Reference no: EM133316926

ACM Electronics Component Manufacturer

ACM is an electronics component manufacturer that has been located in Singapore since 2000, supplying original equipment manufacturers (OEMs) with quality components. In the past several years, ACM has experienced increasing pressure from other manufacturers located in other countries. In Singapore, while labor remains quite inexpensive, there has been a relatively steady increase in labor costs. In addition, utility costs most notably water and energy costs have led the firm to contemplate moving operations elsewhere in Asia to make the firm more competitive. ACM remains profitable, but margins have shrunk, and management is interested in ensuring that the firm remains competitive against other component manufacturers in the medium term to long term. A senior management team has formed a committee to reach a decision regarding possible relocation. The committee has identified two additional locations as possible candidates for relocation: Hong Kong (People's Republic of China [PRC]) and Kuching, Malaysia. Hong Kong's main attractions stem from the fact that since 1997, when its sovereignty was transferred back to the PRC, labor costs have decreased as access to labor has increased. Hong Kong enjoys a large seaport and very good transportation infrastructure, and this is important in moving raw materials and moving out finished components to customers.

Presently, the customers are geographically dispersed, making access to a seaport very important in delivering products to customers. Senior management believes that an increasing number of OEMs will move to the PRC in the next several years, as has been the ease in the past decade. This will only increase the attractiveness of locating the manufacturing facility in Hong Kong. Kuching is located in the Malaysian province of Sarawak, on the island of Borneo. It is fourth-largest city in Malaysia and home to a population of around 650,000. Several points make Kuching attractive to the relocation committee. First, locating here would provide access to natural resources and other production inputs. Second, the transportation infrastructure is good, and the city hosts a deep seaport for moving raw materials in and finished goods out. That said, the port is not as large or accessible as those of Hong Kong or Singapore, and several committee members have expressed concern about the frequency of ship visit to Kuching. If the port does not receive regular service from container ships, transportation costs to ship component to OEMs will increase. Finally, another selling point is that labor is relatively stable and inexpensive in Malaysia.

The committee has contacted the government of Singapore to elicit possible incentives to not relocate to another country. Singapore is offering a 5-year exemption on taxes for ACM if the plant remains in Singapore.

The government will also assist by partially subsidizing labor, water, and energy costs for 5 years. Committee members realize that the Singapore plant, which has been operating for years, has already been amortized, and opening a new plant would require additional capital costs. That said, opening a new factory would also provide an opportunity to upgrade production equipment to more productive and energy efficient alternatives.

Extracted from: (Heizer and Render, 2018)

QUESTION 1

1. With reference to the case study provided, evaluate each of the potential locations that ACM can be considered.

2. Given your extensive knowledge in operations management examine the other essential variables that are not mentioned in the case study that might play an important role in the committee's decision in selecting an ideal location.

3. Considering that this is a long term, strategic decision, discuss the factors that might change in the next 10 to 20 years and how the possibility of such changes influences the decision.

QUESTION 2

As a competent operations manager, you have been requested to provide recommendations citing options that can be incorporated in the retail sector that are aimed at ensuring that the balance between demand and supply is properly managed. Make use of relevant examples to support your answer.