Huksley Maquiladora Essay

1. PROBLEM STATEMENT Huxley Manufacturing Co. is an engineering company and possesses cutting-edge technology in raw material processing and part assembling. The main customer for Huxley is the US defense department. In recent years many factors were changing. Increase in the costs involved for R&D, higher â€Å"knowledge intensity† of defense products and reduced allocation by the federal government as funds towards the defense budget. These changes had made the US defense department move away from the use of sole vendors to more competitive bidding. Price became the most important selection criteria. US firms like Huxley were still the major suppliers; even then purchase from foreign supplier had started. The situation had kindled the idea in Huxley’s management to proceed in search of viable strategic operations to cope with the pricing and at the same time maintain the standards which Huxley had established. Robert Chan, the CEO of Huxley had initiated a plan to assess the advantages in moving the operations of the San Diego plant to Mexico. The team led by Philips has to give a report with detailed analysis. 2. RECOMMENDATIONS 3.1. â€Å"IMPROVE† UNDER THE EXISTING APPROACH: This recommendation insists on retaining the labor intensive operations to the existing plant at San Diego. Though this is not the most effective of the recommendations, with the budgets allocated for defense falling sharply, Huxley can still plan to improve training so that the trained employees are able to cope up with the activities performed. The actual turnover does not happen because the employees are not satisfied with the salaries but the employees feel that they could not master the required job skills. Huxley can increase the duration of the training provided to the employees. The quality of training can also be monitored and it effectiveness increased by intermediate assessment of the quality of work of the employees. This is a viable option for improving in the existing setup. 3.2. â€Å"OUT SOURCE† THE LABOR INTENSIVE ACTIVITIES: As stated, the labor intensive operations are the main focus for Huxley. As a measure to reduce the cost in such activities, the company can as well look into other option like out sourcing such activities to partners within US. This recommendation will remove the overhead of training and employee turnover from Huxley. Under such an operation Huxley can still command the same quality and standards from the out sourced company. Frequent visits from the mangers will also serve the purpose. In case the federal government further reduces the funding for defense activities and the profits for the business become too low Huxley can as well tell the out sourced company to stop the production and still be out of the overhead of reassigning the employees those would have been in the operation. 3.3. ACQUIRE THE COMPANY IN DENVER, COLORADO Purchasing the company in Denver Colorado which is capable of performing the operations similar to the San Diego plant can be another recommendation. It gives Huxley a leverage of being located in the same country. Since the head office of Huxley is in United States, they will be well aware of the laws and regulations of the state. It would be easier to operate another plant in the same country of sale and where the existing company already operates. Huxley can then plan strategic training to lure employees to the plant in Denver and follow employee retention policies to reduce any turnover if it occurs. 3.4. MOVING THE SCC OPERATIONS TO MEXICO Well, the most expected solution which the CEO is interested in would be moving the operations of the San Diego plant to Mexico. Operating in a foreign land is a riskier endeavor. The inter country trade rule can vary and completely change from the most favorable to the least favorable within a short span of time. The operation also needs to be determined based on the availability of projects to keep such an activity going on. The time taken to start and costs associated with the different types of Maquiladora vary widely. Since we anticipate a long term venture, the startup time can be removed from the consideration, but the costs and other several factors such as Labor availability, Transportation cost, Housing for the employees, the quality of the employee employed and the Labor cost involved should be taken as important criterion. Since any kind of operation requires an US manager to be in the Mexican plant, the quality of life of the manager should also be considered. 3.5.1. â€Å"OPTIONS† FOR OPERATING: For Huxley to be operating in Mexico, there are three main modes of operations that can be followed. These include the sub contracting operation, sheltering operation and the wholly owned subsidiary. A detailed comparison can be found in Exhibit 1. Keeping most of the constraints constant for further analysis, the â€Å"Shelter† operation has the most suitable offering for Huxley to start. It gives Huxley control over the quality of the products developed. Also providing the option for converting it into a â€Å"full blown† in Mexico as the company grew, or control could be turned over to the shelter partner to form a contract operation. The major consideration in operating a Maquiladora is the labor cost that is involved. Cheap labor does not mean consistent labor. The availability of quality labor and the turnover rate determine the location of the Maquiladora within the Mexican country. 3.5.2.1. IN A LOCATION NEAR THE BORDER For the location of a Maquiladora, two major factors contribute to the decision. The availability of labor is high in the borders, as is the turnover rate due to inadequate housing options available to the employees and their families. Which means that the cost spent on training is going to high. The high availability of labor reduces the cost of labor involved in the production. The bright side is that the transportation cost would be greatly reduced and the quality of life of the US manager would be better off than being located in the interior. If Huxley wanted to retain the employees, then it has to further invest on the housing options for the employee to bring the turnover rate down. Investing on housing will further increase the production cost of the goods produced as the cost expensed has to be recovered from the products developed. 3.5.2.2. IN AN INTERIOR LOCATION: A location in the interior provides cheap Mexican materials and also cheap labor. While this is an advantage to the operation, the quality of life for the American manager will be much worse than in the border. The roads, facilities and communications might not be as good as they are in the border. On the one hand it reduces the cost of goods sold and the cost of labor, but on the other hand it increase the transportation cost. We anticipate that a load will be shipped every day, five day a week, except for the 8 holidays. The recommendations are good in each having its own merits. The data on the availability of project and the forecasted future are uncertain. These might as well be the deciding factor when in comes to the final decision.