GLM HW1 20141003 Ilma

Global Logistics Management (Fall 2014)
Homework #1
Due: October 3, 2014

Suppose that a manufacturer of men’s shirts can produce a dress shirt in its Houston, Texas plant for $8 per shirt (including the cost of raw materials). Chicago is a major market for 100,000 shirts per year. The shirt is priced at $15 at the Houston plant. Transportation and storage charges from Houston to Chicago amount to $5 per hundredweight (cwt.). Each packaged shirt weighs 1 pound.

As an alternative, the company can have the shirts produced in Taiwan for $4 per shirt (including the cost of raw materials). The raw materials, weighing about 1 pound per shirt, would be shipped from Houston to Taiwan at a cost of $2 per cwt. When the shirts are completed, they are to be shipped directly to Chicago at a transportation and storage cost of $6 per cwt. An import duty of $0.50 per shirt is assessed.

a. From a logistics-production cost standpoint, should the shirts be produced in Taiwan?
b. What additional considerations, other than economic ones, might be considered before making a final decision?

Note: cwt = 100 pounds weight

SOLUTION:

Location
Production Cost / Unit
Transport Houston to Chicago / Unit
Transport Houston to Taiwan / Unit
Transport Taiwan to Chicago / Unit
Import Duty / Unit
Total Prod Cost / Unit
Product Volume / Year
Total Prod Cost / Year
Shirt Price / Unit
Total Price / Year
Profit / Year
Houston
$8
$0.05
0
0
0
$8.05
100000
$805,000
$15
$1,500,000
$695,000
Taiwan
$4
0
$0.02
$0.06
$0.50
$4.58
100000
$458,000
$15
$1,500,000
$1,042,000

Note: hundredweight (cwt) = 100 pounds weight
Each packed shirt weight = 1 pound
Raw material weight per shirt = 1 pound
Unit Product Transport Cost = Product /CWT
Example: $5/100 = $0.05

Following formulas are used:
Total Prod Cost/Unit = Production Cost / Unit + Total All Transport Cost + Import Duty/Unit
Total Production Cost/Year = Product Volume/Year * Total Prod Cost/Unit
Total Price = Product Volume * Shirt