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Susan Donaldson created the custom manufacturing department of Eddie Bauer to offer consumers the ability to make their own custom three$-$panel messenger bags. Instead of following the standard strategy of manufacturing in Asia, Susan set up Eddie Bauer in Tacoma with its own facility. But is this the best strategy? Should Eddie Bauer consider moving production to Turkey?

The image at righte displays a screenshot from Eddie Bauer's online retailing website that allows customers to customize their messenger bag to their own particular tastes. A customer can select one color for each of the three panels and a different color, if they want, for the Eddie Bauer "spiral" logo$.$ The color options change over time to keep things "fresh," but at any one time, Eddie Bauer generally offers at least $16$ options for each panel and the logo$.$

Once customized, Eddie Bauer manufactures the bag in Tacoma and then ships the bag to the customer within two to three days. Eddie Bauer sells bags through its online store for about $$100$ per bag. Although it would love to sell bags only through its website and to sell many more of them, the market for custom bags at this price point is only so big. So Eddie Bauer sells bags through other channels as well. For example, retailers such as REI purchase a limited selection of bags to sell in their stores. While Eddie Bauer appreciates sales through this wholesale channel, they don't generate the same revenue per bag as the online channel$-$ more like S$35$ per bag. Even though the wholesale bags generally do not involve nearly the same level of customization as the online bags $($i$.$e$.,$ retailers tend to select more conservative color combinations$),$ those bags are made on the same production line as the online bags. However, the promised lead time to wholesale customers is longer, more like two to three weeks.

The decision as to whether to send production to Turkey involves a number of issues.

Figure $1$ provides a cost comparison between production in Tacoma and in Turkey.

Table contains problem data included in the problem narrative.

Component Cost

Tacoma

Turkey

Notes:

Component Cost

Hourly Wage

Labor Content

Materials

Other Mfg Expenses

Shipment to Tacoma

Tacoma

$$13\mathrm{.}25$

$49$ minutes

$$13$

$$1\mathrm{.}50$

$$0$

$$3$

Turkey

$$2\mathrm{.}25$

$63$ minutes

$$13$

$\frac{\text{\$}}{0\mathrm{.}75}$

$$1$

$$3$

Notes:

Includes fringes

Incl. Insurance, maintenance, warranty, theft losses

Ocean Container shipment. Airfreight is $$14$ per bag

Shipment from Tacoma to customers

There is a dramatic difference in labor costs on a per$-$hour basis, but the workers in Tacoma are slightly more productive $($they require $49$ minutes per bag instead of $63$ minutes$).$ Material costs do not differ between the two options because, in both cases, materials are procured in Turkey. It costs $$1$ per bag to send it from Turkey via ocean carrier, but the lead time is probably eight weeks when all of the steps are accounted for $($e$.$g$.,$ production, movement to the port, and actual shipping$).$ To get a faster lead time, it would require air shipments, but that is much more expensive at $$14$ per bag.

Of course, Figure $1$ doesn't tell the entire story. There would be costs associated with finding a good supplier and monitoring that supplier. And it isn't clear how Eddie Bauer's customers would react to the move$-$ from its start, Eddie Bauer emphasized with pride that it was made in Tacoma. Does moving production to Turkey eliminate part of the brand's cache with customers?

Questions:

What is the total cost of making a bag in Tacoma? What is the total cost of making a bag in Turkey, including the transportation cost of shipping the bag from Turkey to the United States?

Suppose Eddie Bauer does move production of wholesale bags to Turkey. Let's say it can place orders with its Turkish supplier every four weeks; that is$,$ one period equals four weeks. Its lead time is two periods; that is$,L=2.$ The average demand for one type of wholesale bag is $200$ bags per period $($i$.$e$.,$ they sell, on average, $200$ bags every four weeks$),$ with a standard deviation of $100$ bags. The holding cost for each bag each period is $$1\mathrm{.}00,$ and it would operate with a $2\mathrm{.}5$ safety factor. How much inventory on average, would it have on order and on hand? What would be the inventory holding cost per bag?

Should it move the production of custom bags to Turkey? Should it move the production of wholesale bags to Turkey? Make an answer to these two questions, using both quantitative and qualitat