Using a total landed cost model to foster global logistics strategy in the electronics industry

Abstract

Global operation strategies have been widely used in the last several decades as many companies and industries have taken advantage of lower production costs. However, in choosing a location, companies often only consider labor cost and, as a result, overall costs may not be reduced. What other costs besides labor should be considered in locating a global facility? This research examines sourcing, manufacturing and distribution costs and develops a total landed cost model for global operations. We use this total landed cost model to estimate the total cost from raw material to the customer for one sample company operation, Tyco Electronics, across multiple manufacturing and customer countries. This total landed cost model was used to analyze the cost for each manufacturing location, customer, and mode of transportation as well as predict the effect from risks and uncertainties in global supply chain.