What affects where you set-up shop:

• Costs + size of market
• Auto industry example:
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Foreign automakers have established numerous manufacturing facilities in the United States for several strategic reasons:

Think of the CHIPs Act as an incentive in which the gov is paying a portion of someone’s cost. That’s how we can think of subsidies.

• Strategy must incorporate the structure and that will affect the margins and financials

Dealing w/ uncertainty

• Safety Inventory = Service level + replenishment lead time + uncertainty
• Zara
• B/c Zara matches demand better it sells 85% of products at full price vs. 60% for the rest, so the transportation costs are offset.
• When is speed valuable?
• Polo vs. Zara: Polo is a stable + predictable creating a low uncertainty product which increases demand predictability. Speed requires responsiveness and being able to meet the uncertain moment (and there’s a perishability)
• Zara wants churn and uncertainty
• How do we reduce uncertainty?
• When I pool, my inventory at the store decreases but that lowers my responsiveness so i have to pay more