Question

This is a tough chapter - not because the concepts are that hard, but only because there are so many different decisions and the format utilized to make the decision is different for each.

My question is, the book goes over a lot of different potential decisions, the common factors involved and the ways to determine the correct decision from an economic standpoint. Are there non-quantitative factors to consider? Like what?

Answer 1

Some of the non- quantitative factors you might then want to consider include the following:

• Firm’s Strategy—Your firm may value cost more than service or vice versa. For example, your firm may have a strategy of servicing the top customers at any expense or be committed to a local manufacturing strategy.
  
• Risk—For global supply chains, you need to worry about placing sites in politically unstable locations, port closures, and the added risk of extra distance between origins and destinations. There is also a risk when you have just a single location to make a given product or you have a supply chain that is currently at capacity and is not equipped to handle any unexpected extra demand.
  
• Disruption Cost—Firms realize that changes could cause significant disruption, leading to other costs like attrition, lost productivity, and unmet demand.
  
• Willingness to Change—Some firms may be more willing to change than others. This can impact the range of solutions you might want to implement. For example, for a firm that is not willing to change, they may be happy to give up savings in exchange for a minimal number of changes.
  
• Public Relations and Branding—This is especially important for firms with a highly visible brand. If one of these firms opens or closes a new facility (especially a manufacturing location), it can often make the news. These firms need to consider the public reaction and the impact on their brand.
  
• Community : The impact on the local community of allowing employees to spend a few hours of paid time assisting with community projects.
  
• Competitors—A firm’s supply chain can be impacted by the competition. Sometimes it makes sense to be exactly where the competition is, and in other cases it makes sense to be where they are not.
  
• Union versus Non-Union—Some firms have strong policies on union affiliation or union contracts and want the locations chosen to reflect that.
  

• Tax Rebates—Although taxes can be modeled directly as a cost (as product crosses borders or tax jurisdictions), there can also be rebates for locating a facility in a particular location. This can be hard to quantify during the analysis, but it can be used for negotiating with the local tax authorities.
  
• Relationships with Trucking Companies, Warehousing Companies, and Other Supply Chain Partners—You may have supply chain partners (like trucking or warehouse providers) that you will not be able to work with in new locations. There is some value to keeping your existing partner relationships. You will need to consider who your new partners will be in the new configuration, or what you will need to do to get these new partners.

There are many more such factors. What is important to remember is that we are not just pushing the “run” button and coming up with the right answer. We want to run a variety of scenarios and then apply other criteria when finalizing the decision. When we finalize this decision, we can realize exactly how the quantifiable factors (cost and service) are impacted. This can help lead to discussions based on facts, data, and trade-offs (rather than gut-feel, intuition, and emotion).

A manager should consider qualitative factors as part of his or her analysis of a decision. Depending on the manager and the level of investment involved, qualitative factors can be the deciding point in whether to engage in a certain activity. For example, if a large investment of funds is involved, the key decision factors are more likely to be quantitative, since the investing business has a great deal at stake in the decision. However, if the investment of funds is minor, the impact of qualitative factors could play a more important role in the decision.

From a branding perspective, qualitative factors can be particularly important. Proper branding requires high expenditure levels to establish and maintain an aura of quality, which a purely quantitative analysis might not justify.