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Fuyao Glass America is a China-based automotive glass producer. It decided to expand its business to the United States. The company must decide on how to fulfill its business contracts. Should it utilize its new factory in Ohio or outsource to its factory in Tianjin, China?
Harvard Business Review (618007-PDF-ENG)
August 10, 2017
Case questions answered:
- 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.
- What are the risks and opportunities in the factors considered for sourcing?
- Would you consider shipping plate glass from China to the Moraine plant to reduce raw material costs? Why or why not?
- If you were Wen Li, which of the two sourcing options would you recommend to Cho? Justify your answer in detail.
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Fuyao Glass America: Sourcing Decision Case Answers
1. If the delivery of windshields will begin three years from now, compare the cost of production and delivery of windshields from the Tianjin and Moraine plants of Fuyao Glass America.
The bill of materials cost comparison between The Tianjin factory and Moraine Ohio factory of Fuyao Glass America are as follows:
The total costs of the Moraine and Tianjin factories are $51.07 and $42.55, respectively. The major contribution to the costs of the Moraine factory is raw materials (44.7%), Labour costs (10.57%), SG&A, and Depreciation.
On the other hand, the high-cost contributors for the Tianjin facility are Packaging & Transportation (34.5%) and raw materials (31.2%). The total cost of the Moraine factory is greater than the Tianjin factory due to high raw material, labor, and SG&A expenses.
The packaging and transportation expenses for the Tianjin factory are higher due to its location in China with high shipping costs. Moreover, since the Tianjin factory is already established with the old assets recently replenished, its cost is also increasing.
The Ohio facility’s raw materials cost is higher due to increased input costs of the glass and other put-ins.
2. What are the risks and opportunities in the factors considered for sourcing?
The risks and opportunities in the factors considered for sourcing in each factory of Fuyao Glass America are:
- The wage-earners are equipped with re-working skills which improved yield by 2%.
- Trade restrictions can have a significant impact on imports from China.
- The Tianjin factory is already established, with production being run continuously (an increase of 13% in productivity in 1.5 years), so it is way ahead of the learning curve.
- Implementation of newer technology will lead to
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MBA student, Boston