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Fuyao Glass America Sourcing Decision Case Solution
| Solution Id | Length | Case Author | Case Publisher |
|---|---|---|---|
| 2882 | 1588 Words (8 Pages) | Willy Shih | Harvard Business School : 618007 |
A Word File
Fuyao is known as the biggest supplier for automotive glass all over the world. Recently they have opened a factory in Moraine, Ohio, to offer their services to US-based automakers along the interstate. The Tianjin, facility in China was the most contemporary plus holds the cost of labor which was half of that of Ohio. But it was the opposite when compared to the cost of shipping. Location of the Production has always been the most discussed topic whenever Fuyao ends up bidding on a contract. The Exports from Tianjin made the standard intermodal container. The automotive windshield were packed and sent to the US. The process of loading at the factory to the customs of outbound, the clearance seems to be quite fast. The sourcing decision was quite tricky as both the vicinity were having their own pros and cons, which Wen Li, needs to ponder, considering the profitability of the business too.
Following questions are answered in this case study solution
-
If the delivery of windshields will begin three years from now, compare the cost of production and delivery of windshields from Tianjin and Moraine plants.
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What are the risks and opportunities in the factors considered for sourcing?
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Would you consider shipping plate glass from China to the Moraine plant to reduce raw material costs? Why or why not?
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If you were Wen Li, which of the two sourcing options would you recommend to Cho? Justify your answer in detail.
Case Analysis for Fuyao Glass America Sourcing Decision
1. If the delivery of windshields will begin three years from now, compare the cost of production and delivery of windshields from Tianjin and Moraine plants.
The comparison of the cost of materials among The Tianjin Factory and Moraine Ohio Factory of Fuyao Glass America are discussed below:
The overall cost of the Factories Moraine and Tianjin factories are $51.07 and $42.55, respectively. The main contribution to the cost of Moraine Factory is raw materials (44.7%). Labor cost (10.57%), SG&A and Depreciation.
Parallel to this, the increased cost contributors For Tianjin Facility are Transportation and packaging (34.5%) and raw material (31.2%). The overall cost of the Moraine Factory is higher as compared to Tianjin factory because of the increased raw material, expenses of SG&A, and Labor. The expense of transportation and packaging for Tianjin Factory is increased because of the location in China with the increased cost of shipping. However, since the Tianjin Factory is Already developed with old assets replenished recently, the cost will also be increasing. The cost of raw materials from Ohio Factory is increased because of the increased cost of input of glass and remaining put-ins.
|
Current estimated cost |
Estimated Cost 3 years from now |
|||
|
|
Tianjin |
Moraine |
Tianjin |
Moraine |
|
Raw Materials |
14.01 |
19.90 |
12.74 |
17.32 |
|
Labor |
2.25 |
23.93 |
4.78 |
13.44 |
|
Electricity |
1.45 |
1.58 |
1.52 |
1.38 |
|
Depreciation |
1.45 |
3.17 |
1.48 |
2.24 |
| Other | 0.89 | 1.73 | 0.86 | 1.51 |
|
Manufacturing Cost |
|
|
|
|
|
SG&A |
6 |
8 |
5.7 |
5.66 |
|
Packaging and Transportation |
15.33 |
2.13 |
18.32 |
2.31 |
|
Total |
40.60 |
60.44 |
45.40 |
43.68 |
|
Other Cost Factors |
||||
|
Yield |
0.93 |
0.81 |
0.95 |
0.93 |
|
Output per shift |
780 |
650 |
800 |
800 |
|
Salary per month |
CNY 5000/ month |
$25/hr |
CNY 10,985/month |
$18.56/hr |
|
Working hours per month |
8hr/day, 25 days |
8hr/day, 22 days |
8hr/day, 25 days |
8hr/day. 22 days |
|
No. Of workers per line |
57 |
63 |
7 |
50 |
|
Electricity cost per Kilowatt-hr |
CNY 0.69 |
$0.06 |
CNY 0.69 |
$0.06 |
|
Delivery Cost |
Current Estimated Cost |
Estimated Cost 3 years from now |
||
|
Tianjin |
Moraine |
Tianjin |
Moraine |
|
|
Paper packaging |
2.90 |
0 |
2.90 |
0 |
|
Repackaging Labor |
2.50 |
0 |
5.49 |
0 |
|
Total |
5.4 |
|
8.39 |
|
2. What are the risks and opportunities in the factors considered for sourcing?
Risk and opportunities
1. Moraine Factory
Opportunities: Fuyao can benefit from the newly installed automation in the factory. The company has predicted that with the help of automation, the firm can cut labor to 50 employees per line, thus decreasing the cost of Labor.
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