“Are we ready for an automotive plant”

Decision Analysis Using SMART

By:

Bunga Badzlina 2171001031

Davin Ega Merpati 2171001006
Deffry Berliyansyah 2171001021
Dennis Dwi Prayoga 2171001014
Didit Rahardi 2161001012
Step 1: Identify The Decision Maker
In this case, the problem is determining a new site for a new manufacturing plant. The
decision maker is the automotive company.

Step 2: Identify Alternative Course of Action

In this case, there are 4 alternative locations:

1. Detroit, Michigan

2. Norfolk, Virginia

3. Louisville, Kentucky

4. McAllen, Texas

Step 3: Identify The Attributes

 Cost
Labor cost
Based on the 2007 and 2008 labor cost data, we can calculate the average labor
cost for all occupation and manufacture industry in the potential locations.
 Average Labor Cost (2007/2008)

Manufacturing All
Location Industry Occupations
McAllen, Texas 26.170 28.280
Detroit, Michigan 47.755 46.555
Norfolk, Virginia 38.770 38.070
Louisville,
Kentucky 40.115 38.165

Based on the table above, McAllen, Texas has the lowest labor cost compared
with other potential locations.

 Benefit
Union Activity
Union activity is also important because it consists of many issues such as
wages, layoffs, lifetime health care and pensions. High union activities were
seen as the partial cause of the failure.

Average Union Activity (2007/2008)

Per Cent
Location Total Employed Employed
McAllen, Texas 9.945 5,125 %
Detroit, Michigan 4.141 19,625 %
Norfolk, Virginia 3.550 4,4 %
Louisville,
Kentucky 1.719 9,6 %

As we can see, Detroit, Michigan has the highest union activity while Norfolk,
Virginia has the lowest union activity compared to other potential locations,

Financial Incentive
Financial incentive was considered a critical factor for automakers deciding on a
new location or expansion. It included tax abatement, credit and exemption,
financing, contribution, job screening, recruitment and training. Job screening,
hiring and recruitment involved the selection of qualified employees and
accessibility to the facility and to a training program.
 Location Incentives ($Million)
McAllen, Texas 166
Detroit, Michigan 256
Norfolk, Virginia 113
Louisville,
Kentucky 145

Based on the table above, Detroit, Michigan offers the highest financial
incentives compared to other potential locations.

Workforce Availability
In most automotive companies, the availability of highly educated experienced
workers was not as vital as basic skilled workers.

Average Workforce Availability (2007/2008)

Manufacturing All
Location Industry Occupations
McAllen, Texas 7.615 214.500
Detroit, Michigan 74.385 1.934.065
Norfolk, Virginia 34.230 754.695
Louisville,
Kentucky 27.315 613.205

Based on the table above, Detroit, Michigan has the highest workforce
availability compared to other potential locations.

Supplier Availability
The availability and proximity of qualified suppliers affected the efficiency of
market-driven reaction and transportation cost. Transportation cost was the
single largest variable cost in the automotive business: it included the cost paid
for delivering the raw materials, component level parts and sub-assembled parts
needed for production. The ideal location of an assembly plant was dependent
on the availability of qualified suppliers.
 Location Number of Firms
McAllen, Texas 31
Detroit, Michigan 1630
Norfolk, Virginia 104
Louisville,
Kentucky 179

Also, based on the table above, Detroit, Michigan has the highest number of
supplier compared to the other potential locations.

Living Cost
The living cost significantly influenced automakers' decisions when choosing a
site, as it demonstrated the living quality and buying power for the future
employees. If a hosting city did not have a reasonable living cost and higher
quality of life, its overall attraction could be lost instantly.

Location Overral Living Cost

McAllen, Texas 80
Detroit, Michigan 73
Norfolk, Virginia 96
Louisville,
Kentucky 78

Based on the table above, Detroit, Michigan has the lowest cost for living
compared to the other potential locations.
Step 4: Assign Value to Attributes

If value of all attributes is converted to range [0, 100] then:

Union Living
Location Activity Incentive Workforce Supplier Cost
McAllen, Texas 80 70 40 20 80
Detroit, Michigan 50 100 100 100 60
Norfolk, Virginia 100 40 80 50 100
Louisville,
Kentucky 70 60 70 70 70

Step 5: Determining Weight of the Attributes

Original Normalized
Attributes Weight Weight
Incentives 90 0,36
Living Cost 70 0,28
Union Activity 50 0,20
Supplier 30 0,12
Workforce 10 0,04
Total 250 1
Step 6: Calculating Aggregate of Weighted Value

Union Living
Incentive Workforce Supplier
Location Activity Cost Aggregate
(0,36) (0,12) (0,04)
(0,20) (0,28)
50 70 40 20 80
McAllen, Texas 63,2
(10) (25,2) (4,8) (0,8) (22,4)
80 100 100 100 60
Detroit, Michigan 84,8
(10) (36) (12) (4) (16,8)
100 40 80 50 100
Norfolk, Virginia 74
(20) (14,4) (9,6) (2) (28)
Louisville, 70 60 70 60 70
66
Kentucky (14) (21,6) (8,4) (2,4) (19,6)

Step 7: Provisional Decision: Trading Benefit vs Cost

Total Aggregated
Location Cost ($) benefit
A McAllen, Texas 28.280 63,2
B Detroit, Michigan 46.555 84,8
C Norfolk, Virginia 38.070 74
D Louisville,
66
Kentucky 38.165

90
80
70
Aggregated benefit

60
50
40
30
20
10
0
46.555 38.165 38.070 28.280
Total
Cost ($)
If the owner has difficulty in comparing the weight for both benefit & cost

A C
28.280 63,2 38.070 74
B 46.555 8.485 10.8
84,8 785,6/point
C 38.070 9.790 10.8
74 906,5/point

Decision maker compares B & C:

• If his extra value point < $ 785,6  Norfolk, Virginia

• If his extra value point ≥ $ 785,6  Detroit, Michigan

Decision maker compares C & A:

• If his extra value point < $ 906,5  McAllen, Texas

• If his extra value point ≥ $ 906,5  Norfolk, Virginia

Step 8: Sensitivity Analysis

Union Living Aggregate

Incentive Workforce Supplier
Location Activity Cost of Weighted
(0,36) (0,12) (0,04)
(0,20) (0,28) Value
50 70 40 20 80
McAllen, Texas 63,2
(10) (25,2) (4,8) (0,8) (22,4)
80 100 100 100 60
Detroit, Michigan 84,8
(10) (36) (12) (4) (16,8)
100 40 80 50 100
Norfolk, Virginia 74
(20) (14,4) (9,6) (2) (28)
Louisville, 70 60 70 60 70
66
Kentucky (14) (21,6) (8,4) (2,4) (19,6)

Aggregate
Union Incentive Workforce Supplier Living
Location of Weighted
Activity (0) (0,36) (0,12) (0,04) Cost (0)
Value
50 70 40 20 80
McAllen, Texas 30,8
(0) (25,2) (4,8) (0,8) (0)
80 100 100 100 60
Detroit, Michigan 52
(0) (36) (12) (4) (0)
100 40 80 50 100
Norfolk, Virginia 26
(0) (14,4) (9,6) (2) (0)
Louisville, 70 60 70 60 70
32,4
Kentucky (0) (21,6) (8,4) (2,4) (0)
 Union Living Aggregate
Incentive Workforce Supplier
Location Activity Cost of Weighted
(0,36) (0,12) (0,04)
(0,20) (0,28) Value
50 70 40 20 80
McAllen, Texas 63,2
(10) (25,2) (4,8) (0,8) (22,4)
80 100 100 100 60
Detroit, Michigan 84,8
(10) (36) (12) (4) (16,8)
100 40 80 50 100
Norfolk, Virginia 74
(20) (14,4) (9,6) (2) (28)
Louisville, 70 60 70 60 70
66
Kentucky (14) (21,6) (8,4) (2,4) (19,6)

Union Living Aggregate

Incentive Workforce Supplier
Location Activity Cost of Weighted
(0,36) (0) (0,04)
(0,20) (0,28) Value
50 70 40 20 80
McAllen, Texas 58,4
(10) (25,2) (0) (0,8) (22,4)
80 100 100 100 60
Detroit, Michigan 72,8
(10) (36) (0) (4) (16,8)
100 40 80 50 100
Norfolk, Virginia 64,4
(20) (14,4) (0) (2) (28)
Louisville, 70 60 70 60 70
57,6
Kentucky (14) (21,6) (0) (2,4) (19,6)

Aggregate of
Aggregate of Aggregate of
Weighted Value
Location Weighted Value Weighted Value
(Union Activity
(Workforce 0) (Original)
& Living Cost 0)
McAllen, Texas 30,8 58,4 63,2
Detroit, Michigan 52 72,8 84,8
Norfolk, Virginia 26 64,4 74
Louisville,
32,4 57,6 66
Kentucky
Conclusions
Optimum selection of the automotive plant is crucial for the company’s growth.
Therefore, many factors already accounted to determine the new location for an
automotive plant.

Based on the data above, we can see the most of the location is quite stable. But, the
key to determine the best possible location is labor cost. And somehow workforce
doesn’t play a big role in determining the best solution in this statistically research.

So, based on labor cost alone, McAllen, Texas is best possible solution. But, with
benefit factor included, Detroit, Michigan become best of two possible solutions
because it excels in many factors even though the labor cost there is pretty high.