Question

1. You are the operations manager at, Sports Unlimited, a firm manufacturing sporting goods. Due to increasing demand for your products, you are looking into the possibility of outsourcing some of your operations to other countries. After an initial research you have identified 6 critical factors in your location decision. These are: stability of exchange rates, society value of quality work, availability of skilled work force, time orientation attitudes, availability of efficient transportation infrastructure, and government regulation of businesses.

The countries selected for possible outsourcing are Mexico, Argentina, Costa Rica, and Peru. An outside consulting firm has evaluated the risk index of each country on a scale of 1 to 10, where 1 is the lowest and 10 is the highest score. The following table was created to help with decision making process.

1. Using the factor-rating method, which country should be selected?
2. Suppose after further analysis, you have changed Costa Rica’s government regulation from 4 to a lower risk score of 2. Does this change affect your outsourcing decision? Recalculate and discuss

Critical Factors	Importance weight	Mexico	Argentina	Costa Rica	Peru
Exchange rate stability	0.25	1	9	3	2
Society value of quality work	0.2	7	5	5	4
Availability of skilled workforce	0.15	3	3	4	6
Time orientation	0.15	5	4	5	4
Transportation	0.15	4	3	3	3
Government regulation	0.1	3	5	4	6

Answer 1

a: Calculate overall risk by mutiplying risk index with importance weight for each factor and then adding for all factors of a particular country. In excel, SUMPRODUCT() formula can be used. As shown below, MEXICO has LEAST risk score and hence should be selected

Critical Factors	Importance	Mexico	Argentina	Costa Rica	Peru
Exchange Rate Stability	0.25	1	9	3	2
Society Value of Quality Work	0.2	7	5	5	4
Availabilty of Skilled Workforce	0.15	3	3	4	6
Time Orientation	0.15	5	4	5	4
Transportation	0.15	4	3	3	3
Government Regulation	0.1	3	5	4	6
Overall Risk		3.75	5.25	3.95	3.85

b: With the change in Costa Rica's government regulation risk score now we have a tie between Mexico and Costa Rica.

I would still select MEXICO probably because for higher importance factors (TOP 2 - Exchange Rate Stability & Society Value of Quality Work) risk score of MEXICO is still lower than Costa Rica

Critical Factors	Importance	Mexico	Argentina	Costa Rica	Peru
Exchange Rate Stability	0.25	1	9	3	2
Society Value of Quality Work	0.2	7	5	5	4
Availabilty of Skilled Workforce	0.15	3	3	4	6
Time Orientation	0.15	5	4	5	4
Transportation	0.15	4	3	3	3
Government Regulation	0.1	3	5	2	6
Overall Risk		3.75	5.25	3.75	3.85