each of these locations to corporate headquarters, including forecasts of the number of containers shipped annually to each customer as follows: Vienna, 160; Leipzig, 100; Budapest, 180; Prague, 210; Krakow, 90; Munich, 120; Frankfurt, 50.  When the vice-president of construction received this information, he pulled out his map of Europe and began to study the locations.

1.      What are the five cities that have been identified as a possible location for AIAI’s new European warehouse/distribution center?

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1. Where are AIAI’s seven major customers located?
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2. Reading assignment 2 has a question about the sequence of location decisions.  Which stage is AIAI at in the sequence?

1. Given that AIAI is trying to determine a location for its new European warehouse/distribution center, what should the strategic focus be in order to maximize the benefit of the location to AIAI?

1. What mode of transportation does AIAI use to ship its product to Europe?  How does this shipping strategy impact your location decision?

1. Continuous replenishment is a predetermined schedule for small, frequent deliveries, so that the customer’s inventory can be reduced.  What impact do you think the requirement of continuous replenishment for two of the customers should have on AIAI’s location decision?  Why?