Question

1. Suggest 4 products that benefit from increased time and place value due to superior logistics. Explain your rationale clearly for the four products.

2. Suppose that an apparel business is to find out if domestic (Texas) or foreign (Taiwan) production is least expensive based on the total of production and distribution costs that must be computed from the source point to the marketplace (Chicago) for 100,000 shirts/year. The cost figures are as follows:

Texas: materials + production cost/unit: $8/shirt; transportation and storage cost: $5/cwt (i.e., hundredweight) (each packaged shirt weighs 1 pound) Taiwan: materials (1 pound/shirt) shipping cost: $2/cwt from Texas; materials +production cost: $7/shirt; import duty: $1/shirt; transportation and storage cost: $6/cwt Which is the preferred option?

What additional considerations might be relevant before making a final decision?

Answer 1

1

Increased time in logistics is often considered a negative trait. However, if the logistical system has a superior quality then some products may take advantage of the quality of logistics over the time. Such products are usually non-perishable in nature

• Wines/alcoholic products: These are non-perishable and requires careful transportation. However they do not require quick logistic.
• Precious metal/jewels: These products benefit from a superior logistics rather than quick logistic service.
• Electronics: These products requires careful and superior logistics services and the time of logistics is not very important.
• Chemicals: Chemical products requires careful transportation. As a result they benefit from a superior logistics service.

2

Between the two options we can see that the material + production cost at Texas is $8 per shirt and at Taiwan is $7 + $1 (import duty) = $8 per shirt. Thus the material + production cost are the same.

Now when it comes to transportation and storage cost, we can clearly see that Taiwan is higher $6 over $5 at Texas. In addition there is additional shipping cost involved when Taiwan is used as the production place.

Overall, considering the cost of the two option, Texas should be the preferred location. In addition to cost, the company should also look at quality and ethical implications of outsourcing the business.