Production & Operations Management

Effective and Efficient Production & Operations Management

Introduction

When a company exploits the avenue of globalization, the principal intention is to reduce the cost of production (Daniels, Radebaugh, & Sullivan, 2002). Relocating to a foreign country with a better business environment compared to that in the companys mother country can be one of the means of achieving the task. The main intention of any profit-making company is to remain competitive in the market segment in which it engages. In this perspective, the variable that enables companies to attain this objective is the selling price of its goods or services in the market. The firms can meet this goal by minimizing their cost of production, which is the major reason for the relocation of a company to a foreign country. In the context of the task at hand, the main reason the pharmaceutical organization moved to Canada was to reduce the cost of doing business.

However, the enactment of The North American Free Trade Agreement (NAFTA) has changed the dynamics. It is now far much easier to do business in the USA than in Canada if taxes and labor cost are anything to go by. Besides; the trade barriers that existed earlier, which might have made such a move unrealistic have now been removed. Therefore, it will be reasonable enough for the company to move its operations to the USA where the taxation and labor costs are cheaper as compared to Canada. The analysis aims at weighing whether the move is profitable in respect to transport estimates costs and the companys image with regard to the shutting down of its undertakings in Canada.

Transport Costs Estimates

At the heart of relocation is the reality that transport costs will inevitably be incurred. The most common parameters used in estimating the cost of transportation include cost per ton-mile, cost per vehicle-mile, and cost per shipment-mile to name but a few depending on the mode of transport used. Cost per vehicle-mile is the most relevant to the present course since it will mostly involve the use of trucks. The distance between Colorado and Toronto is 1572 miles (Google Maps, 2015). The company will also utilize the services of 7 Axle Triple 28 dry van and Refrigerated Van (5 Axle 48).

Table 1

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Estimates

Configuration	Cost per vehicle mile	Payload (lbs)	Cost per ton mile (cents)	Cost per ton mile distance	Final cost
7 Axle Triple 28(dry van)	$1.34	75,500/ 37.75 ton	4.10 ($1.54775)
Refrigerated Van (5 Axle 48)	$1.17	48,100/ 24.05 ton	5.65 ($1.358825)
Distance (miles)	1572		1572
Estimated cost of dry van	$2106.48			$2433.063	$4539.543
Estimated cost of (refrigerated)	$1839.24			$2136.0729	$3975.3129
Final cost					$8514.8559

It is estimated that a total of 20 vans (10 from each category) are going to be used to bring the cost of transportation to 8514.8559*20=$ 170297.118. Cambridge Systematics, Inc. (1995) guides the above estimates.

Shifting Impact On Companys Image

With the relocation of the company to the USA, many of the employees in Canada will lose their job. One can expect that this action will have an adverse impact on the companys image through the different negative ideologies channeled by the laid off workers. When a company closes its operations in a particular location, lawsuits from the laid-off employees are very common. These lawsuits are usually of indemnity nature as the workers try to get as much compensation as possible due to the loss of employment. They not only damage the image of the company and portray it as if it does not care about its employees but also subject the company to additional court battle costs. In any market, the identity of a company is as important as the quality of the products or services offered. A rational customer will always lean towards organizations with a good name in the market, which is readily associated with proper services or products (Hantula & Wells, 2013). All the variables at play during relocation ought to be taken care of diligently.

Recommendations

Cost of Relocation

The primary costs are the compensation of the employees and the transportation cost. However, with a detailed exchange with the workers, it will be possible to come up with a reasonable fee. It is important that matters relating to employees compensation should be handled carefully to prevent unnecessary court battles. Besides, tendering exercise on transport matters will ensure that the management is in a position to utilize the most economical but able partner. In terms of non-financial cost, the company is going to leave its business niche and distribution channels. Keeping the operations in Canada will mean subjecting the firm to high taxes and higher labor cost.

Benefits of Relocation

The USA provides an avenue with the reduced cost of operation. With lower taxes and better labor cost, moving a firm to the USA will mean more added advantage to the company in terms of more accommodating business environment. If one looks at the annual tax differences and labor costs, relocation to the USA should be paramount. To any profit-seeking firm, an environment with the reduced cost will always be welcomed. In addition, the prime land that the company currently occupies which is worth $7,000,000 is an added asset that can be liquidated, hence helping cater for the relocation costs. There is no luring factor that should make the company consider the remaining in Canada. Moreover, due to that fact that the organization managed to survive in a relatively more demanding environment, maintaining the same strategies in the USA will mean much more success to the company.

12-Month Based Action Plan

In respect to NAFTA regulations and labor costs and taxes in Canada, the most viable decision is to relocate the firm to the USA. With lower labor costs and lower taxes, the company will be more competitive in terms of the retail price of the medicines. It will also have an expanded budget at its disposal that it can use in Research and Development department, aiding it to avail better medicines through increased research undertakings. From the few pointers illustrated above, relocating to the USA seems a profitable action. However, it can only be fully successful if it is carried cautiously and systematically. It demands an elaborate plan that should be one year long to ensure all relevant avenues are thoroughly and well captured making the move well-informed and organized.

Table 2

Relocation Action Plan

Month	Undertakings	Comments
January-February	Market research	This is to ensure that the move rests on research-based information on market dynamics in the USA.
March-April	Analysis	This is to certify the information collected is not only correct but also relevant to the proposed relocation.
May-June	Stakeholders meeting	This is where all the relevant parties will be informed about the proposed relocation exercise. In addition, their views will be addressed accordingly.
July-August	Canadas employee meeting	This is where the matters pertaining compensation will be the dominating issues to ensure a decision is made through comprehensive discussions.
September-October	Tendering exercise	This is the point where different transport companies will be given time to tender their proposals for the company to choose the right partner for this sensitive journey.
November-December	Kick starting of the relocation	This is the point when the relocation plan will officially commence.