wire harness decision

8/18/2019 Wire Harness Decision

1/5

Sheila Austin, a buyer at Autolink, a

Detroit-based producer of

subassemblies for the automotive

market, has sent out requests for

uotations for a wiring harness to four

prospective suppliers. Only two of the

four suppliers indicated an interest in

quoting the business Original !ire

"Auburn #ills, $%& and #appy 'ucky

Assemblies "#'A& of (uangdong)rovince, *hina.

+he (lobal

ourcing !ire

#arness

Decision

ase study solution

Submitted to Dr. adeemureshiSubmitted by ida $unir han/nrollment o. 01-234141-015$S S*$Dated A ril 6 2014


2/5

WIRE HARNESS DECISION

Total cost per unit of purchasing from Original Wire

Cost Basis CalculationPer nit!"#

7nit )rice 80.00)acking costs 0.69

+ooling1 :4000 one-time ;reight cost2 :9.20 per 100 pounds :9.20=10 0.92Cost per unitpurchasing $%&$'

%& Calculate the total cost per unit of purchasing from Original Wire&

WOR(IN)S*

♠ 1 +OO'%(♦ 'et?s suppose Austin enters a one-year contract

♦ Demand per month 9000 units

♦ Demand per year 9000@12 40000 units

♦ +ooling cost spread over 40000 units :4000=40000 units :0.10 per unit

♠2>/%(#+ *OS+

♦ >reight cost=100 pounds :9.20

♦ >reight cost=1 pound :9.20=100 :0.092

♦ /ach unit weighs 10 pounds appro


3/5

>reight forwarderBs fee :100=shipment :100=9000 0.02

*ost of ocean transport :5000=container":5000@8&=9000 2.50

$arine %nsurance5:0.90 per :100 ofshipment :5C6.9=9000 0.10

7.S. port handling charges :1200=container":1200@8&=9000 0.62

*ustoms duty 9 of unit cost [email protected] 0.3C*ustoms broker fees :800=shipment :800=9000 0.04

+ransportation "Seattle to Detroit&9 :1.C4=hundred pounds :0.1C4@10 1.C4!arehousing4 :1.00=cubic foot per month :1.00@1 1.00*urrency hedging - broker fees :500=shipment :500=9000 0.0CAdministrative6 5 hrs=shipment E:29=hour :100=9000 0.02Fisits to *hina twice a year :20000=40000 0.88Cost per unit purchasing +0&+1

WOR(IN)S*

♠8 +OO'%(

♦ 'et?s suppose Austin enters a one-year contract

♦ Demand per month 9000 units

♦ Demand per year 9000@12 40000 units

♦ +ooling cost spread over 40000 units :8000=40000 units :0.09 perunit

♠5$A%/ %S7A*/

♦

$arine insurance per :100 of shipment :0.90♦ $arine insurance per :1 of shipment :0.90=:100 :0.009

♦ $arine insurance for :36900 ":13.90@9000&of shipment :"0.009@36900&

:5C6.9=month

♦ $arine insurance per unit :5C6.9=9000 units :0.3C

♠9 +AS)O+A+%O *OS+ "S/A++'/ +O D/+O%+&

♦ +ransportation cost per 100 pounds :1C.40

♦*ost per pound :1C.40=100 :0.1C4

♦*ost per 10 pounds :0.1C4@10 :1.C4

♠4!A/#O7S%( *OS+

♦ !arehousing cost per cubic foot per month :1.00

♦ Folume of one carton "foot& 2@[email protected] 1cubic foot

♦ *ost of 1 cubic foot :1.00, hence cost per unit of warehousing :1.00


4/5

♠6AD$%%S+A+%F/ *OS+ Additional administrative time to monitor international

shipment

♦:29 per hour for 5 hours :100

♦*ost per unit :100=9000 units :0.02

The total cost per unit of wiring harnesses purchased from HappyLucky ssem!lies in "hina is $#.#%.

3. &ased on the total cost per unit' which supplier should (heila

recommend)

Ans* Gased on cost per unit only, #appy 'ucky Assemblies should be

recommended by Sheila as one wiring harness from #appy 'ucky Assemblies

costs "+0&+1 and the same wiring harness from the local ;rm Original !ire

costs :$%&$' which is "+&%$ less than Original !ire?s cost per unit, despite all

the costs involved in importing the harnesses from *hina.

%. re there any other issues !esides cost that (heila should e*aluate)

Ans* Sheila must assess the pros and cons of both the options carefully. !hile

the cost incurred from purchasing wire harnesses from Original wire maybe

greater but Autolink and Original !ire have the opportunity to collaborate and

take steps for cost reduction as they are passionate and hungry for business,

they are likely to be willing to go the e


5/5

Ans* %t is de;nitely more comple< than domestic purchasing as a host of costs

and risks are involved including warehousing cost, cost to maintain safety

stocks, unit prices do not include international shipping costs, political risk, the

risk of natural disasters. Also, international purchasing may lack cultural

concurrence between the buyer and seller which might hinder relationship in

the long run. Since, maHor players in the world market such as *hina have

emerged as low-cost suppliers, business owners have discovered their pro;t

margins can widen colossally, hence the shift from domestic to international

markets for purchasing. Also, the instantaneous access to information between

buyers and sellers worldwide has made it possible for buyers to meet the right

supplier who meets all the speci;cations eIectively and eJciently, therefore

making it worth the buyers? while to scour international supply markets in their

respective industries and select the right supplier.

wire harness decision

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