Incoterm Assignment and Case Study

Global Logistics and Transportation

GSCM1005

Vatsal Dinesh Kumar Patel

200587687

Professor- Navasudeen Mohamed

Date of Submission: 1 February 2024

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Analysis of Case Study

Introduction:

The well-known German electronics manufacturer Metrovox specializes in designing, developing, and

producing innovative products for the entertainment and home electronics sectors. The company is recently

focusing on two main products - Bugabyte and Bugabyte Lite. While the Bugabyte is a high-end video and

audio player with a flash drive, the Bugabyte Lite doubles as a flash drive and MP3 player. Metrovox

strategically sells these products to a North American distributor and a major European retailer, navigating a

highly competitive market.

Key Issue:

Metrovox is currently facing a critical challenge in its supply chain, primarily related to production delays

and a significant 30% late rate, exacerbated by the recent Bugabyte video support. In response, management

is considering outsourcing the selection process to address these issues. The pressing question now is

to identify the most suitable candidate for outsourcing between Bugabyte and Bugabyte Lite.

Current Status Overview:

Product Difference:

Bugabyte and Bugabyte Lite differ in unique features that emphasize size and storage capacity.

Market dynamics:

Both products compete fiercely in dynamic and competitive markets in Europe and North America.

Manufacturing Issues:

The assembly process, which involves installing the SMD decoders and PIC controllers, is facing a

delay, especially with the new video-capable Bugabyte.

Considering Outsourcing:

Due to increasing delays, Metrovox is considering outsourcing the assembly process to suppliers.

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Consulting Engagement:

Grunwald and Vogel were involved in lead time management, late delivery reduction, and

outsourcing decision consulting.

Key Outsourcing Considerations:

Delivery Schedule Commitment:

The selected supplier must commit to delivering the assembled circuit boards according to

Metrovox's delivery schedule.

Product Quality and Defect Rates:

Maintaining high-quality standards and minimizing defective parts is paramount to Metrovox's market

position.

Contractual Obligations:

Current contracts with North American distributors and European retailers require simultaneous delivery of

Bugabyte and Bugabyte Lite.

Background:

Well-known German electronics manufacturer Metrovox has created a niche in the entertainment and home

electronics sector. The company focuses on innovation and excellence and has recently turned its attention to

two closely related products, Bugabyte and Bugabyte Lite.

Bugabyte:

Bugabyte is an advanced video and audio player with memory. The product is the result of a significant

investment in research and development and is a compact device the size of a credit card that is 50 percent

thinner than its competitors. Designed to capitalize on the anticipated growth of portable video devices,

Bugabyte aims to differentiate its products through unique size and storage.
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Bugabyte Lite:

Bugabyte's complementary Bugabyte Lite doubles as a flash drive and MP3 player. Although it has been on

the market under a different name for over six years, recent efforts have been made to update its case design

and adapt it to Bugabyte's aesthetics. Despite the stabilization of sales over the last two years, Bugabyte

Lite promotes brand continuity and recognition in the face of tough competition.

Market Dynamics:

The Bugabyte and Bugabyte Lite markets are highly competitive, requiring a product differentiation

strategy. Metrovox is positioned at retail prices that match or slightly exceed competitors, highlighting the

unique features of Bugabyte and Bugabyte Lite.

Supply Chain Challenges:

Metrovox currently sources components from trusted suppliers in China and assembles products in

Germany. However, the recent release of the video-enabled Bugabyte caused increasing production

delays, contributing to a major 30 percent delay. To address these challenges, Metrovox is

considering outsourcing the assembly process to reduce delays.

Research Problem:

The critical research problem for Metrovox is to determine which of the two products, the Bugabyte

or the Bugabyte Lite, is the optimal candidate for outsourced assembly. Grunwald and Vogel, the

production consultants employed by Metrovox, are tasked with advising on improving delivery times

and reducing delays by 30 percent. Consultants must evaluate outsourcing criteria and recommend a

strategic approach consistent with Metrovox's delivery schedule, quality standards, and overall goal of

maintaining market position and competitive advantage.

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Case Evaluation:

The Metrovox case presents a complex scenario with challenges related to production delays, late

delivery volumes, and outsourcing the assembly of its Bugabyte and Bugabyte Lite products review the

main aspects of the case:

Market Dynamics:

Competitiveness: The Bugabyte and Bugabyte Lite markets are highly competitive, emphasizing the need

for product differentiation. Metrovox competes for uniqueness by focusing on the size of the Bugabyte and

the storage capacity of the Bugabyte Lite.

Product Lifecycle: Bugabyte is a relatively new product designed for anticipated future growth, while

Bugabyte Lite has been on the market for over six years and has recently established itself.

Supply Chain Challenges:

Production Delays: The introduction of the video-enabled Bugabyte caused more and more production

delays, contributing to a high 30 percent delay.

Considering Outsourcing: Management is considering outsourcing assembly to mitigate delays, but the

decision depends on several factors.

Outsourcing Criteria:

Supplier Commitment: The selected supplier and assembler must commit to delivering the assembled PCB

according to Metrovox and the delivery schedule.

Quality and defect rates: Quality is critical, and the outsourced assembler must ensure that Metrovox

maintains its market position and competitive advantage.

Product detail

Bugabyte: Responds to high demand, with 300 percent growth in the first year. It is difficult for

production management to accurately forecast future demand.

Bugabyte Lite: Steady sales for the last two years with accurate forecasting and less margin of error.

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Assembly Process:

Complexity: Bugabyte's recent design includes additional steps in the assembly process to enable video

capability.

Proprietary Information: Important proprietary information is used during circuit testing.

Consultant Role:

Grunwald and Vogel: Production consultants tasked with advising on better lead time management and 30%

delay reduction.

Recommendations:

Outsourcing Decision: Given the challenges and complexity, a thorough cost-benefit analysis should be

conducted to determine the feasibility of outsourcing. This should include a detailed evaluation of

potential suppliers and capabilities, quality assurance, and adherence to delivery schedules.

Demand forecasting: Implement improved demand forecasting mechanisms, especially for Bugabyte, which

experiences significant fluctuations. This can reduce the risk of overproduction or running out of stock.

Supply Chain Optimization: Evaluate the entire supply chain to improve efficiency. This

includes evaluating suppliers, transportation, and the internal meeting process to identify bottlenecks and

areas for improvement.

Risk mitigation: Develop a solid risk management plan for outsourcing, focusing on quality

control, protection of intellectual property, and measures for unexpected events.

Long-Term Strategy: Consider the long-term impact of outsourcing on Metrovox and competitiveness and

brand image. If Bugabyte Lite contributes to brand continuity and recognition, maintaining control over its

assembly process can be strategically important.

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Proposed Solution/Changes:

Outsourcing Decision:

Conduct a thorough cost-benefit analysis to assess the feasibility of outsourcing Bugabyte and Bugabyte

Lite.

Consider outsourcing the Bugabyte assembly, especially given its increasing production delays, and assess

the impact on lead times and delayed delivery quantities.

Supplier Selection:

Thoroughly review potential suppliers based on their track record, capability, and commitment to delivery

schedules.

Ensure the selected supplier adheres to PCB quality test compliance measurements.

Risk Mitigation:

Develop robust risk management to address potential challenges related to quality control, intellectual

property protection, and contingencies.

Make clear contractual agreements with the supplier regarding quality standards and delivery times.

Demand forecasting:

Implement improved demand forecasting mechanisms, especially for Bugabyte, to reduce the risk of

overproduction or inventory.

Update forecasts regularly based on market trends and customer demand.

Supply Chain Optimization:

Assess and optimize the entire supply chain, including procurement and transportation, to identify

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and correct bottlenecks that cause production delays.

Ensure that Chinese suppliers adhere to Metrovox's production schedules.

Long-Term Strategy:

Consider the long-term impact of outsourcing on Metrovox and competitiveness and brand image.

Assess whether the outsourcing of Bugabyte Lite, despite its stable sales, is

consistent with Metrovox's overall strategic goals.

Technology Standardization:

Standardize the technology used in product testing across both Bugabyte and Bugabyte Lite systems to

streamline processes and reduce complexity.

Continuous Improvement:

Establish a continuous improvement program to regularly review and improve the assembly process.

Encourages collaboration between Metrovox and the selected supplier to identify areas for improvement.

Quality Control Measures:

Implement strict quality control measures to address inadequate pricing and ensure that the outsourced

assembler maintains Metrovox and market position.

Communication and Collaboration:

Promote open communication and collaboration between Metrovox and the outsourced assembler to quickly

respond to potential challenges.

Make sure the assembler understands the importance of shipping the Bugabyte and Bugabyte Lite in the

same shipment to fulfill contracts with dealers and resellers.

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Conclusion:

In conclusion, Metrovox, faced with increasing production delays and late deliveries,

is considering outsourcing the assembly process of Bugabyte or Bugabyte Lite. Factors such as demand

forecasts, production stability, and the impact on Metrovox and its market position must be carefully

considered in Grunwald and Vogel and evaluation.

The outsourcing decision must be consistent with Metrovox and commitment to quality, on-time deliveries,

and remaining competitive. The product chosen for outsourcing must not only meet the demand but also

contribute to the continuity of the Metrovox brand.

Balancing the need for agility between meeting market demands and maintaining product uniqueness is

critical. Strategically applied outsourcing can improve supply chain efficiency and overall efficiency,

enabling Metrovox's sustainable growth and success in the competitive electronics market.

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Question

1. Based on the risk factors associated with the Bugabyte and the Bugabyte Lite, which product do

you think Grunwald and Vogel will recommend as the best candidate for assembly outsourcing?

Based on the presented case study, the risk factors for assembly process outsourcing are as follows:

a. Quality: To maintain product quality, product specification, and independent quality control inspection.

b. Ethical Issues: Guidelines for Corporate Reputation and Avoiding Consumer Protests and Boycotts.

c. Patent protection: Intellectual property because there is a chance that the outsourcing company may

produce similar products under different names.

I believe Grunwald and Vogel recommend Bugabyte Lite as the best candidate for assembly. This is because

Bugabyte Lite is a product that has been on the market for several years and has an established build

process. Product testing is based on 4,444 widely used technologies that have been in use for five years.

Additionally, the Bugabyte Lite is not a product that will contribute to a significant increase in revenue for

Metrovox, although its presence in the market will contribute to the continuity and recognition of the brand.

There are also many competitors with similar products. This reduces the likelihood of the occurrence of the

risk factors listed above.

2. Based on Grunwald and Vogel’s decision, what will be the benefits and disadvantages of

outsourcing the assembly function?

The advantages of outsourcing the assembly function are as follows:

1. Delivery times are met and the company's obligations to its distributors and retailers are fulfilled.

2. The risk of an outsourcing company using Bugabyte Lite's technology to produce a similar product is

reduced because its technology is widespread in the market and known to other competitors.

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3. Reduce equipment production time because suppliers can assemble them by themselves or other Chinese

companies, so suppliers reduce equipment production time.

4. Allows Metrovox to focus more on Bugabyte production, as its assembly stage had to include several new

steps to accommodate the product's video capability. There is also a significant amount of proprietary data

used in PCB testing.

3. If Metrovox can outsource the assembly of the circuit boards to an existing supplier, discuss the key

contract issues Metrovox will need to consider with its supplier.

Some of the important thing agreement problems to be taken into consideration are of the following: 1.

Quality and extent of the products to be procured. The items' expenses should be simply calculated the

foreign money being used, and the reductions in availability as volumes increase.

2. Payment technique and documentation, the charge due, the time body charge that should be made, and the

reductions available for elevated payments.

3. Delivery situations which encompass the transport technique and vacation spot including, the transport

dates and the expectancy for the situation of the good.

4. Having a clean danger control plan that simply articulates how dangers are mitigated or transferred and

Metrovox's tolerance to dangers. 5. Clear time limits and any consequences that the dealer can be charged if

time limits aren't met, or the agreement is breached. 6. Contract termination situations, procedures, and the

outcomes to result from this termination which includes compensations and consequences.

4. Which inventory management strategy should Grunwald and Vogel recommend Metrovox adopt to

ensure efficiencies throughout its entire supply chain? Why?

Metrovox must improve inventory management and maintain optimal inventory levels to manage

fluctuations in customer demand, as the annual demand for Bugabyte is 300 percent higher than it was
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during the first year of the release. anticipated requirements. One strategy they can implement is an

economic order quantity model where Metrovox assumes that customer demand is constant and that

inventory decreases at a fixed rate until it reaches zero. Companies using this method continuously monitor

inventory and order a fixed number of new units whenever their shipments reach a certain remaining

amount. This reorder point is specifically timed so that the company receives materials exactly when the

company needs them to avoid industrial shortages or surpluses.

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References:

https://smallbusiness.chron.com/types-inventory-strategies-70864.html

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