Electrolux, a French company is planning to move the assembly of its refrigerator from France to Mexico.
Question:
Electrolux, a French company is planning to move the assembly of its refrigerator from France to Mexico. It takes 3 hours of labor to assemble a refrigerator both in France and Mexico.
Hourly labor rate in France is $ 25. The hourly labor rate in Mexico is $ 5. Holding cost in France per refrigerator per week is $2. In Mexico it is $ 1.5. In France, orders are placed with the factory weekly with lead time of 3 weeks. In Mexico, orders are placed with the factory weekly with lead time of 15 weeks. Weekly demand is 400 refrigerators with standard deviation of 100. It operates with in stock probability of 0.99 . ( z = 2.33)
What would be the change in total holding and labor cost per refrigerator by moving the assembly from France to Mexico. Show all formulas, calculations and results.