Using a Total Landed Cost Model to Foster Global Logistic Strategy in Electronics Industry

Transcription

1 Using a Total Landed Cost Model to Foster Global Logistic Strategy in Electronics Industry May 25th, 2010 Apichart Jearasatit Master of Engineering Logistics & Supply Chain Management, Overview Current Situation: All products for South America market are produced in Brazil plant. Issue: Brazil plant has high manufacturing cost Challenge Questions: Should Tyco Electronics move the production to other low-labor cost countries? 2 1

2 Overview Brazil Key Questions: Where should Tyco Electronics produce? How much will the cost-saving be? Which modes of transportation should be used? How about the impact of global risks? 3 Overview Scope: 5 Product SKUs 5 Manufacturing countries: Brazil, China, Czech Republic, Mexico, India Objective: Develop a total landed cost model to demonstrate the total supply chain costs for each manufacturing country Benefits: Understand the total supply chain cost from raw material to customer Assist Tyco Electronics make the better decisions in selecting manufacturing location and distribution strategy. 4 2

3 A Total Landed Cost Model Development 5 Tyco Electronics Global Supply Chain Network Cost Bucket: Sourcing costs: Transportation costs Manufacturing costs Inventory costs Warehouse costs Taxes and duties 6 3

4 The Total Landed Cost Input Dashboard 7 The Total Landed Cost Output Dashboard 8 4

5 Analysis & Result 9 Sample Scenario Product A Demand data: Demand: 600,000 pieces Coefficient of Variation: 1.0 Customer country: Brazil Weight: 3 grams Customer service level: 95% Transportation: 80% by ocean 20% by air 10 5

6 Where should Tyco Electronics produce? Total landed costs and Lead time Result: $24.05 $ % 9% 11% 5% China has the lowest landed cost. 12 % cost reduction 2 $ $ $ days lead time Mexico is also a potential production plant. Brazil China Mexico Czech India Total landed costs ($/pieces) Lead time (days) 9 % cost reduction Cost Breakdown Brazil China Mexico Czech India Raw material 56% 64% 60% 49% 71% Manufacturing 36% 15% 22% 28% 10% Transportation 0% 5% 3% 3% 4% Warehouse 0% 1% 1% 2% 1% Inventory 8% 9% 8% 11% 9% Imported Taxes 0% 6% 7% 7% 6% 32 days lead time 11 Which mode of transportation should be used? Result: - The ocean transportation offers lower landed cost than air transportation Reasons: Electronics product has low value comparing with its weight - Increasing transportation cost > Saving from lower inventory level Sensitivity Analysis to Demand Coefficient of Variation Cost ($/piece) $30.00 $25.00 $20.00 $15.00 $10.00 Comparison of Air vs Ocean Transportation Ocean Air Rare Result: - At demand coefficient of variation > 4.3 Air transportation should be used $5.00 $ Demand Coefficient of Variation 12 6

7 How about the impact of global supply chain risks? 13 Risks in Global supply chain $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $- The impact of 100 % increased labor cost to the landed cost +41% +29% $ % $ % +15% $28.57 $25.93 $25.30 $24.61 $24.05 $21.10 $21.93 $21.34 Brazil China Mexico Czech India 100 % increased labor cost Result: The total landed cost increases around 30% Current 100% Labor cost increase $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 The impact of 100% increased oil price to total landed cost +3% +4% +8% +5% +7% $26.16 $24.94 $25.30 $24.05 $22.76 $23.05 $22.87 $21.93 $21.10 $21.34 Brazil China Mexico Czech India 100 % increased oil price Result: The total landed cost increases around 6% Current 100% increase in oil 14 7

8 When should Tyco Electronics move production back to Brazil? 15 When should Tyco Electronics move the production back? Cost ($/piece) $35.00 $30.00 $25.00 Compare labor cost between Brazil and China Brazil China $ % $ Percentage of Increasing Labor cost (Percentage) The Switching point is 59% 16 8

9 When should Tyco Electronics move the production back? Cost ($/piece) Compare transportation cost Brazil vs China $30.00 China $25.00 Brazil $ % $ Increasing oil price (Percentage) The Switching point is 325% 17 Conclusion Suggestion to Tyco Electronics: Product A should be produced at China or Mexico Ocean transportation offers lower total landed cost than air transportation Increasing Labor cost should be concerned Total Landed Cost model Summary: A total landed cost model can assist businesses to make a better decision on selecting manufacturing locations and distribution strategies 18 9

10 THANK YOU QUESTIONS? 19 10