One of the products produced by a multinational enterprise i

One of the products produced by a multinational enterprise is marketed primarily in the United States. An unfinished form of the product is produced in one of the corporation\'s plants in Mexico and then is shipped to a plant in the United States for the finish work. The finished product next is sent to a distribution center in the United States. The distribution center stores the product and then uses this inventory to fill orders from various independent retailers. These sales to retailers remain relatively uniform throughout the year at the rate of about 6,000 units per month. The American plant uses its inventory of the finished product to send a shipment to the distribution center whenever the center needs to replenish its inventory. The associated administrative and stripping cost is about $800 per shipment. Whenever the American plant needs to replenish its inventory, the Mexican plant uses its inventory of unfinished product to send a shipment to the American plant, which then sets up for a quick production run to convert the unfinished product to a finish product. Each time this happens, the shipping cost and setup cost total about $2, 100. The Mexican plant replenishes its inventory of the unfinished product when needed, by setting up for a quick production run. A setup cost of $10,000 is incurred each time this is done. The monthly cost for holding each unit is $5 at the Mexican plant. $8 at the American plant, and $9 at the distribution center. All the assumptions of the model discussed in class for a serial multi-echelon system apply to the joint inventory system at the three locations for the product. If possible, reduce the three stage supply chain model to a two-stage supply chain model.

Solution

it is not possible to reduce this three stage supply chain model to a two-stage supply chain model