Mexico or China? Managing a Global Network

Mexico or China Case Study
Name
Department
Course
Date
Question 1
* When all products are 100% produced in Mexico:
Labor rates:
Manual & Others = (133.81 + 5.06) x $10.50 = $1458.135
Test A = 83.66 x $11.50 = $962.09
Test B = 26.26 x $16.50 = $433.29
Total Labor Cost = $2853.515
Outbound Lane Rates = 132.2766kg (291.62lbs) x $0.85 = $112.435
Overhead Costs:
Raw Materials = 2% of 23854 = $477.08
Average SGA = 5% of (23854 + 2853.515 + 112.435) = $1340.9975
BOM = $23854
Profit Markup = 8.75% of (23854 + 2853.515 + 112.435 + $1340.9975) = $2464.0829
Total Landed Costs = $23854 + $2853.515 + $112.435 + $477.08 + $1340.9975 + $2464.0829
= $31102.1104
* When % of shipments from China is 100% by sea
Labor rates:
Manual & Others = 138.87 x $6.50 = $902.655
Test A = 83.66 x $7.50 = $627.45
Test B = 26.26 x $18.50 = $485.81
Total Labor Cost = $2015.915
Outbound Lane Rates = 132.2766kg x $0.65 = $85.98
Overhead Costs:
Raw Materials = 2% of $23854 = $477.08
Average SGA = 5% of ($23854 + $2015.915 + $85.98) = $1297.7948
Profit Markup = 8.75% of ($23854 + $2015.915 + $85.98 + $1297.7948) = $2384.6979
VAT = 4% of ($2015.915 + $85.98 + $1297.7948 + $2384.6979) = $231.3755
Total Landed Costs = $23854 + $2015.915 + $85.98 + $1297.7948 + $2384.6979 + $231.3755 + $477.08 = $30346.8432
* When % of shipments from China is 50% by sea
Labor rates:
Manual & Others = 138.87 x $6.50 = $902.655
Test A = 83.66 x $7.50 = $627.45
Test B = 26.26 x $18.50 = $485.81
Total Labor Cost = $2015.915
Outbound Lane Rates:
Sea = (50% of 132.2766kg) x $0.65 = $42.99
Air = (50% of 132.2766kg) x $6.50 + (66.138 x $0.55) = $466.2749
Total Outbound Lane Rates = $509.2649
Overhead Costs:
Raw Materials = 2% of $23854 = $477.08
Average SGA = 5% of ($23854 + $2015.915 + $509.2649) = $1318.959
Profit Markup = 8.75% of ($23854 + $2015.915 + $509.2649 + $1318.959) = $2423.5872
VAT = 4% of ($2015.915 + $509.2649 + $1318.959 + $2423.5872) = $250.709
Total Landed Costs = $23854 + $2015.915 + $509.2649 + $1318.959 + $2423.5872 + $250.709 + $477.08 = $30849.5151
* When % of shipments from China is 0% by sea or 100% by air
Labor rates:
Manual & Others = 138.87 x $6.50 = $902.655
Test A = 83.66 x $7.50 = $627.45
Test B = 26.26 x $18.50 = $485.81
Total Labor Cost = $2015.915
Outbound Lane Rates:
Air = 132.2766kg x $6.50 + (132.2766kg x $0.55) = $932.55
Overhead Costs:
Raw Materials = 2% of $23854 = $477.08
Average SGA = 5% of ($23854 + $2015.915 + $932.55) = $1340.1233
Profit Markup = 8.75% of ($23854 + $2015.915 + $932.55 + $1340.1233) = $2462.4765
VAT = 4% of ($2015.915 + $932.55 + $1340.1233 + $2462.4765) = $270.0426
Total Landed Costs = $23854 + $2015.915 + $932.55 + $1340.1233 + $2462.4765 + $270.0426 + $477.08 = $31352.1874
From the analysis, it can be deduced that there is a tiny difference between the total landed costs. Consequently, the lead time is the most important aspect of the company’s logistic system. While sea transportation is cheaper, it takes at least 25 days for goods to reach the U.S from China plus 7 days of deployment. Air travel is the most efficient transport ...