introduction to Sakai Case Study Polaris Industries Inc: Global Plant Location K
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introduction to Sakai Case Study Polaris Industries Inc: Global Plant Location Kellogg n September 2010 Suresh Krishno, vice president of operations and int and snowmobiles, sat in his office in The economic slowdown in the United States had put egration at Polaris Industries Inc., a considerable pressure on Polaris's profits, so the com- mansfacturer of all-terrain vehicles (ATVs), Side-by-Sides, pany was considering whether it should follow the lead Medina, Minnesota, of several of its competitors and open a facility in a recommendation he was developing for a country with lower labor costs. China and Mexico were to manufacture the company's Side-by-Side shortlisted as possible locations for the now factory which would be the first Polaris manufacturing faclity 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 Polanis should build a new plant abroad or continue to manufac- deliberating the vehidles. (See Exthilbit 1 for pictures of Polaris vehicles.) EXHIBIT 1 Polaris vehicles. ture in its American facilities. POLARIS INDUSTRIES INC. ATV Established in 1954, Polaris was a manufacturer of high- performance motorsport products, including ATVs, Side- by-Sides, and snowmobiles. (See Exhibit 2 for Polaris sales by product.) With nearly $2 billion in sales in 2010, t was a strong player in the $10 bilion power sports market alongside competitors Yamaha, Honda, Arctic Cat, Ski-Doo, and Harley Davidson. Polaris's customers were primarily located in North America (85 percenti its international customers were concentrated in Europe. Foreign markets were becom ing increasingly important to Polaris; international reve nue had grown 21 percent in 2010, and was forecasted to grow even more in 2011. Pojaris products were sold through 1,500 distributors in the United States and 1000 distributors in the rest of the world Polaris's heritage was deeply rooted in the power sports industry. The company introduced its first snowmo- bile in the 1950s and its frest ATV in 1985. Between 198s and 2010 Polaris sold more than two milion 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 expected to surpass ATV sales during 2011. Also in 1998, Polaris entered the parts, accessories, and apparel seg- ment, which grew significantly over the next decade. Finaly, 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. first Side-by-Side off-road vehicle (ORV), which the ob ore similar to ATVs but had a steering customer segments such as farm- Polaris's total revenue grew more than 20 percent in 2010 and was expected to grow 8 to 11 percent in 2011 s, and the metary that p e keon School of to serve as endorsements, sources of primary data ystem, of Professor Sunil Chopra. Coses Mansgement at Northwestern University. This case was prepared by loana Andreas '12, Sigmund hat th hose 12and Benjamin Neuwirth '12 under the supervision be reproduced, stored in a retrieval the wha besis for class discussion. Cases are onie, mechanical, photocopying, recording, or of transmited in any form or by ay of the Kellogg School of Management. Reprinted with permission son is not a legiti ut in the face of in air opponents wals from East Asian was becoming an uifferences inExplanation / Answer
Since manufacturing is the major operation of each company with lot of cost involved. By now Polaris was paying allot more money for manufacturing as compared to final assembly. So by outsourcing this component, they will save a lot more money on labour cost. However it is not possible to outsource all the aspects of the company since it will lose its identity. Manufacturing is more labour intensive than assembling, so company decided to in source final assembly. Mexico would provide Polaris with the greatest cost saving considering its proximity to United States leading to reduced shipping cost and low annual wage growth rate. Although china has the lowest wages per month but it shows great potential for growth. On the basis of one time charge for capital expenditure, equipment moving and start-up cost, the highest cost savings would be from mexico.considering the production cost, Mexico is still ideal for relocation. After adding up transportation cost on production cost it makes relocation to china more expensive. Increase or decrease in foreign exchange rate would directly impact all cost that are based on currencies other than US dollar. Increase in exchange rate would result in reduced production cost per unit. Increased exchange rate in Mexico lead to making dollar more valuable this making relocation more beneficial. But if the exchange rate decline it would mean that Mexican currency has gained more value gains dollar which will lead to increased cost of operation. If this increase does not increase the outsourcing cost more than the cost of manufacturing in United States the outsourcing can be done. Other factors that Suresh Krishna may consider include technology level in the country considering to relocate, shipping cost incurred to transport the parts back to US for assembly, the ability to still control the outsource department, legal restrictions, consumer perception as a result of relocation. So the company should relocate manufacturing to Mexico without compromising in person communication, but if exchange rates rise marginally then desist from relocation.
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