The approach that I would suggest to Ms. Daniels is a very straightforward one: verify the validity of your information, ensure you understand the entire situation, then conduct an analysis to see the profitability of the 3 configuration options. First, let’s look at big assumptions made by Ms. Daniels.
• 500,000 m3 of annual demand at $450/ton is reasonable
• Both demand and resources will exist in the long term
• The situation in Indonesia will not change any time soon
• 500,000 m3 is equivalent to 350,000 tons (times 0.7)
This case is about creating a distribution network in Indonesia so IFP can tap into the forest products industry. The difficulty she is facing is understanding how culture and politics play a role when attempting to expand into Indonesia and factoring this into her economic model when suggesting a sourcing system.
A few of the challenges she has uncovered are that when expanding into Indonesia, companies must show good will towards the locals otherwise they will face a hostile environment. Law in Indonesia dictates that only an Indonesian-owned company may build on land, so IFP must give a concession fee to land owners. Good will comes in many forms: building roads, bridges, schools, housing, health care, water supplies, and other community infrastructure. Even when resources have been depleted, companies are pressured into continuing to provide this infrastructure to the local population. This is something that Ms. Daniels must look into further, because she currently has done no investigation to see if IFP would be held to this after resources are depleted.
Now, Ms. Daniels has 4 sourcing system options: scattered, hub, hybrid, or not to build at all if it is not economically viable. Ms. Daniels tables do not seem accurate, so we will not rely on them. For example, she does not consider costs shared among all 3 systems. To