Move Production To Location X Case

Question

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 ?

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?
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)
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?

Answer 1

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

Answer 2

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.

Answer 3

Good structure. First one is better.