Case: The Global Sourcing Wire Harness Decision

Total cost per unit of purchasing from Original Wire

Type Basis Calculation Per Unit

Unit Price $30.00
Packing Costs $0.75

Tooling $6,000 one-time Spreading cost over 180,000 units $0.03

fixed charge produced in 3 years ($6,000/180,000)
Freight Cost $5.20 per hundred Per unit = $5.20/10 $0.52
pounds
Total Cost per Unit $31.30
Purchasing

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Total cost per unit of purchasing from Happy Lucky Assemblies

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Type Basis Calculation Per Unit

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Unit Price $19.50
Tooling $3,000 one-time Spreading cost over 180,000 units $ 0.02
fixed cost produced in 3 years ($3000/180,000)
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Packing costs $2 per unit $ 2.00

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Inland Transportation $200 per container Per unit = ($200 x 3)/5000 $ 0.12
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Freight Forwarder’s $100 per shipment Per unit = $100/5000 $ 0.02

fees
Ocean Transport $4000 per Per unit = ($4000 x 3)/5000 $ 2.40
container
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Marine Insurance $0.50 per $100 Per unit = 0.5% of unit cost $ 0.10
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shipment
US Port Handling $1200 per Per unit = ($1200 x 3)/5000 $ 0.72
container
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Custom duty 5% of unit cost Per unit = 0.05 x Unit cost $ 0.98
Customs Broker fees $300 per shipment Per unit = $300/5000 $ 0.06
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Transportation (Seattle $18.60 per Per unit = $18.60/10 $ 1.86

to Detroit) hundred pounds
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Warehousing $1 per cubic foot Unit Dimension = 24 x 12 x 6-inch = $ 1.00

1728 cu inches = 1 cu ft
Per unit cost = $1

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https://www.coursehero.com/file/10043236/The-Global-Sourcing-Wire-Harness-Decision-case/
 Cost of capital (interest lost at 15% $ 1.00
annually for 4 weeks) = $1 x (0.15/52) x
4
Hedging currency $400 per shipment Per unit = ($400 x 3)/5000 $ 0.24

Admin Time 4 hours x $25/hour Per unit = $100/5000 $ 0.02

per shipment
Travel to China $20,000 annually Per unit = $20,000/60,000 $ 0.33
Total Cost per Unit $29.37
Purchasing

Which supplier to pick based on price

Sheila should recommend Happy Lucky Assemblies as the supplier because they
have a lower total cost per unit at $29.27 than Original Wire does at $31.30 per unit.

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International purchases complexity and issues

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International purchasing is far more complex that domestic purchasing because you

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have to calculate the costs of international shipping and the cost of customs that you will
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incur. In addition to these costs, Sheila also needs to figure out the cost of obsolete
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inventory if next-generation automotive electronics become required within the next 3 years
and the wire harnesses are no longer needed. She will also need to figure out flexibility
costs in case their demand forecasts are inaccurate.
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Shelia should also not just her decision on costs alone. There are many other issues
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which she needs to evaluate before making her decision. Some of these include issues with
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international purchases, risk tolerance involving this like currency and political discourse,
safety stock and storage, long lead times, trust and cultural compatibility, and intellectual
property hidden costs.
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This study source was downloaded by 100000802485635 from CourseHero.com on 05-11-2021 10:51:37 GMT -05:00

https://www.coursehero.com/file/10043236/The-Global-Sourcing-Wire-Harness-Decision-case/
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