Move Production To Location X Case

MBB
New answer on Jun 16, 2021
3 Answers
930 Views
Anonymous A asked on Jun 15, 2021

Hello - 

Case Prompt:The CEO of a car manufacturer (OEM) in the US is considering moving their production to China. They have us on board to determine whether or not they should do so. what factors should they consider ? 

Which Structure is better ? 

  1. Demand:
    1. What is the size of the demand?
    2. Does the "Made in X" matters to the consumer?  Would it impact their purchasing power (to avoid compromising the consumer satisfaction)
    3. Demand volatility? brand perception?
  2. Supply:
    1. Cost of moving production into location X (investment cost and ongoing costs) vs Status Quo -> are there any cost synergies?
    2. Capacity and lead time (can we meet the demand in a timely manner?)
    3. Quality Control
    4. Supply chain impact: Raw material (Procurement, supplier relationships), manufacturing (availability of technology and labor), Inventory Management, Transportation (Shipping Cost, Transportation time)
  3. Barriers and Risks:
    1. Regulations: Approvals and permits in location X (X =China in this case)
    2. Geo-political Stability, Economy Stability
    3. Language Barriers
    4. Management (local management strategy might not be applicable to how business is done in new location)
    5. Import Penalties and Taxes imposed by local government
    6. etc...

OR 

1- Economics : analyze possible cost synergies 

2- Demand versus Supply : a- Demand Factors (as bucket 1 above) , b- supply factors (as bucket 2 above, ,minus the cost)

3- Barriers and Risks

Which is better?

(edited)

Overview of answers

Upvotes
  • Upvotes
  • Date ascending
  • Date descending
Best answer
Clara
Expert
Content Creator
replied on Jun 16, 2021
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Thanks for the very detailed post, like this is much easier to help out :)

I am glad you ask since I imagine many people wondering the same thing. 

My opinion is that, both structures are, at the end, very similar -praticularly taking into consideration that in the interview we wouldn´t have all this time to brainstorm them and compare them, but we would need to come up with this in 2-3 mins-. 

As long as it´s MECE enaugh, like in this case, and that you can articulate it correctly -since at the end they judge what you say, not what is in the paper-, you are good with both

Hope it helps!

Cheers, 

Clara

Was this answer helpful?
Ian
Expert
Content Creator
replied on Jun 16, 2021
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

Hi there,

So on paper your framework looks great. In reality your framework is not good.

Why?

Your buckets don't answer the question/objective. You are not being objective-driven

Why do we care about Demand/Supply? if there's a lot of demand or there isn't, it literally doesn't affect our decision to move production to China.

You've overcomplicated this...

We have to figure out 1) What are the costs to moving to China (i.e. building new factory, hiring laborers, meeting regulation, setting up supply chains, etc.) and compare it to 2) The total benefits of moving to china i.e. Reduced Annual Costs (labor, land, etc.) + Increased Annual Revenues (more volumes, etc) MINUS Increased Annual Costs (higher distribution costs, tarrifs, etc.)

You could add a 3rd bucket if you like which would be comparing this decision to alternatives (producing elsewhere, investing capital to improve the existing production etc.) AND you could add a 4th bucket to consider the social, political, economic, and environmental stability of China vs the US.

Was this answer helpful?
Adi
Expert
Content Creator
replied on Jun 16, 2021
Accenture, Deloitte | Precision Case Prep | Experienced Interviewer & Career Coach | 15 years professional experience

Good structure. First one is better. 

Was this answer helpful?
Clara gave the best answer

Clara

Content Creator
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut
68
Meetings
22,726
Q&A Upvotes
116
Awards
5.0
57 Reviews