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In this fictional case study, Ann Reardon, CEO of the Eldora Co. (EDC), has led her organization to become the largest and most profitable bicycle maker in the U.S. market. When her competition was moving its operations overseas because of lower labor costs, she chose to keep EDC's plant on the same campus as corporate headquarters in Boulder, Colorado. She believes that decision has been the primary reason for EDC's success. With the marketing, engineering, and manufacturing staff having easy access to one another, the company has been able to take advantage of the latest technical and stylistic innovations and deliver a more timely product to the retailers. Now, however, the U.S. market is reaching saturation, and the Asian market is nearly doubling annually. EDC's vice president of manufacturing wants Ann to build a new plant in China, but the marketing vice president wants to put a direct sales operation in Asia and outsource production on either a short- or a long-term basis. Manufacturing experts give their views.

Facility location decisions made by many U.S. manufacturers during the past decade yielded disappointing results. These decisions were typically tactical, stop-gap actions that have resulted, at best, in short-lived benefits. Many firms moved manufacturing overseas to obtain a factor cost advantage, only to find that the cost advantage was fleeting, and that the distances the move introduced between manufacturing and other key groups (e.g., customers, suppliers, development, and sales) had constrained their ability to compete. This article explores the impact that facility location has on the critical capabilities that define a company's ability to compete. It discusses the shortcomings of the "tradition" approach to facility location, which ignores the internal workings of the company, and outlines a new capability-centered approach that creates sustainable benefits by fostering the development and growth of the unique set of critical capabilities required by a company's strategy, customers, and competitive environment.

Describes Kodak's decision regarding a manufacturing site for some of its products. Compares several types of products (with different cost structures) and several worldwide locations (with different characteristics). Provides a framework (model) for comparing and evaluating the options. Identifies relevant factors in evaluating manufacturing sourcing decisions and illustrates how the complexities can be addressed and handled effectively.