OPERATIONS MANAGEMENT LL PACKAGE
11th Edition
ISBN: 9781323592632
Author: KRAJEWSKI
Publisher: Pearson Custom Publishing
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Chapter 14, Problem 7P
A
Summary Introduction
Interpretation: The best selector to be selected, if there is a low demand for the new service of the company, for the moderate demand, and for the high demand assumptions.
Concept Introduction: The Company receives orders from the customers online, and then the company assembles and delivers those orders in specially designed cardboard boxes.
B
Summary Introduction
Interpretation: To find the suitable supplier, supposing that the company uses maximum decision criterion for evaluating the alternatives.
Concept Introduction: The Company receives orders from the customers online, and then the company assembles and delivers those orders in specially designed cardboard boxes.
C
Summary Introduction
Interpretation: To find the highest expected ranking supplier, supposing that the probability is 35% for low demand, 45% for moderate demand, and is 20% for high demand.
Concept Introduction: The Company receives orders from the customers online, and then the company assembles and delivers those orders in specially designed cardboard boxes.
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- Scenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. Is Ben Gibson acting legally? Is he acting ethically? Why or why not?arrow_forwardScenario 3 Ben Gibson, the purchasing manager at Coastal Products, was reviewing purchasing expenditures for packaging materials with Jeff Joyner. Ben was particularly disturbed about the amount spent on corrugated boxes purchased from Southeastern Corrugated. Ben said, I dont like the salesman from that company. He comes around here acting like he owns the place. He loves to tell us about his fancy car, house, and vacations. It seems to me he must be making too much money off of us! Jeff responded that he heard Southeastern Corrugated was going to ask for a price increase to cover the rising costs of raw material paper stock. Jeff further stated that Southeastern would probably ask for more than what was justified simply from rising paper stock costs. After the meeting, Ben decided he had heard enough. After all, he prided himself on being a results-oriented manager. There was no way he was going to allow that salesman to keep taking advantage of Coastal Products. Ben called Jeff and told him it was time to rebid the corrugated contract before Southeastern came in with a price increase request. Who did Jeff know that might be interested in the business? Jeff replied he had several companies in mind to include in the bidding process. These companies would surely come in at a lower price, partly because they used lower-grade boxes that would probably work well enough in Coastal Products process. Jeff also explained that these suppliers were not serious contenders for the business. Their purpose was to create competition with the bids. Ben told Jeff to make sure that Southeastern was well aware that these new suppliers were bidding on the contract. He also said to make sure the suppliers knew that price was going to be the determining factor in this quote, because he considered corrugated boxes to be a standard industry item. As the Marketing Manager for Southeastern Corrugated, what would you do upon receiving the request for quotation from Coastal Products?arrow_forwardLocated in the picturesque Berkshire Mountains of Western Massachusetts, Ski Butternut has been a family-owned, family-oriented ski destination for more than 50 years. The resort includes 22 trails for downhill skiing and snowboarding, two terrain parks for riding, and a dedicated area for snow tubing. Although Ski Butternut hosts some non-ski events during summer and fall, its business goes into high gear when snowy weather arrives, bringing skiers and riders from across Massachusetts, Connecticut, New York, and New Jersey. Matt Sawyer, Ski Butternuts director of marketing, says the primary target market has always been families with young children who are seeking affordable skiing. Everything from the snack-bar menus to the ski-shop merchandise is presented with families in mind. So that parents can have fun in the snow without worry, the resort has a Childrens Center for children who are too young to ski or have no interest. Fifth-graders are invited to ski for free when accompanied by an adult who buys an adult lift ticket. The resort also created two terrain parks for young snowboarders who were clamoring for a more exciting riding experience. Without the terrain parks, Sawyer says, these boarders would have asked their parents to take them to competing mountains in Vermont. Ski Butternuts research shows that first-timers are a particularly important segment, because they tend to have a strong allegiance to the resort where they learn to ski. First-timers typically visit the resort seven times before seeking out more challenging mountains. As a result, Ski Butternut has made teaching first-timers to ski or snowboard one of its specialties. For this market, the resort bundles ski or board rentals, lift tickets, and also offers a wide range of individual and group lessons for all ages and abilities at a value price. Because Ski Butternut has trails for different skill levels, beginners can challenge themselves by changing trails within the resort once they feel confident. Ski Butternut also targets seniors and college students. Knowing that weekends are the busiest period, the resort offers special midweek prices to attract seniors who have free time to ski on weekdays. College students are particularly value-conscious, and they often travel to ski resorts as a group. As a result, Ski Butternut offers weekend and holiday discounts to bring in large numbers of students who would otherwise ski elsewhere. Thanks to Facebook, Twitter, and other social media, students quickly spread the word about special pricing, which enhances Ski Butternuts ability to reach this key segment. In addition, the resort highlights discount pricing for families when targeting specific segments, such as scout troops, military personnel, emergency services personnel, and members of local ski clubs. Another segment Ski Butternut has selected for marketing attention is ski racers. The resort features professional coaching, lessons, and programs for ski racers in the age group of 8 to 20. Sawyer notes that these ski racers are extremely dedicated to training, which means theyre on the slopes as often as possible, a positive for the resorts attendance and revenue. To stay in touch with racers, Ski Butternut has a special website and a dedicated Facebook page. Sawyer conducts up to 1,200 customer surveys every year to better understand who his customers are and what they need. He also compares the results with skiers who visit mountains of a similar size in other areas. Digging deeper, he analyzes data drawn from the ski shops rental business to build a detailed picture of customers demographics, abilities, and preferences. Based on this research, he knows that the typical family at Ski Butternut consists of two children under age 18 who ski or ride, and at least one parent who skis. Because they can obtain so much information from and about their customers, Sawyer and his team are able to make better decisions about the marketing mix for each segment. By better matching the media with the audience, they get a better response from advertising, e-mail messages, and other marketing communications. As one example, they found that 15 percent of the visitors to Ski Butternuts website were using a smartphone to access the site. Sawyer has now created a special version of the site specifically for mobile use and created a text-message contest to engage skiers who have smartphones.16 Of the four categories of variables, which one seems to be the most central to Ski Butternuts segmentation strategy, and why?arrow_forward
- Located in the picturesque Berkshire Mountains of Western Massachusetts, Ski Butternut has been a family-owned, family-oriented ski destination for more than 50 years. The resort includes 22 trails for downhill skiing and snowboarding, two terrain parks for riding, and a dedicated area for snow tubing. Although Ski Butternut hosts some non-ski events during summer and fall, its business goes into high gear when snowy weather arrives, bringing skiers and riders from across Massachusetts, Connecticut, New York, and New Jersey. Matt Sawyer, Ski Butternuts director of marketing, says the primary target market has always been families with young children who are seeking affordable skiing. Everything from the snack-bar menus to the ski-shop merchandise is presented with families in mind. So that parents can have fun in the snow without worry, the resort has a Childrens Center for children who are too young to ski or have no interest. Fifth-graders are invited to ski for free when accompanied by an adult who buys an adult lift ticket. The resort also created two terrain parks for young snowboarders who were clamoring for a more exciting riding experience. Without the terrain parks, Sawyer says, these boarders would have asked their parents to take them to competing mountains in Vermont. Ski Butternuts research shows that first-timers are a particularly important segment, because they tend to have a strong allegiance to the resort where they learn to ski. First-timers typically visit the resort seven times before seeking out more challenging mountains. As a result, Ski Butternut has made teaching first-timers to ski or snowboard one of its specialties. For this market, the resort bundles ski or board rentals, lift tickets, and also offers a wide range of individual and group lessons for all ages and abilities at a value price. Because Ski Butternut has trails for different skill levels, beginners can challenge themselves by changing trails within the resort once they feel confident. Ski Butternut also targets seniors and college students. Knowing that weekends are the busiest period, the resort offers special midweek prices to attract seniors who have free time to ski on weekdays. College students are particularly value-conscious, and they often travel to ski resorts as a group. As a result, Ski Butternut offers weekend and holiday discounts to bring in large numbers of students who would otherwise ski elsewhere. Thanks to Facebook, Twitter, and other social media, students quickly spread the word about special pricing, which enhances Ski Butternuts ability to reach this key segment. In addition, the resort highlights discount pricing for families when targeting specific segments, such as scout troops, military personnel, emergency services personnel, and members of local ski clubs. Another segment Ski Butternut has selected for marketing attention is ski racers. The resort features professional coaching, lessons, and programs for ski racers in the age group of 8 to 20. Sawyer notes that these ski racers are extremely dedicated to training, which means theyre on the slopes as often as possible, a positive for the resorts attendance and revenue. To stay in touch with racers, Ski Butternut has a special website and a dedicated Facebook page. Sawyer conducts up to 1,200 customer surveys every year to better understand who his customers are and what they need. He also compares the results with skiers who visit mountains of a similar size in other areas. Digging deeper, he analyzes data drawn from the ski shops rental business to build a detailed picture of customers demographics, abilities, and preferences. Based on this research, he knows that the typical family at Ski Butternut consists of two children under age 18 who ski or ride, and at least one parent who skis. Because they can obtain so much information from and about their customers, Sawyer and his team are able to make better decisions about the marketing mix for each segment. By better matching the media with the audience, they get a better response from advertising, e-mail messages, and other marketing communications. As one example, they found that 15 percent of the visitors to Ski Butternuts website were using a smartphone to access the site. Sawyer has now created a special version of the site specifically for mobile use and created a text-message contest to engage skiers who have smartphones.16 What role do geographic variables play in Ski Butternuts segmentation and targeting?arrow_forwardLocated in the picturesque Berkshire Mountains of Western Massachusetts, Ski Butternut has been a family-owned, family-oriented ski destination for more than 50 years. The resort includes 22 trails for downhill skiing and snowboarding, two terrain parks for riding, and a dedicated area for snow tubing. Although Ski Butternut hosts some non-ski events during summer and fall, its business goes into high gear when snowy weather arrives, bringing skiers and riders from across Massachusetts, Connecticut, New York, and New Jersey. Matt Sawyer, Ski Butternuts director of marketing, says the primary target market has always been families with young children who are seeking affordable skiing. Everything from the snack-bar menus to the ski-shop merchandise is presented with families in mind. So that parents can have fun in the snow without worry, the resort has a Childrens Center for children who are too young to ski or have no interest. Fifth-graders are invited to ski for free when accompanied by an adult who buys an adult lift ticket. The resort also created two terrain parks for young snowboarders who were clamoring for a more exciting riding experience. Without the terrain parks, Sawyer says, these boarders would have asked their parents to take them to competing mountains in Vermont. Ski Butternuts research shows that first-timers are a particularly important segment, because they tend to have a strong allegiance to the resort where they learn to ski. First-timers typically visit the resort seven times before seeking out more challenging mountains. As a result, Ski Butternut has made teaching first-timers to ski or snowboard one of its specialties. For this market, the resort bundles ski or board rentals, lift tickets, and also offers a wide range of individual and group lessons for all ages and abilities at a value price. Because Ski Butternut has trails for different skill levels, beginners can challenge themselves by changing trails within the resort once they feel confident. Ski Butternut also targets seniors and college students. Knowing that weekends are the busiest period, the resort offers special midweek prices to attract seniors who have free time to ski on weekdays. College students are particularly value-conscious, and they often travel to ski resorts as a group. As a result, Ski Butternut offers weekend and holiday discounts to bring in large numbers of students who would otherwise ski elsewhere. Thanks to Facebook, Twitter, and other social media, students quickly spread the word about special pricing, which enhances Ski Butternuts ability to reach this key segment. In addition, the resort highlights discount pricing for families when targeting specific segments, such as scout troops, military personnel, emergency services personnel, and members of local ski clubs. Another segment Ski Butternut has selected for marketing attention is ski racers. The resort features professional coaching, lessons, and programs for ski racers in the age group of 8 to 20. Sawyer notes that these ski racers are extremely dedicated to training, which means theyre on the slopes as often as possible, a positive for the resorts attendance and revenue. To stay in touch with racers, Ski Butternut has a special website and a dedicated Facebook page. Sawyer conducts up to 1,200 customer surveys every year to better understand who his customers are and what they need. He also compares the results with skiers who visit mountains of a similar size in other areas. Digging deeper, he analyzes data drawn from the ski shops rental business to build a detailed picture of customers demographics, abilities, and preferences. Based on this research, he knows that the typical family at Ski Butternut consists of two children under age 18 who ski or ride, and at least one parent who skis. Because they can obtain so much information from and about their customers, Sawyer and his team are able to make better decisions about the marketing mix for each segment. By better matching the media with the audience, they get a better response from advertising, e-mail messages, and other marketing communications. As one example, they found that 15 percent of the visitors to Ski Butternuts website were using a smartphone to access the site. Sawyer has now created a special version of the site specifically for mobile use and created a text-message contest to engage skiers who have smartphones.16 How is Ski Butternut applying behavioristic variables in its segmentation strategy? Explain your answer.arrow_forwardThe Global Sourcing Wire Harness Decision Sheila Austin, a buyer at Autolink, a Detroit-based producer of subassemblies for the automotive market, has sent out requests for quotations for a wiring harness to four prospective suppliers. Only two of the four suppliers indicated an interest in quoting the business: Original Wire (Auburn Hills, MI) and Happy Lucky Assemblies (HLA) of Guangdong Province, China. The estimated demand for the harnesses is 5,000 units a month. Both suppliers will incur some costs to retool for this particular harness. The harnesses will be prepackaged in 24 12 6-inch cartons. Each packaged unit weighs approximately 10 pounds. Quote 1 The first quote received is from Original Wire. Auburn Hills is about 20 miles from Autolinks corporate headquarters, so the quote was delivered in person. When Sheila went down to the lobby, she was greeted by the sales agent and an engineering representative. After the quote was handed over, the sales agent noted that engineering would be happy to work closely with Autolink in developing the unit and would also be interested in future business that might involve finding ways to reduce costs. The sales agent also noted that they were hungry for business, as they were losing a lot of customers to companies from China. The quote included unit price, tooling, and packaging. The quoted unit price does not include shipping costs. Original Wire requires no special warehousing of inventory, and daily deliveries from its manufacturing site directly to Autolinks assembly operations are possible. Original Wire Quote: Unit price = 30 Packing costs = 0.75 per unit Tooling = 6,000 one-time fixed charge Freight cost = 5.20 per hundred pounds Quote 2 The second quote received is from Happy Lucky Assemblies of Guangdong Province, China. The supplier must pack the harnesses in a container and ship via inland transportation to the port of Shanghai in China, have the shipment transferred to a container ship, ship material to Seattle, and then have material transported inland to Detroit. The quoted unit price does not include international shipping costs, which the buyer will assume. HLA Quote: Unit price = 19.50 Shipping lead time = Eight weeks Tooling = 3,000 In addition to the suppliers quote, Sheila must consider additional costs and information before preparing a comparison of the Chinese suppliers quotation: Each monthly shipment requires three 40-foot containers. Packing costs for containerization = 2 per unit. Cost of inland transportation to port of export = 200 per container. Freight forwarders fee = 100 per shipment (letter of credit, documentation, etc.). Cost of ocean transport = 4,000 per container. This has risen significantly in recent years due to a shortage of ocean freight capacity. Marine insurance = 0.50 per 100 of shipment. U.S. port handling charges = 1,200 per container. This fee has also risen considerably this year, due to increased security. Ports have also been complaining that the charges may increase in the future. Customs duty = 5% of unit cost. Customs broker fees per shipment = 300. Transportation from Seattle to Detroit = 18.60 per hundred pounds. Need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of 1.00 per cubic foot per month, to compensate for lead time uncertainty. Sheila must also figure the costs associated with committing corporate capital for holding inventory. She has spoken to some accountants, who typically use a corporate cost of capital rate of 15%. Cost of hedging currencybroker fees = 400 per shipment Additional administrative time due to international shipping = 4 hours per shipment 25 per hour (estimated) At least two five-day visits per year to travel to China to meet with supplier and provide updates on performance and shipping = 20,000 per year (estimated) The international sourcing costs must be absorbed by Sheila, as the supplier does not assume any of the additional estimated costs and invoice Sheila later, or build the costs into a revised unit price. Sheila feels that the U.S. supplier is probably less expensive, even though it quoted a higher price. Sheila also knows that this is a standard technology that is unlikely to change during the next three years, but which could be a contract that extends multiple years out. There is also a lot of hall talk amongst the engineers on her floor about next-generation automotive electronics, which will completely eliminate the need for wire harnesses, which will be replaced by electronic components that are smaller, lighter, and more reliable. She is unsure about how to calculate the total costs for each option, and she is even more unsure about how to factor these other variables into the decision. Based on this case, do you think international purchasing is more or less complex than domestic purchasing? Why? Is it worth the additional effort?arrow_forward
- The Global Sourcing Wire Harness Decision Sheila Austin, a buyer at Autolink, a Detroit-based producer of subassemblies for the automotive market, has sent out requests for quotations for a wiring harness to four prospective suppliers. Only two of the four suppliers indicated an interest in quoting the business: Original Wire (Auburn Hills, MI) and Happy Lucky Assemblies (HLA) of Guangdong Province, China. The estimated demand for the harnesses is 5,000 units a month. Both suppliers will incur some costs to retool for this particular harness. The harnesses will be prepackaged in 24 12 6-inch cartons. Each packaged unit weighs approximately 10 pounds. Quote 1 The first quote received is from Original Wire. Auburn Hills is about 20 miles from Autolinks corporate headquarters, so the quote was delivered in person. When Sheila went down to the lobby, she was greeted by the sales agent and an engineering representative. After the quote was handed over, the sales agent noted that engineering would be happy to work closely with Autolink in developing the unit and would also be interested in future business that might involve finding ways to reduce costs. The sales agent also noted that they were hungry for business, as they were losing a lot of customers to companies from China. The quote included unit price, tooling, and packaging. The quoted unit price does not include shipping costs. Original Wire requires no special warehousing of inventory, and daily deliveries from its manufacturing site directly to Autolinks assembly operations are possible. Original Wire Quote: Unit price = 30 Packing costs = 0.75 per unit Tooling = 6,000 one-time fixed charge Freight cost = 5.20 per hundred pounds Quote 2 The second quote received is from Happy Lucky Assemblies of Guangdong Province, China. The supplier must pack the harnesses in a container and ship via inland transportation to the port of Shanghai in China, have the shipment transferred to a container ship, ship material to Seattle, and then have material transported inland to Detroit. The quoted unit price does not include international shipping costs, which the buyer will assume. HLA Quote: Unit price = 19.50 Shipping lead time = Eight weeks Tooling = 3,000 In addition to the suppliers quote, Sheila must consider additional costs and information before preparing a comparison of the Chinese suppliers quotation: Each monthly shipment requires three 40-foot containers. Packing costs for containerization = 2 per unit. Cost of inland transportation to port of export = 200 per container. Freight forwarders fee = 100 per shipment (letter of credit, documentation, etc.). Cost of ocean transport = 4,000 per container. This has risen significantly in recent years due to a shortage of ocean freight capacity. Marine insurance = 0.50 per 100 of shipment. U.S. port handling charges = 1,200 per container. This fee has also risen considerably this year, due to increased security. Ports have also been complaining that the charges may increase in the future. Customs duty = 5% of unit cost. Customs broker fees per shipment = 300. Transportation from Seattle to Detroit = 18.60 per hundred pounds. Need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of 1.00 per cubic foot per month, to compensate for lead time uncertainty. Sheila must also figure the costs associated with committing corporate capital for holding inventory. She has spoken to some accountants, who typically use a corporate cost of capital rate of 15%. Cost of hedging currencybroker fees = 400 per shipment Additional administrative time due to international shipping = 4 hours per shipment 25 per hour (estimated) At least two five-day visits per year to travel to China to meet with supplier and provide updates on performance and shipping = 20,000 per year (estimated) The international sourcing costs must be absorbed by Sheila, as the supplier does not assume any of the additional estimated costs and invoice Sheila later, or build the costs into a revised unit price. Sheila feels that the U.S. supplier is probably less expensive, even though it quoted a higher price. Sheila also knows that this is a standard technology that is unlikely to change during the next three years, but which could be a contract that extends multiple years out. There is also a lot of hall talk amongst the engineers on her floor about next-generation automotive electronics, which will completely eliminate the need for wire harnesses, which will be replaced by electronic components that are smaller, lighter, and more reliable. She is unsure about how to calculate the total costs for each option, and she is even more unsure about how to factor these other variables into the decision. Calculate the total cost per unit of purchasing from Original Wire.arrow_forwardThe Global Sourcing Wire Harness Decision Sheila Austin, a buyer at Autolink, a Detroit-based producer of subassemblies for the automotive market, has sent out requests for quotations for a wiring harness to four prospective suppliers. Only two of the four suppliers indicated an interest in quoting the business: Original Wire (Auburn Hills, MI) and Happy Lucky Assemblies (HLA) of Guangdong Province, China. The estimated demand for the harnesses is 5,000 units a month. Both suppliers will incur some costs to retool for this particular harness. The harnesses will be prepackaged in 24 12 6-inch cartons. Each packaged unit weighs approximately 10 pounds. Quote 1 The first quote received is from Original Wire. Auburn Hills is about 20 miles from Autolinks corporate headquarters, so the quote was delivered in person. When Sheila went down to the lobby, she was greeted by the sales agent and an engineering representative. After the quote was handed over, the sales agent noted that engineering would be happy to work closely with Autolink in developing the unit and would also be interested in future business that might involve finding ways to reduce costs. The sales agent also noted that they were hungry for business, as they were losing a lot of customers to companies from China. The quote included unit price, tooling, and packaging. The quoted unit price does not include shipping costs. Original Wire requires no special warehousing of inventory, and daily deliveries from its manufacturing site directly to Autolinks assembly operations are possible. Original Wire Quote: Unit price = 30 Packing costs = 0.75 per unit Tooling = 6,000 one-time fixed charge Freight cost = 5.20 per hundred pounds Quote 2 The second quote received is from Happy Lucky Assemblies of Guangdong Province, China. The supplier must pack the harnesses in a container and ship via inland transportation to the port of Shanghai in China, have the shipment transferred to a container ship, ship material to Seattle, and then have material transported inland to Detroit. The quoted unit price does not include international shipping costs, which the buyer will assume. HLA Quote: Unit price = 19.50 Shipping lead time = Eight weeks Tooling = 3,000 In addition to the suppliers quote, Sheila must consider additional costs and information before preparing a comparison of the Chinese suppliers quotation: Each monthly shipment requires three 40-foot containers. Packing costs for containerization = 2 per unit. Cost of inland transportation to port of export = 200 per container. Freight forwarders fee = 100 per shipment (letter of credit, documentation, etc.). Cost of ocean transport = 4,000 per container. This has risen significantly in recent years due to a shortage of ocean freight capacity. Marine insurance = 0.50 per 100 of shipment. U.S. port handling charges = 1,200 per container. This fee has also risen considerably this year, due to increased security. Ports have also been complaining that the charges may increase in the future. Customs duty = 5% of unit cost. Customs broker fees per shipment = 300. Transportation from Seattle to Detroit = 18.60 per hundred pounds. Need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of 1.00 per cubic foot per month, to compensate for lead time uncertainty. Sheila must also figure the costs associated with committing corporate capital for holding inventory. She has spoken to some accountants, who typically use a corporate cost of capital rate of 15%. Cost of hedging currencybroker fees = 400 per shipment Additional administrative time due to international shipping = 4 hours per shipment 25 per hour (estimated) At least two five-day visits per year to travel to China to meet with supplier and provide updates on performance and shipping = 20,000 per year (estimated) The international sourcing costs must be absorbed by Sheila, as the supplier does not assume any of the additional estimated costs and invoice Sheila later, or build the costs into a revised unit price. Sheila feels that the U.S. supplier is probably less expensive, even though it quoted a higher price. Sheila also knows that this is a standard technology that is unlikely to change during the next three years, but which could be a contract that extends multiple years out. There is also a lot of hall talk amongst the engineers on her floor about next-generation automotive electronics, which will completely eliminate the need for wire harnesses, which will be replaced by electronic components that are smaller, lighter, and more reliable. She is unsure about how to calculate the total costs for each option, and she is even more unsure about how to factor these other variables into the decision. Based on the total cost per unit, which supplier should Sheila recommend?arrow_forwardThe Global Sourcing Wire Harness Decision Sheila Austin, a buyer at Autolink, a Detroit-based producer of subassemblies for the automotive market, has sent out requests for quotations for a wiring harness to four prospective suppliers. Only two of the four suppliers indicated an interest in quoting the business: Original Wire (Auburn Hills, MI) and Happy Lucky Assemblies (HLA) of Guangdong Province, China. The estimated demand for the harnesses is 5,000 units a month. Both suppliers will incur some costs to retool for this particular harness. The harnesses will be prepackaged in 24 12 6-inch cartons. Each packaged unit weighs approximately 10 pounds. Quote 1 The first quote received is from Original Wire. Auburn Hills is about 20 miles from Autolinks corporate headquarters, so the quote was delivered in person. When Sheila went down to the lobby, she was greeted by the sales agent and an engineering representative. After the quote was handed over, the sales agent noted that engineering would be happy to work closely with Autolink in developing the unit and would also be interested in future business that might involve finding ways to reduce costs. The sales agent also noted that they were hungry for business, as they were losing a lot of customers to companies from China. The quote included unit price, tooling, and packaging. The quoted unit price does not include shipping costs. Original Wire requires no special warehousing of inventory, and daily deliveries from its manufacturing site directly to Autolinks assembly operations are possible. Original Wire Quote: Unit price = 30 Packing costs = 0.75 per unit Tooling = 6,000 one-time fixed charge Freight cost = 5.20 per hundred pounds Quote 2 The second quote received is from Happy Lucky Assemblies of Guangdong Province, China. The supplier must pack the harnesses in a container and ship via inland transportation to the port of Shanghai in China, have the shipment transferred to a container ship, ship material to Seattle, and then have material transported inland to Detroit. The quoted unit price does not include international shipping costs, which the buyer will assume. HLA Quote: Unit price = 19.50 Shipping lead time = Eight weeks Tooling = 3,000 In addition to the suppliers quote, Sheila must consider additional costs and information before preparing a comparison of the Chinese suppliers quotation: Each monthly shipment requires three 40-foot containers. Packing costs for containerization = 2 per unit. Cost of inland transportation to port of export = 200 per container. Freight forwarders fee = 100 per shipment (letter of credit, documentation, etc.). Cost of ocean transport = 4,000 per container. This has risen significantly in recent years due to a shortage of ocean freight capacity. Marine insurance = 0.50 per 100 of shipment. U.S. port handling charges = 1,200 per container. This fee has also risen considerably this year, due to increased security. Ports have also been complaining that the charges may increase in the future. Customs duty = 5% of unit cost. Customs broker fees per shipment = 300. Transportation from Seattle to Detroit = 18.60 per hundred pounds. Need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of 1.00 per cubic foot per month, to compensate for lead time uncertainty. Sheila must also figure the costs associated with committing corporate capital for holding inventory. She has spoken to some accountants, who typically use a corporate cost of capital rate of 15%. Cost of hedging currencybroker fees = 400 per shipment Additional administrative time due to international shipping = 4 hours per shipment 25 per hour (estimated) At least two five-day visits per year to travel to China to meet with supplier and provide updates on performance and shipping = 20,000 per year (estimated) The international sourcing costs must be absorbed by Sheila, as the supplier does not assume any of the additional estimated costs and invoice Sheila later, or build the costs into a revised unit price. Sheila feels that the U.S. supplier is probably less expensive, even though it quoted a higher price. Sheila also knows that this is a standard technology that is unlikely to change during the next three years, but which could be a contract that extends multiple years out. There is also a lot of hall talk amongst the engineers on her floor about next-generation automotive electronics, which will completely eliminate the need for wire harnesses, which will be replaced by electronic components that are smaller, lighter, and more reliable. She is unsure about how to calculate the total costs for each option, and she is even more unsure about how to factor these other variables into the decision. Calculate the total cost per unit of purchasing from Happy Lucky Assemblies.arrow_forward
- The Global Sourcing Wire Harness Decision Sheila Austin, a buyer at Autolink, a Detroit-based producer of subassemblies for the automotive market, has sent out requests for quotations for a wiring harness to four prospective suppliers. Only two of the four suppliers indicated an interest in quoting the business: Original Wire (Auburn Hills, MI) and Happy Lucky Assemblies (HLA) of Guangdong Province, China. The estimated demand for the harnesses is 5,000 units a month. Both suppliers will incur some costs to retool for this particular harness. The harnesses will be prepackaged in 24 12 6-inch cartons. Each packaged unit weighs approximately 10 pounds. Quote 1 The first quote received is from Original Wire. Auburn Hills is about 20 miles from Autolinks corporate headquarters, so the quote was delivered in person. When Sheila went down to the lobby, she was greeted by the sales agent and an engineering representative. After the quote was handed over, the sales agent noted that engineering would be happy to work closely with Autolink in developing the unit and would also be interested in future business that might involve finding ways to reduce costs. The sales agent also noted that they were hungry for business, as they were losing a lot of customers to companies from China. The quote included unit price, tooling, and packaging. The quoted unit price does not include shipping costs. Original Wire requires no special warehousing of inventory, and daily deliveries from its manufacturing site directly to Autolinks assembly operations are possible. Original Wire Quote: Unit price = 30 Packing costs = 0.75 per unit Tooling = 6,000 one-time fixed charge Freight cost = 5.20 per hundred pounds Quote 2 The second quote received is from Happy Lucky Assemblies of Guangdong Province, China. The supplier must pack the harnesses in a container and ship via inland transportation to the port of Shanghai in China, have the shipment transferred to a container ship, ship material to Seattle, and then have material transported inland to Detroit. The quoted unit price does not include international shipping costs, which the buyer will assume. HLA Quote: Unit price = 19.50 Shipping lead time = Eight weeks Tooling = 3,000 In addition to the suppliers quote, Sheila must consider additional costs and information before preparing a comparison of the Chinese suppliers quotation: Each monthly shipment requires three 40-foot containers. Packing costs for containerization = 2 per unit. Cost of inland transportation to port of export = 200 per container. Freight forwarders fee = 100 per shipment (letter of credit, documentation, etc.). Cost of ocean transport = 4,000 per container. This has risen significantly in recent years due to a shortage of ocean freight capacity. Marine insurance = 0.50 per 100 of shipment. U.S. port handling charges = 1,200 per container. This fee has also risen considerably this year, due to increased security. Ports have also been complaining that the charges may increase in the future. Customs duty = 5% of unit cost. Customs broker fees per shipment = 300. Transportation from Seattle to Detroit = 18.60 per hundred pounds. Need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of 1.00 per cubic foot per month, to compensate for lead time uncertainty. Sheila must also figure the costs associated with committing corporate capital for holding inventory. She has spoken to some accountants, who typically use a corporate cost of capital rate of 15%. Cost of hedging currencybroker fees = 400 per shipment Additional administrative time due to international shipping = 4 hours per shipment 25 per hour (estimated) At least two five-day visits per year to travel to China to meet with supplier and provide updates on performance and shipping = 20,000 per year (estimated) The international sourcing costs must be absorbed by Sheila, as the supplier does not assume any of the additional estimated costs and invoice Sheila later, or build the costs into a revised unit price. Sheila feels that the U.S. supplier is probably less expensive, even though it quoted a higher price. Sheila also knows that this is a standard technology that is unlikely to change during the next three years, but which could be a contract that extends multiple years out. There is also a lot of hall talk amongst the engineers on her floor about next-generation automotive electronics, which will completely eliminate the need for wire harnesses, which will be replaced by electronic components that are smaller, lighter, and more reliable. She is unsure about how to calculate the total costs for each option, and she is even more unsure about how to factor these other variables into the decision. Are there any other issues besides cost that Sheila should evaluate?arrow_forwardConsider a three-firm supply chain consisting of a retailer, manufacturer, and supplier. The retailer's demand over an 8-week period was 110 units each of the first 2 weeks, 190 units each of the second 2 weeks, 310 units each of the third 2 weeks, and 400 units each of the fourth 2 weeks. The following table presents the orders placed by each firm in the supply chain. Notice, as is often the case in supply chains due to economies of scale, that total units are the same in each case, but firms further up the supply chain (away from the retailer) place larger, lessfrequent, orders. WEEK RETAILER MANUFACTURER SUPPLIER 1 110 220 600 2 110 3 190 380 4 190 5 310 620 1420 6 310 7 400 800 8 400 a) What is the bullwhip measure for the retailer? The bullwhip measure for the retailer is ______. (Enter your response rounded to two decimal places.) b) What is the bullwhip measure for the manufacturer? The bullwhip measure for the…arrow_forwardEvans RV Wholesale Supply and Distribution Company sells parts, equipment, and supplies for recreational vehicles-motor homes, travel trailers, campers, and similar vehicles. In addition, Evans has a service department for the repair and service of RVs. The owner, Alex Evans, bought the company five years ago from its original owner, changed the name of the company, and has finally made it profitable, although it has been rough going. The organization is set up in three divisions: service, retail parts and supplies, and wholesale parts and supplies. Alex, the owner, CEO, and president, has a vice president for each operating division and a vice president of finance and operations. The organization chart shows these divisions and positions. In the warehouse there are three groups: receiving (checking orders for completeness, returning defective merchandise, stocking the shelves, filling orders), service parts, and order filling for outgoing shipments. The warehouse group is responsible…arrow_forward
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