Kiwi Medical Devices Limited

Selecting the best country to locate off-shore manufacturing operations can be a difficult decision owing to the complexities involved in global supply chain operations. The various available options must be carefully evaluated if the desired outcomes are to be successfully achieved. With manufacturing costs in New Zealand on the rise, Kiwi must select a country that offers more competitive costs combined with an acceptable level of risk. Of the four most preferable countries (China, Indonesia, Mexico, and Slovakia), Mexico offers the best location. An important priority for the company as far as reducing its supply chain costs is concerned with locating its manufacturing operations in proximity to its major markets. While headquartered in New Zealand and with strong presence in Asia and Europe, Kiwi's major markets are in North America, which comprises 46% of its overall sales (Fawcett, 2014). Being in North America, Mexico is better compared to the other three countries in terms of not only proximity to the company's major markets, but also costs. Indeed, as explained in the case study, North America offers better costs than New Zealand; and it is much cheaper to transport goods from the North America to Europe than from New Zealand or Europe (Fawcett, 2014). Furthermore, though China and Indonesia offer large markets and more impressive economic indicators compared to Mexico and the relatively small Slovakia, they present market proximity difficulties, more significant cultural differences, greater political risk, and less advanced infrastructural development.

Question 2

It is important for Kiwi to make the right decision with regard to not only the most suitable country, but also the best city for the new manufacturing facility. The company can choose from either a port of entry or an interior city. Each option offers its own merits and demerits. A port of entry provides simpler setup and lesser logistics difficulties, while interior cities offer lower wage rates, a greater and more stable supply of labour, as well as better tax benefits (Fawcett, 2014). Though the advantages of an interior city appear more attractive, a port of entry would be better for the location of the new manufacturing facility given Kiwi's competitive challenge and its strategic goals. From a logistical point of view, it is more prudent to set up a manufacturing facility closer to suppliers (Kalantari, 2013). Though geographically dispersed, Kiwi's suppliers ship products into a port of entry. The company specifically desires to reduce its manufacturing and supply chain costs. Locating the new manufacturing facility at a port of entry is more likely to achieve this objective. Though an interior city may offer abundant labour supply at a lower cost, it would increase supply chain costs as raw materials and finished goods would have to be transported to and from the port on arrival.

Question 3

The complexity of selecting a location for the new manufacturing facility is further complicated by the difficulty of choosing from the various foreign market entry methods. The choice of market entry mode should be guided by factors such as initial investment costs, legal and administrative costs, knowledge of local business conditions, as well as degree of control over the production process. Michelle and her team are considering three options: subcontracting, shelter, or wholly owned subsidiary. Though subcontracting offers a faster and easier mode of entry and eliminates the headache of dealing with manufacturing and logistics operations, higher unit costs may be incurred and the company may have little control over the production process (Fawcett, 2014). This may compromise quality, eventually leading to customer dissatisfaction. In spite of requiring more time to implement, the shelter option would enable the firm retain control over the production process, avoid legal and administration hurdles, and incur lower setup costs (Fawcett, 2014). Establishing a wholly owned subsidiary would offer Kiwi total control over the production process and lower operating costs (Fawcett, 2014). However, forming strong business and political relationships with the locals would be crucial for success. As Kiwi is looking for a long-term solution to its strategic problems, a wholly-owned subsidiary is a much better option compared to subcontracting and the shelter option. This option would place the firm in a better position to setup large-scale operations.

Question 4

An important aspect of consideration when making off-shoring decisions relates to the choice of logistics partners. Logistics is a critical function requiring reliability, efficiency and effectiveness. Having competent logistics partners is essential for ensuring smooth supply chain operations in terms of the movement of raw materials, capital equipment, and finished goods (Branch, 2009). It is important for guaranteeing optimal logistics costs, delivery reliability, customer satisfaction, and business continuity. Though Kiwi has worked with DHL for more than two decades, its decision to invite new players to bid for its logistics business is prudent. First, Kiwi is keen on optimizing its supply chain costs while still maintaining quality. Considering that new players may offer an opportunity to get logistics providers with even more competitive costs at the same level of quality. Furthermore, as the firm desires to establish a new manufacturing facility in a foreign country, it makes more sense to work with local logistics providers. Compared to international providers, local providers tend to be better placed in providing ground support, particularly in terms of liasioning, customs clearance, transport, and cross-docking (Fawcett, 2014). They have better knowledge of the local environment and can therefore provide quicker and more reliable logistics support, further justifying the need for considering more options.

References

Branch, A. (2009). Global supply chain management and international logistics. New York: Routledge.

Fawcett, S. (2014). Kiwi Medical Devices, Ltd.: Is "right shoring" the right response? In. R. Frankel (Ed.), The definitive guide to supply chain best practices. Upper Saddle River, NJ: Pearson Education, pp. 109.121.

Kalantari, A. (2013). Facility location selection for global manufacturing. Theses and Dissertations. Paper 233.