A large CPG manufacturer initiated a network study to optimize its manufacturing network to determine where to add a line to make a new product. The company had an existing plant in the U.S. it could expand and was considering new locations for the line in either in Mexico or Panama. The costs for the three scenarios are shown in Figure 7.2. The fixed cost for the new line is shown in millions of dollars. The cost of the product, the freight cost, and the duty costs are shown in terms of a cost per unit. The freight cost is the cost to get the product from the production source to the U.S. Distribution Center (DC).

The total demand for the line product is 200,000 units. When the model was run, the 200,000 units were made in Panama. The company was expecting production to stay in the U.S .because of the high transportation cost from Panama. Use the cost data provided to figure out why Panama was picked.

Cost Category Fixed Costs (SMillions) US Plant Mexico Panama $5.00 $3.00 $1.00 Production Cost Per Unit (S/Unit) Plant to US DC Freight Cost (S/Unt)$3.00 Duty Cost (S/Unit) $1.50 $5.00 $0.00 $0.75 $10.00 $1.50 $3.00 $0.00