Final Exam – Take Home Test

Supply Chain Management 2021-3

Ujian ini dikerjakan secara berkelompok dan terdiri dari 6 studi kasus. Jawab pertanyaan-pertanyaan
yang ada pada setiap studi kasus dengan tepat, baik, dan benar. Jika dibutuhkan perhitungan, tuliskan
cara perhitungannya dengan runut dan tepat (lampirkan file excel yang Anda gunakan di e-campus
untuk perhitungan jika ada).

Ketentuan penulisan:
1. Tidak perlu memakai halaman cover
2. Jawaban dapat ditulis dalam Bahasa Indonesia atau Bahasa Inggris asalkan konsisten
3. Soal tidak perlu ditulis kembali
4. Pastikan Anda menuliskan judul case study dan nomor pertanyaan dengan jelas
5. Format file: .doc atau .docx
6. Nama file: Final Exam – Group XX (contoh: Final Exam – Group 01)
7. Paper size: A4
8. Font type: Trebuchet MS
9. Font size: 12pt
10. Spacing: Before=0; After=0; Line=1.5pts
11. Margin: Top: 3cm; Left (inside): 3cm; Bottom: 2cm; Right (outside): 2cm
12. Header: NIM Anggota Kelompok (contoh: 00420xx0xxxx - 00420xx0xxxx - 00420xx0xxxx -
00420xx0xxxx)
13. Footer: Nomor halaman pada bagian kanan.
14. Pada bagian awal dokumen (judul) tuliskan:

15. Due date pengumpulan: Rabu, 27 Juli 2022 pukul 23.59 WIB.

Page 1 of 14
Case Study 1

Page 2 of 14
Case Study 2

Page 3 of 14
Page 4 of 14
Case Study 3

Page 5 of 14
Case Study 4

Page 6 of 14
Page 7 of 14
Case Study 5

Page 8 of 14
Case Study 6

Polaris Industries Inc.

In September 2010 Suresh Krishna, vice president of operations and integration at Polaris
Industries Inc., a manufacturer of all-terrain vehicles (ATVs), Side-by-Sides, and
snowmobiles, sat in his office in Medina, Minnesota, deliberating the recommendation he was
developing for a new plant to manufacture the company’s Side-by-Side vehicles.

The economic slowdown in the United States had put considerable pressure on Polaris’s profits,
so the company was considering whether it should follow the lead of several of its competitors
and open a facility in a country with lower labor costs. China and Mexico were shortlisted as
possible locations for the new factory, which would be the first Polaris manufacturing facility
located outside the Midwestern United States. By the end of the year Krishna needed to
recommend to CEO Scott Wine and the board of directors whether Polaris should build a new
plant abroad or continue to manufacture in its American facilities.

Polaris industries Inc.

Established in 1954, Polaris was a manufacturer of high-performance motorsport products,

including ATVs, Side-by-Sides, and snowmobiles. With nearly $2 billion in sales in 2010, it
was a strong player in the $10 billion power sports market alongside competitors Yamaha,
Honda, Arctic Cat, Ski-Doo, and Harley Davidson.

Polaris’s customers were primarily located in North America (85 percent); its international
customers were concentrated in Europe. Foreign markets were becoming increasingly
important to Polaris; international revenue had grown 21 percent in 2010, and was forecasted
to grow even more in 2011. Polaris products were sold through 1,500 distributors in the United
States and 1,000 distributors in the rest of the world.

Polaris’s heritage was deeply rooted in the power sports industry. The company introduced its
first snowmobile in the 1950s and its first ATV in 1985. Between 1985 and 2010 Polaris sold
more than two million ATVs. In 1992 Polaris entered the personal watercraft market, but it
lacked a sustainable distribution system and exited the business in 2004. In 1998 the company
introduced the first Side-by-Side off-road vehicle (ORV), which was expected to surpass ATV
sales during 2011. Also in 1998, Polaris entered the parts, accessories, and apparel segment,
which grew significantly over the next decade. Finally, Polaris also introduced its first on-road
vehicle in 1998—a motorcycle with the brand name “Victory”—to compete with Harley
Davidson. Combined, these products were forecasted to bring in $2.2 billion revenue in 2011.
Polaris’s total revenue grew more than 20 percent in 2010 and was expected to grow 8 to 11
percent in 2011.

Polaris was the dominant player in the ORV market based on market share. In 2010 ORVs
accounted for 69 percent of Polaris’s sales, with Side-by-Sides comprising the majority of sales
in this segment. Looking ahead, the company was excited by the potential growth in emerging
markets. From Latin America to Asia, Polaris had begun to invest heavily in marketing to
increase awareness of its brand. For example, in China the company placed off-road image
advertising in racing and extreme sports enthusiast publications. Similarly, in Latin America
Polaris was leveraging its brand in the utility vehicle space to penetrate the substantial
agricultural industries.
Page 9 of 14
Manufacturing

In 2010 all of Polaris’s manufacturing operations were located in the northern Midwest. In
addition to its corporate headquarters in Medina, Minnesota, and product development and
innovation center in Wyoming, Minnesota, Polaris operated three manufacturing facilities in
Roseau, Minnesota; Osceola, Wisconsin; and Spirit Lake, Iowa. Roseau, the birthplace of the
Polaris snowmobile, housed research, development, and manufacturing for the snowmobile,
ATV, and Side-by-Side divisions. Roseau also included a small state-of-the-art injection
molding plant that produced plastic parts for the Roseau and Spirit Lake factories. As demand
grew for ATVs and on-road vehicles, Polaris established an additional manufacturing facility
in 1994 at Spirit Lake. This facility produced select ATV, watercraft, and Victory motorcycle
models. Osceola was primarily an engine and components supplier for the other two facilities.

All other components were sourced through more than 450 global suppliers. In 2010 Polaris
sourced almost 40 percent of its components and materials from outside the United States, up
from 30 percent in 2008. The company was also increasing low-cost country (LCC) sourcing,
almost doubling its LCC spend to approximately 24 percent in 2010.

To support its production capabilities in and around the northern United States, Polaris had
three warehouse facilities in Minnesota for raw materials, export processing, and distribution.
When demand for parts, apparel, and accessories exceeded the company’s warehouse capacity
in 1997, a new distribution center was opened in Vermillion, South Dakota. In addition to its
U.S. locations, Polaris also owned and operated regional sales and distribution centers in
Winnipeg, Canada, and in Northern Europe and Australia.

Redesigning the Supply Chain

Krishna had to consider the tradeoff between manufacturing and transportation costs when
redesigning the supply chain for Side-by-Side products. On one hand, manufacturing in
markets with low labor costs could result in significant savings. Although labor rates in
traditional LCCs such as China were rising, U.S.-based labor was still more costly. On the other
hand, with oil prices rising steadily, Krishna knew transportation costs would be far lower if
he kept production close to customers.

Senior management at Polaris was also concerned about a manufacturing talent gap in the
United States. Over the past twenty years, decreased funding for community colleges and trade
schools had resulted in technical workers becoming increasingly difficult to find. Moreover,
young trade school graduates were less interested in moving to the locations where Polaris
operated, which were small towns with only one large employer. By comparison, well-trained
technical talent was relatively easy to find in many South American and Asian countries.

Lastly, Polaris expected much of its future sales growth would come from overseas markets,
particularly emerging markets. There were multiple ways to enter these markets, including
acquisitions and joint ventures, but building a facility in an emerging market could potentially
help Polaris capture future demand.

Choosing a Manufacturing Location

Page 10 of 14
Krishna and his team considered several options for optimizing the manufacture of Side-by-
Sides and the design of the supply chain. They concluded that the best options were either to
continue production in existing American factories or to build a new plant in China or Mexico.

Beyond the specific pluses and minuses of each location, Krishna needed to consider the
following in making a final decision:

• The majority of demand for Side-by-Sides was in the southern United States. The states
with the highest share of sales volume in 2010 were Texas and California.
• Side-by-Sides were high volume-to-weight/low value-to-weight products, which meant
that shipping costs accounted for a large fraction of their retail price.
• Polaris’s senior management placed a high value on ease of communication with its
manufacturing plants and believed that in-person interaction among managers, design
engineers, and production staff was a key driver of the company’s long-term product
innovation.
• If Polaris moved production of Side-by-Sides abroad, the company planned to lay off
sixty workers at its Roseau plant. Each worker would be paid a one-time severance of
$20,000.
• Polaris assumed that demand for Side-by-Sides would remain flat for the next five
years.

Data on labor costs, production costs, transportation costs, capital expenditures, and exchange
rates for each location are included in Table 15-9 through 15-12.

China

Polaris’s senior executives were excited about the low costs in China, but labor costs had been
rising in the manufacturing-heavy eastern region; over time the company would likely have to
look further inland to find low-cost labor, which would further increase the length and
variability of product transportation. Polaris also had concerns about its ability to successfully
collaborate with a Chinese factory due to time-zone differences and cultural dissimilarities.

Operating a factory in China would require Polaris to hire sixty new employees on location. It
also would result in a one-time charge of $10 million for capital expenditures, equipment
moving costs, and startup costs. Polaris would have to pay a 5 percent tariff on all production
and transportation costs when importing products into the United States.

Page 11 of 14
TABLE 15-9 Labor Cost Assumptions

Monthly Wages Annual Wage Growth (%)

China (CNY) Mexico (MXN) China (CNY) Mexico (MXN)
1999 649.5 2,392.0
2000 729.2 2,910.5 12 22
2001 814.5 3,367.6 12 16
2002 916.8 3,537.5 13 5
2003 1,041.3 3,737.7 14 6
2004 1,169.4 3,858.8 12 3
2005 1,313.1 3,983.8 12 3
2006 1,497.2 4,112.9 14 3
2007 1,740.3 4,246.2 16 3
2008 2,016.0 4,383.7 16 3

United States
Hourly wage $26/hour
Working months/year 12

Side-by-Sides made in China would be transported to the United States on container vessels,
with each container holding twenty-six vehicles. The cost to ship one vehicle to the United
States from China was $190 per unit, or $4,940 per container. Although shipping companies
claimed the containers would reach the United States in about twenty days, in practice shipping
time was highly variable, with a range of nineteen to thirty-three days.

Mexico

Polaris’s senior management saw several qualitative advantages to operating a foreign

manufacturing facility in Monterrey, Mexico. Monterrey was relatively close to the United
States, which would allow for easier in-person collaboration between the manufacturing
facility and Polaris’s staff. In addition to geographical proximity, managers believed cultural
familiarity would make collaborating with a Mexican workforce easy. Lastly, although Polaris
believed that long-term sales growth would come from emerging markets in Asia, it also
believed that near-term growth would occur in the United States—particularly in the southern
United States, an area close to Monterrey.

A factory in Mexico would require hiring sixty new employees, the same as in China. Side-by-
Sides would be shipped to the United States by truck in batches of twenty-six units at an
average cost of $2.30 per mile per batch. Although trucking companies claimed they could
cross the U.S. border and deliver the products in two days, in practice it took between two and
seven days.

Capital expenditures, equipment moving costs, and startup costs for a Mexican factory would
total $9.5 million. Under the provisions of NAFTA (North American Free Trade Agreement),
Polaris would pay no tariffs on imports from Mexico into the United States.

Page 12 of 14
TABLE 15-10 Operating Metrics by Plant Location

Cost per unit

Production cost
U.S. 400 USD
Mexico 4,560 MXN
China 1,950 CNY
Capital expenditures, equipment moving costs, and startup costs (thousands of US$)
U.S. —
Mexico 9,500
China 10,000
Other
Annual demand for Side-by-Sides 14,500 units
Tariff for China import 5%
Transportation cost (US$) from China
Cost per unit 190
Side-by-Side units per container 26
Ground transportation cost (US$)
Cost per mile 2.30
Side-by-Side units per truck 26

Miles to Distribution Center

From Roseau From Monterrey
Tacoma, WA 1,636 2,261
Los Angeles, CA 2,161 1,505
Irving, TX 1,267 437

TABLE 15-11 Demand Assumptions

Distribution Center Location Annual Demand(units)

Tacoma, WA 3,650
Los Angeles, CA 7,050
Irving, TX 3,800

TABLE 15-12 Exchange Rate History

Year CNY/USD MXN/USD

2000 8.28 9.34
2001 8.28 9.66
2002 8.28 10.80

Page 13 of 14
Year CNY/USD MXN/USD
2003 8.28 11.29
2004 9.19 10.90
2005 7.97 10.90
2006 7.61 10.93
2007 6.95 11.16
2008 6.83 13.50
2009 6.77 12.63
2010 6.65 12.40

United States

A third option for Polaris’s senior management was to maintain the status quo for production
of Side-by-Sides without incurring additional costs. Polaris had traditionally been associated
with a strong “Made in America” culture, and management believed that the company’s
employees and customers were proud that all Polaris products were manufactured in the United
States. In addition, the proximity to headquarters and product development facilities enabled
managers to collaborate quickly and easily with design engineers and technical staff in the
manufacturing plants.

Recommending a Solution

As Krishna reviewed the data for each option, he knew he needed to consider qualitative as
well as quantitative factors to find the best solution for Polaris. Should he recommend keeping
production in the United States, or should he recommend siting a new plant in either Mexico
or China?

Page 14 of 14