Question

Suppose that a manufacturer of men’s shirts can produce a dress shirt in its Detroit, Michigan

plant for $8 per shirt (including the cost of raw materials). Chicago is a major market for 100,000

shirts per year. The shirt is priced at $15 at the Detroit plant. Transportation and storage charge

from Detroit to Chicago amount to $5 per hundredweight (cwt.). Each packaged shirt weighs 1

pound.

As an alternative, the company can have the shirts produced in Taiwan for $4 per shirt

(including the cost of raw materials). The raw materials, weighing about 1 pound per shirt, would

be shipped from Detroit to Taiwan at a cost of $2 per cwt. When the shirts are completed, they

are to be shipped directly to Chicago at a transportation and storage cost of $6 per cwt. An

import duty of $0.50 per shirt is assessed.

a. From a logistics-production cost standpoint, should the shirt be produced in Taiwan?

b. What additional considerations, other than economic ones, might be considered before making

a final decision?

Please show all steps and calculations. Need this done urgently

Answer 1

Answer a)

Step 1: Let's summarize the given problem in a tabular form as mentioned below:

Step 2:

Prepare the table, showing the following details of both the plants:

Hence, we get the following table:

Where we have calculated the appropriate values using the following formulas:

Conclusion:

From the table calculated above, we note that there is a cost involved in transporting the raw materials from Detroit Plant to Taiwan Plant. However, it will still be cheaper to produce in Taiwan plant than the Detroit plant when you accumulate the other costs. Hence, if we consider the logistics-production cost viewpoint, it will be advisable for the manufacturer to produce the shirts in Taiwan.

Answer b) Before making the final decision, there are few points to be taken care off beyond the economic perspective, which are listed as mentioned below:

1. Check whether there is sufficient availability of suppliers in Taiwan.

2. Check whether there is sufficient availability of capacity in the plant of Taiwan.

3. The determination of order processing costs for suppliers should be done strategically so as to have the least cost of shipping to Chicago.

4.How order will be transported most efficiently, at least cost, and within the allotted timeframe.

5. What would be the holding cost of for the shirts at each point starting from plant location – to – truck – to - final destination.

6. What would be the risk of late delivery in Taiwan-Plant?

7.Which all would be the issues related to Quality and reliability in Taiwan-Plant.

8.Whether there would be an effective inventory lot-sizing in Taiwan-Plant.