A multi-period mixed integer programming model for the problem of relocating a global manufacturing facility

Abstract

In the recent years, changing business conditions have triggered labor-intensive global manufacturers to consider relocating out of the Pearl River Delta of China, known as “The World's Factory.” This article presents a multi-period mixed integer programming model for the problem of relocating a global manufacturing facility. The objective function of the model is to maximize total after-tax profit. The model addresses dynamic aspects of timing, including potential developments in business factors and the need for a gradual capacity transfer in order not to disrupt supply chain activities. The model application generates an optimal capacity transfer schedule and forecasts after-tax profits. In general, a stable exchange rate for the Chinese currency, renminbi (RMB), would make lower-cost areas of China more competitive. Also, a dramatic RMB appreciation would enhance the comparative advantage of Asian lower-cost countries. A rapid increase in oil prices would make locations near major markets more favorable in order to avoid high transportation costs.