Acting on your recommendation that the retiring purchasing manager be replaced with a more up-to-date Vice President of Global Supply Chain, the CEO hired a new one. The new VP immediately found herself facing an important decision of where to source some components that have traditionally been very high cost, when the factory makes them in-house. Here is the data she is presented with:
- The currency of Country A is called Reds; of Country B is called Greens.
- The currency and forecasted exchange rates are as follows:
- $1 = 2 Reds
- $1 = 2.2 Greens
- The product costs for each of the 5 products from each of the 2 countries are as follows:
- Country A
- Country B
- Product 1
- 10 Reds
- 9 Greens
- Product 2
- 2 Reds
- 2.2 Greens
- Product 3
- 7 Reds
- 4 Greens
- Product 4
- 5 Reds
- 5 Greens
- Product 5
- 4 Reds
- 4.5 Greens
- Because of the different packaging available in the two countries, and the different skill levels in packaging, the parts per container are different between the two countries.
- From Country A, any of the 5 parts will fit 1,000 per container
- from Country B, any of the 5 parts will fit 800 per container
- The ocean freight costs for a 40′ container of any of these products are as follows:
- For Country A, costs are similar to the ocean freight from Brisbane, Australia to the port of New York City.
- for Country B, costs are similar to the ocean freight for a 40′ container from Tokyo, Japan to the port of New York City.
- Estimated 40′ container ocean freight costs can be found by accessing this Web site (www.freight-calculator.com).
- It will take about 10 minutes to fill out an RFQ form.
- If you are unable to get quotes, use these figures: $5,000 for Brisbane; $4,400 for Tokyo.
- Make up a company name.
- Assume you are shipping a 40′ container of nonhazardous household goods.
- Insure the goods for $100,000.
- Use the upper left side of the Web page (1. Ocean Cargo) and the section for 20-/40-foot containers.
Each team member must take 1 of the Products 1-5, and do the following:
- Perform the necessary research and calculations regarding the best source of that product based only on total delivered (landed) cost, which includes the following:
- Product cost from each country, taking the exchange rate into account
- Ocean freight costs per piece, showing the quotes received from the Web site, and taking the differing number of pieces per container into account
- Make a recommendation on which country from which to source that product, and explain your reasoning why.
Please add your file.
The next decision that has to be made is where to assemble Products 1-5. The choices for assembly location are Mexico, Canada, and the factory itself (in the United States). In all 3 cases, assume that the parts arrive from Country A or B, go to the main factory, and then go to Mexico or Canada or stay in-house for assembly.
- List and describe at least 5 different considerations that must be taken into account by the VP of Global Supply Chain as she makes her recommendation for the country of assembly, and explain why each consideration is important.
- Explain what her recommendation should probably be and why.