Cost modeling in the ISC strategic decision process

Thesis (M.B.A.)--Massachusetts Institute of Technology, Sloan School of Management; and, (S.M.)--Massachusetts Institute of Technology, Dept. of Mechanical Engineering; in conjunction with the Leaders for Manufacturing Program at MIT, 2006.This electronic version was submitted by the student author. The certified thesis is available in the Institute Archives and Special Collections.Includes bibliographical references (leaf 55).This thesis is based on an internship at Honeywell Aerospace's Integrated Supply Chain (ISC) Leadership division. This work focuses on the role and use of analytical cost models in the strategy development process. The scope of ISC strategic decisions encompasses Honeywell Aerospace's global footprint of external and internal suppliers, and includes insourcing, outsourcing, transition and consolidation activities. The current practice within Honeywell Aerospace is to construct a Transition, Migration, and Integration (TMI) model which calculates the net present benefit associated with a specific transition's spending and savings. This model is the primary tool for strategic plan development. This work looks at the use of the TMI model for strategic planning with the intent of addressing concerns related to the model's complexity and accuracy. This work also develops the framework for estimating a confidence range within the TMI model to provide better visibility to the potential range of financial outcome. An additional tool used in the development of the strategic plan is the Landed Cost model.(cont.) The Landed Cost model is used to calculate the steady state total cost associated with a particular supply chain. Historically within Honeywell Aerospace ISC planning, the Landed Cost model has been used to much less of a degree than the TMI model. This work develops the role of the Landed Cost model and establishes a framework for estimating labor, logistics, inventory, and tax costs associated with manufacturing products in a variety of global regions. While this work focuses on developing analytical tools, developments and recommendations are provided in the context of the overall strategic decision process. Examples are provided to highlight the major cost drivers associated with a particular transitional activity or supply chain design. Improving the analytical component of the decision process allows ISC Leadership to more accurately and effectively identify tactics for improving operational efficiency and identify potential growth opportunities in emerging regions.by Todd Robinson.S.M.M.B.A