The document provides information for a case study in which a US plastic manufacturer is considering outsourcing some of its production lines to China to reduce costs. It outlines the client's product lines and concerns about outsourcing. Potential issues to analyze include differences in labor, material, and transportation costs between the US and China, as well as risks related to quality, consumer preferences, and public relations.
The document provides information for a case study in which a US plastic manufacturer is considering outsourcing some of its production lines to China to reduce costs. It outlines the client's product lines and concerns about outsourcing. Potential issues to analyze include differences in labor, material, and transportation costs between the US and China, as well as risks related to quality, consumer preferences, and public relations.
The document provides information for a case study in which a US plastic manufacturer is considering outsourcing some of its production lines to China to reduce costs. It outlines the client's product lines and concerns about outsourcing. Potential issues to analyze include differences in labor, material, and transportation costs between the US and China, as well as risks related to quality, consumer preferences, and public relations.
The document provides information for a case study in which a US plastic manufacturer is considering outsourcing some of its production lines to China to reduce costs. It outlines the client's product lines and concerns about outsourcing. Potential issues to analyze include differences in labor, material, and transportation costs between the US and China, as well as risks related to quality, consumer preferences, and public relations.
Problem statement narrative provided on request The client is a national plastic manufacturer in the US. 3 Product lines – freezer bags, plastic plates and Their customers are supermarkets and discount retailers. utensils, and specialty plates and utensils They are looking to outsource manufacturing to China but the CEO is concerned because no one else in the industry has done this yet. Should we recommend to our client to outsource to China? Sample solution element – issue tree & qualitative analysis 50
• Fixed and variable costs of • Preferences regarding quality • Layoffs in the US producing the US vs. China issues with products • Labor standards in China • Suppliers? • Seasonality of products • Transportation Costs • Tariffs
Possible follow-up and Possible follow-up and Possible follow-up and
guidance to interviewer guidance to interviewer guidance to interviewer • See handout to calculate •Quality :Freezer Bags – lower quality in • PR – not big issue, no real differences in costs China information •Plastic Plates – equal quality •Specialty Plates – equal quality • More important to show awareness •Consumer Prefs: Freezer Bags – commodity, of these risks but quality very important •Plastic Plates – commodity, quality not issue •Specialty Plates – seasonal business, trend is important China Outsourcing Opportunity – Handout 51
Calculate the Costs of Outsourcing in China
Math Question
Costs in Costs in China relative Costs in
Costs U.S. ($/lb) to U.S. China ($/lb)
Labor 0.30 8% of wage rate
80% of productivity Material • Plastic resin 0.30 80% • Other material (incl. packaging) 0.20 75%
Variable overhead 0.05 140%
Fixed overhead 0.10 60%
Transportation • China to U.S. distribution center N/A $6K to ship 40K lbs. • U.S. distribution center to customer 0.05 Same
Total 1.00 China Outsourcing Opportunity – Solution 52
Calculate the Costs of Outsourcing in China
Math Question Looks like they will save 25% of costs by going to China
Costs in Costs in China relative Costs in
Costs U.S. ($/lb) to U.S. China ($/lb)
Labor 0.30 8% of wage rate =.3*(10/8)*(8/100) = .03
80% of productivity Material • Plastic resin 0.30 80% .24 • Other material (incl. packaging) 0.20 75% .15
Variable overhead 0.05 140% .07
Fixed overhead 0.10 60% .06
Transportation • China to U.S. distribution center N/A $6K to ship 40K lbs. =6/40 = .15 • U.S. distribution center to customer 0.05 Same .05
Total 1.00 .75
Solution element – recommendation et al. 53
Recommend outsourcing the paper and plastic plates to China. Keeping the other lines in the US due to quality and trend issues. Recommendation
Change in fixed overhead costs currently if move production to China. Additional mfg capacity – other Risks product lines, rent out to another company, close certain lines; PR / Brand image risks
Research risks mentioned above to determine whether beneficial to implement
