4 Columbia Business School Interviewee: | would look at the existing sites where our client manufactures parts, as well as other areas in the region that may ‘tave low cost propositions, such as Easter European countries that may have cheaper labor costs than Western Europe. Interviewer: Let’s take France as one location since it is the mid-point of the four manufacturing locations and compare it 10 the Czech Republic where labor is significantly less expensive than Western Europe. Interviewee: Well the location in France would incur less cost because the client would already have the landing gears and interior at the facility. and would have to transport the other three parts over a shorter distance. However, the labor costs in France would likely be significantly higher than those in the Czech Republic, Do we have any information about transportation and labor costs in each of these areas? Interviewer: Well. we have determined thai labor accounts for about 70% of the total costs of assembly and transportation accounts for the other 30%. Disregard the other costs such as real estate, etc. Interviewee: Great. Well, since labor accounts for 70% of the cost, let's start there. Do we have any details about how much labor costs in the Czech Republic relative to France? Interviewer: Labor in France is 1.5 times higher than labor in the Czech Republic. What do you think that total transportation costs would be in France relative to the Czech Republic? Interviewee: Since these parts are so large, I would assume that a major part of transportation is actually packing and loading the pieces on a truck. Interviewer: You're right. In fact, the marginal cost of each extra mile transported is close 2ere, The must significant cost incurred ix labor costs assuviuted widh the loading of parts for transportation. Interviewee: I would assume that the landing gears and interior are fairly small and wouldn’t incur as large expenses for loading/unloading compared to the wings or the fuselage. Interviewer: You're right. In fact, the interior and the gears are the easiest to pack of all the four parts and the fuselage is the hardest (most expensive). What would you recommend to our client? Interviewee: Well, I would recommend they assemble the plane in the Czech Republic. Since labor accounts for 70% of the total cost, and the labor in Czech Republic is about 35% less expensive than France, the client would save a significant amount of money, Management Consulting Association Case Book 2007 39