Practice makes perfect: Using the total cost of ownership to teach global locational decision making

In this paper we introduce a three-stage Total Cost of Ownership (TCO) experiential learning exercise. Using data collected from 199 students across eight different semesters, we offer hypotheses grounded in the eclectic theory of international production and in behavioral decision making (System 1 and System 2 thinking) to make recommendations for educators and managers. In part one of the exercise, using System 1 thinking, we asked students to select far-shoring (e.g., China) or near-shoring (e.g., Mexico) as a manufacturing location and provide rationale to support their decision. We found that students selecting far-shoring used resource- and efficiency-seeking criteria while students selecting near-shoring used strategic- and market-based criteria. In addition, we found that students were prone to possible availability bias. We identified demographic factors impacting the decision-making process, and highlighted important variables not utilized by students enabling us to recommend changes in college curriculums. In the second and third parts of the exercise, we asked students to reanalyze their decisions using Total Cost of Ownership (System 2 thinking) and then reflect on their pre and post TCO decisions. Interestingly, though unexpectedly, it was encouraging to see a considerable number of students either willing to change their perspective or provide citations or scholarly support as part of the reflection. Such an experiential learning intervention including reflection and documentation is an important exercise to build current and future supply chain managers who can adapt to a dynamic, complex, and global environment. Our study adds to the literature by demonstrating the role of bias in global sourcing decision making and ways to mitigate for it.