OPERATIONS MANAGEMENT IN THE SUPPLY CHAIN: DECISIONS & CASES (7th Edition) Chapter CSP, Problem 1DQ

EXHIBIT 4 Operating metrics by plant location.

	Cost per unit
Production cost
U.S.	400 USD
Mexico	4,560 MXN
China	1,950 CNY
Capital expenditures, equipment moving costs, and startup costs (thousands of US$)
U.S.
Mexico	9,500
China	10,000
Other
Annual demand for Side-by-Sides	14,500 units
Tariff for China import	5%
Transportation cost (US$)
Shipping cost from China
Cost per unit	190
Side-by-Side units per container	26
Ground transportation cost (US$)
Cost per mile	2.30
Side-by-Side units per truck	26

EXHIBIT 5 Demand assumptions.

Distribution Center Location	Annual Demand (units)
Tacoma, WA	3,650
Los Angeles, CA	7,050
Irving, TX	3,800

China

Polariss senior executives were excited about the low costs in China, but labor costs had been rising in the manufacturing-heavy eastern region; over time the company would likely have to look further inland to find low-cost labor, which would further increase the length and variability of product transportation. Polaris also had concerns about its ability to successfully collaborate with a Chinese factory due to time-zone differences and cultural dissimilarities.

Operating a factory in China would require Polaris to hire sixty new employees on location. It also would result in a one-time charge of $10 million for capital expenditures, equipment moving costs, and startup costs. Polaris would have to pay a 5 percent tariff on all production and transportation costs when importing products into the United States.

Side-by-Sides made in China would be transported to the United States on container vessels, with each container holding twenty-six vehicles. The cost to ship one vehicle to the United States from China was $190 per unit, or $4,940 per container. Although shipping companies claimed the containers would reach the United States in about twenty days, in practice shipping time was highly variable, with a range of nineteen to thirty-three days.

Mexico

Polariss senior management saw several qualitative advantages to operating a foreign manufacturing facility in Monterrey, Mexico. (See Exhibit 7 for map.) Monterrey was relatively close to the United States, which would allow for easier in-person collaboration between the manufacturing facility and Polariss staff. In addition to geographical proximity, managers believed cultural familiarity would make collaborating with a Mexican workforce easy. Lastly, although Polaris believed that long-term sales growth would come from emerging markets in Asia, it also believed that near-term growth would occur in the United Statesparticularly in the southern United States, an area close to Monterrey.

1. Which location provides Polaris the greatest cost advantage? Calculate the NPV of the three locations using a 10% discount rate. PLEASE SHOW HOW YOU GOT AND CALCULATED PV