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P3 IP1 - Essay Example

INTRODUCTION AutoEdge is a leading supplier of the engines and transmission parts to the leading auto-manufacturer of the USA. Established in 1976, the company has long history of well established brand which contributes in the purchase decision of the auto-buyers. Five years back decision of the company to shift the production to South Korea for cost advantage has now called for the revision as the products have failed to clear the quality test. The company’s is now available with the option to move back the production to USA. Therefore, underlying report is an assessment of the short and long term fixed and variable cost in case of shifting the production, cost and financial risks to stakeholders to be borne in case of continuing operations in South Korea. DATA COLLECTION SOURCE Businesses are affected by combination of costs (Arnold, 2008; Mankiw, 2009). Understanding of impact of these costs on taking back manufacturing from South Korea to USA is necessary. SHORT RUN LONG RUN FIXED Opportunity cost, sunk cost, rent, utilities, net change in costs due to regulation difference of both countries Infrastructure and facilities cost (in USA after establishment) VARIABLE Setup cost, transportation and inventory cost, union, labor productivity, overtime cost, production network expertise Direct labor, overhead, union, operations cost, technology, quality management, All these cost have been identified from general economic perspectives. Related information is taken from the various sources

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defining the working habits of the South Korean market and the USA market (Kramer, 2013). DISCUSSION OF FINDINGS Moving back to USA will require assessing the above mentioned factors. For instance, according to the research the workers in South Korea are more productive nearly 14% than USA workers. Hence, the cost of direct labor is expected to increase. Men in South Korea can be regarded as stronger as compared to USA as men in SK are trained for two months which have positive impact on productivity (Kramer, 2013). Also in South Korea there can be high parity of salaries which also offers competitive advantage over labor. Contrary, it is also noticeable that daily grocery expense in South Korea is much higher than that of USA and so the major portion of labors’ earning is expected to contribute to food requirement. In such case, the direct labor cost is expected to undergo much variation in USA as the daily expenses are lower and will provide labors an opportunity to enhance their standard of living which will have incremental effect on the labor cost. This dominant impact will, however, will have nullifying impact from the savings in terms of saving from transportation, technological safety from leakages, closeness with actual market, expected ease on regulation such as taxes by the government in order to increase the contribution in jobs from the manufacturing sectors. Hence, benefits in the long run are much more than short term cost pressures that will rise from shift. Staying in SK will have short term positive implications in terms of saving but long term cost will be much higher. It will not only affect the market share but heavy loss to brand name will require much more cost to revive. The associated features of AutoEdge brand being quality, dependability, and reliable products are already at stake. Despite fact that production in SK has also provided Auto Edge with the profitability in past five years, the outsourced product


AUTOEDGE CASE STUDY ABSTRACT AutoEdge is a supplier of engineers and transmission parts in USA which has in recent past shifted its production to the South Korean market for the cost advantage. After five years of profits, the company’s product has reached to the point where it is not meeting the desired quality standards…
P3 IP1
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