We need to figure out if we want to source glass from at Moraine vs. Tianjin. With potential improvements, compare the relative costs of sourcing from each location. For example, from Exhibit 16, labor cost per windshield at Moraine was $23.93. Fuyao expected labor yield in Moraine to improve from 81% to 93%, and number of workers per line to decrease from 63 to 50. So, expected costs of labor per windshield with learning are expected to fall to $23.93x(81%/93%)x(50/63)=$13.44 at Moraine. In a similar manner, for each item below, estimate the future expected cost in Moraine and Tianjin using Ex 16 and improvements suggested in the case. a) Labor (you will find the number for Moraine above but you still need to calculate for Tianjin) b) Electricity c) Other Manufacturing d) SG&A e) Raw Materials f) Depreciation Assuming packaging does not change and shipping rates from Exhibit 17 are $2.13 from Moraine and $15.33 per windshield from Tianjin, from where would you source? Exhibit 16 Comparison of Total Costs per Windshield: Tianjin versus Moraine Cost Item Tianjin Moraine Target Cost (US$ unless otherwise specified) Raw materials $13.01 $19.90 Labor 2.28 23.93 Electricity 1.55 1.58 Depreciation 1.55 3.17 Other manufacturing costs 0.88 1.73 SGEA 6.00 8.00 Packaging and transportation 15.30 2.13 Total 40.60 60.41 $50,00 Other Cost Factors Tianjin 93% Moraine 81% Yield -First-pass yield 91% 81% - Rework and repair 2% No repair -Lack of skills -Low productivity Output per shift 780 pairs 650 pairs Salary per month CNY5,000/month $25/hr Working hours per month Bhr./day, 25 days 8 hr./day, 22 days Number of workers per line 57 63 Electricity.cost per kilowatt-hr. CNY 0.69 $0.0600 Source Compiled from company data. Note Other cool factors such as output per shift, salary per month working hours, number of workers per line, and electricity cost apply to go output before yield is calculated. Purchased parts and 17% VAT not included: Chinese VAT on FOB price 100% is refunded for export $1-CNY 69 We need to figure out if we want to source glass from at Moraine vs. Tianjin. With potential improvements, compare the relative costs of sourcing from each location. For example, from Exhibit 16, labor cost per windshield at Moraine was $23.93. Fuyao expected labor yield in Moraine to improve from 81% to 93%, and number of workers per line to decrease from 63 to 50. So, expected costs of labor per windshield with learning are expected to fall to $23.93x(81%/93%)x(50/63)=$13.44 at Moraine. In a similar manner, for each item below, estimate the future expected cost in Moraine and Tianjin using Ex 16 and improvements suggested in the case. a) Labor (you will find the number for Moraine above but you still need to calculate for Tianjin) b) Electricity c) Other Manufacturing d) SG&A e) Raw Materials f) Depreciation Assuming packaging does not change and shipping rates from Exhibit 17 are $2.13 from Moraine and $15.33 per windshield from Tianjin, from where would you source? Exhibit 16 Comparison of Total Costs per Windshield: Tianjin versus Moraine Cost Item Tianjin Moraine Target Cost (US$ unless otherwise specified) Raw materials $13.01 $19.90 Labor 2.28 23.93 Electricity 1.55 1.58 Depreciation 1.55 3.17 Other manufacturing costs 0.88 1.73 SGEA 6.00 8.00 Packaging and transportation 15.30 2.13 Total 40.60 60.41 $50,00 Other Cost Factors Tianjin 93% Moraine 81% Yield -First-pass yield 91% 81% - Rework and repair 2% No repair -Lack of skills -Low productivity Output per shift 780 pairs 650 pairs Salary per month CNY5,000/month $25/hr Working hours per month Bhr./day, 25 days 8 hr./day, 22 days Number of workers per line 57 63 Electricity.cost per kilowatt-hr. CNY 0.69 $0.0600 Source Compiled from company data. Note Other cool factors such as output per shift, salary per month working hours, number of workers per line, and electricity cost apply to go output before yield is calculated. Purchased parts and 17% VAT not included: Chinese VAT on FOB price 100% is refunded for export $1-CNY 69
