Your firm is one of the last remaining manufacturers of bicycles in the United S

Question

Your firm is one of the last remaining manufacturers of bicycles in the United States. Z-Mart is a U.S. retail chain with nearly 1,000 stores in fifteen countries. Z-Mart has asked you to prepare a proposal for a large number of bicycles to be sold at discount prices under the Z-Mart brand name. They must have a U.S. retail price of no more than $100. Z-Mart would also like to sell these bikes through its stores in France and Italy in order to compete with the European bikes made in that market. What factors would be taken into consideration in determining whether to assemble the finished bicycles in the United States, Taiwan, or the Philippines?

Explanation / Answer

Following steps followed while deciding on the bike final assembly location:

Step 1: Make or Buy decision using fixed cost and variable cost calculate breakeven point for a given demand

Step 2: If we decide to set up our own, we need to compare three locations on various parameters Cost of setting up own facility in the US, Taiwan and the Philippines such as fixed cost and variable cost

Step 3: Calculate Total Cost of Ownership (TCO) for all the three locations

Step 4: Use scoring model to calculate the overall scores for all three locations

Step 5: Choose the best one as the location.

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