CASE CASE 14.1 NRNBERG AUGSBURG MASCHINENWERKE (N.A.M.) The Nrnberg Augsburg Maschinenwerke, one of Germany's the largest diesel engine makers in the world. Karl Huber most successful manufacturing companies, enjoys a long was the N.A.M. regional vice president of sales for South tradition. It dates from 1748, when the St. Antony Iron America, and he supervised a team of local sales repre- Mill opened in Oberhausen (located in the heart of the sentatives in the countries of that contineat, plus a small Rahsgebiet industrial region) during the beginning years of group of people in the Munich headquarters. German industrialization. The owners soon founded addi- On August 15, Huber received an e-mail from Leo- tional icon and coal mills, the established the firm as Gute pold Escabar in Caracas, who had just returned from an Hoffungshuette (GHH). Shortly following in Augsburg important meeting with local authorities in charge of rede- and Nrnberg, several companies joined together to form signing the local public transportation systems for the Bea- Nrnberg Augsburg Maschineaweele (N.A.M.). Thesezilian cities of So Paulo and Rio de Janeiro. Escabar had two firms, GHH and N.A.M, would ultimately merge in attended the meeting along with salespeople from compet the early twentieth century ing track and bus companies. Escabar gave Huber some In the interim, N.A.M. had distinguished itself good news and some bad news. Escabar had been told through the work of Rudolf Diesel, who invented his N.A.M. was favored to receive an order for 224 NA.M. famous engine and then brought it to N.A.M. late in the class #4-G two-section acticulated buses (or "accordion" nineteenth century. The diesel engine competed with the buses, as Eacabar liked to call them), with the possibility of internal combustion engine in early automotive design securing a contract for an additional 568 buses. To win the nod today powers heavy trucks, turbines, railroad engines, business, however, NAM. would have to meet cost and and ships. Based on this success, N.A.M. swiftly expand- timing gunstecs. ed manufacturing operations and distribution across the The customers first required that N.A.M. must globe, only to have its foreiga operations compromised by match or beat the total price per unit, including shipping, international politics on two occasions. First, N.A.M. lost that N.A.M. had received for a shipment of 233 buses to most of its foreign property in the walce of Wodd War I, the transit district of Buenos Aires, 6 months earlier. That #setback that, among other adjustments, encourged its price was 124,500 per bus. Huber had built in a small merger with GHH in 1920. Second, N.A.M. lost all of its extra profit margin on the Buenos Aires deal, so he felt foreiga property again after World War II and had to re- confideat that to meet their pricing demand he could shave build and restructure much of its domestic operation profit a little, if necessary, in this case. well. In 1955, the company opened a truck unit in Munich, The second guaranten, however, was more word which would later become the new company headquarters some The Brazilian authorities were feeling political heat By 2003 the company had reclaimed los preemi- because they were badly behind schedule in implementing cence as a global player in heavy truck and bus design, ea- their transportation plan and needed proof to show the gineering, and manufacturing, as well as in pont technol- public that their new programs were underway. So they ogy, rocket, and energy science. It had reestablished both had made this offer to N.A.M. on the strict condition that its plants and sales offices across the globe, and is one of the company could ensure delivery of the first 25 buses (cantaard) to Santos, the port that serves So Paulo, by November mull this one over for a bit before I call you bacle. But doo's 15 (only 3 months away). IF NAM. delivered this initial worry, we'll make your deadline and you will make your 90-day order on time, the company would receive a con- boons. Just remember to cut me in for a piece." tract for the remaining 199 vehicles to be delivered in full Huber checided, thanked him, and hung up within the following 15 months. The follow on order for Beenden decided to split the full order (224 buses) 568 moce vehicles wes, essetially, contingent on meeting among the factories in Prague and the much larger plant in terms of the initial contract to the letter, with regard to Munich. To finalize both scheduling and pricing, he now the 224 boses. All buses were to be delivered to the Port nended to estimate the time it would take to fulfill the or of Santos des, as well as the cost of trasportation. He was indined Huber whistled softly to himself as he read Escobar's to use the Deatsche Bundesbahn to transport the buses by e-mail. This would be a major order. In a single stroke, it train to the North Sea port of Bremerhaven, but he wasn't could move him ahead of his regional sales targets for sure that this was the best solution for each of the plants several quarters to come. Huber immediately sent back in involved. e-mail, instructiog Escobar to testatively accept the offer, Bemdico's immediate problem was the first ship- assuring the local authorities that they'd have their 25 buses ment of buses, which would be ready to leave Prague on in 90 days and the rest within 18 months. NAM would October 15. Berndsen asked Marcus Weiss, his supply formally agree to the proposal within 5 worlding days. Then chain analyst, to acate a worlesheet that would show all he scratched his head and told to Egure out how. Huber costs and times required to get the buses from the Prague had 4 days before the best managing director's meeting, at factory to the port of Bremerhaven, and he also asked which time he would present the project and, with the vice Weiss to identify viable alternatives. (Europe possesses an president for production, propose a plan to accomplish it extensive network of divers and channels that connect to Haber lunged for the phone and, scarcely glancing at the gether its network of commercial waterways. In fact, the sumber pad, his fingers automatically dialed 4823. European Union champions a Motorways of the Seas con- Dieter Berndsen, the production V.P., linteoed as his cept that specifies four short-se shipping laces thatinvolve old friend Huber described the opportunity, jotting down its member nations.) Consequently, the Prague plant some- notes as be went. He explained to Haber that the factory times transported buses on barges via the Elbe, north to in Munich was already producing to los limits, and the two Hamburg The German plants occasionally shipped north other German facilities were also facing a bacldog of op to Bremerhaven or Hamburg, vin a network of industrial ders through the fourth quarter. So Berndsen offered two waterways, or westward, over the River Rhein, to the port immediate possibilities. First, he considered wait listing of Rotterdam in the Netherlands. (See Exhibit 14.1.) 40 bus order from the Thai military at the Munich plant Following is some of the information Weiss assem- He said he was relactant to do this, however, because the bled for Berndser: Thais bad ordered several product modifications, and the Munich line had already been set up to handle them. See- . By train, the geographic distances between plants ond, Berndsen suggested scoding the new Brazil order od ports were as follows: Prague to Hamburg 490 to NAMS Prague facility. Prague was the smallest of all Idilometers, Prague to Rotterdam 640 lilometers. the European plants and had the oklest, slowest assembly NAM. would need 3 days to get the buses from lines, but they were just finishing up manufacture of an the factodes in Prague to the Port of Bremerhaven order of #4-Gs and, due to a receat order cancellation, or Hamburg by train and 4 or 5 days to reach would now be working at paly 70 percent capacity throgh Rotterdam. The advantage of Rotterdum comes, yet-end. Within 8 weeks, figured Beadsen, Peague could however, in the shipping time from there to Santos eatly handle the order for Brazil's first 25 buses which waves a day versus Bremerhaven or Hamburg, lines, but they were just finishing up manufacture of an order of #4-G's and due to a recent order cancellation, would now be worlding at only 70 percent capacity through year-end. Within 8 weeks, figured Berndsen, Prague could easily handle the order for Brazil's first 25 buses. Huber eagerly agreed, as Berndsen decided to re- ommend Prague for this assignment. The problem was that this facility could not produce fast caough to fulfill more than 20 percent of the rest of the contract (for the 224 buses), which meant that he would have to coordinate production and delivery on the rest of this order from other plants. Sighing audibly over the phone line, Berndsen said, "Thanks a lot for the new beadache, Hubic. Let me the factodes in Pegue to the Port of Bremerhaven or Hamburg by train and 4 or 5 days to reach Rotterdam. The advantage of Rotterdam comes, however, in the shipping time from there to Santos, which saves a day versus Bremerhaves or Hamburg, and ocean shipping charges are 5 percent less. The Czech railway could transport the load to the border with Germany, where the Deutsche Bundesbahn would take over the flatcars, which carry two bases each. The Bundesbahn quotes a price of 1,643 per flatcar from Prague to Hamburg, which includes the service by its Czech partner. If mil were used from Prague to Rotterdam, the cost Chapter 14 - International Logistics 267 DENT Hale See GERMANY North wil POLAND OTHE UNITED KINGDOM BELGIUM CZECH AUSTRIA SWITZERLAND QUAL HUNGARY EXHIBIT 14.A Map of Central Europa per flatcar would be 1,943. In either port, it costs on vessels leaving from Rotterdam to Santos an another 45 per bus to have it unloaded and driven October 23, October 28, and November 2 to alongside the vessel. The vessel line can load and Handling (unloading) in Santos is estimated to cost pack 20 buses per day, charging 25 per bus and up acother 94 per bus, and this includes centtaching to 30 buses with overtime charges. The overtime the two halves. charges would amount to an additional 15 per bus The interest for N.A.M's line of credit is 10 percent (for buses 21, 22, and so on). All charges per bus included detaching the two halves. Using the waterways instead of trains to reach the QUESTIONS Hamburg port from Prague would decrease the 1. Assume that you are Weiss. How many viable alternatives trasportation cost by 48 per bus. Waterway trans- do you have to consider regarding the initial shipment of 25 portation would increase the transport time neces- buses? sary by 3 days to Hamburg 2. Which of the routing alternatives would you recommend For transoceanic shipping on any of these routes, to meet the loitial 90-day deadline for the 25-bus shipment? N.A.M. works with Hapag-Lloyd AG. Hapag-Lloyd Tain or waterway? To which port(s)? What would it cost? Is able to offer a cheap and Bexible commodity coat, 3. What additional information would be helpful for answering through its alliance with other ship lines for the question 22 ocean transport of the buses. One vessel could carry 4. How important, in fact, are the trasport costs for the initial up to 125 buses as deck cargo, but they would have shipment of 25 busca? 5. What kinds of customer service support must be provided to be disassembled at their accordion junctions and for this initial sluipment of 25 buses? Who is responsible? than rassembled again at their destination. 6. The Brazilian buyer wants the buses delivered at Santos. The cost per bus (in shipments of 20 buses or more) Weiss looks up the International Chamber of Commerce's from Bremerhaven or Hamburg to Santos is quoted Incoterms and finds three categodes of "delivered terms: at 6,000, and the trip requires 18 days. Hapag- Lloyd indicates that deck space is available for the DAT (Delivered at Terminal). In this type of transaction, the initial shipment of 25 buses on vessels departing seller clear the goods for export and beans all disles and costs associated with delivering the goods and unloading Hamburg on October 24, October 27, October 31, them at the terminal at the named port oc place of des and November 3. Hapag-Lloyd also has space tination. The buyer is responsible for all costs and rises (continued) 268 Part I. Elements of Logistics Systems from this point forward including clearing the goods for import at the same country of destination. DMP (Dwived at Place). The seller dears the goods for expont and bears all risks and costs associated with deliv ering the goods to the named place of destination not unloaded. The buyer is responsible for all costs and disks sociated with unloading the goods and deating customs to import goods into the named country of destination .DDP (Dared Duy Puld). The neller bears all risks and cores associated with delivering the goods to the named place of destination ready for unloading and clearing for import 7. How should he choose? Why? 8. Would you make the same routing recommendation for the second, larger (199 buses) component of the order, after the initial 90-day deadline is met? Why or why not? CASE CASE 14.1 NRNBERG AUGSBURG MASCHINENWERKE (N.A.M.) The Nrnberg Augsburg Maschinenwerke, one of Germany's the largest diesel engine makers in the world. Karl Huber most successful manufacturing companies, enjoys a long was the N.A.M. regional vice president of sales for South tradition. It dates from 1748, when the St. Antony Iron America, and he supervised a team of local sales repre- Mill opened in Oberhausen (located in the heart of the sentatives in the countries of that contineat, plus a small Rahsgebiet industrial region) during the beginning years of group of people in the Munich headquarters. German industrialization. The owners soon founded addi- On August 15, Huber received an e-mail from Leo- tional icon and coal mills, the established the firm as Gute pold Escabar in Caracas, who had just returned from an Hoffungshuette (GHH). Shortly following in Augsburg important meeting with local authorities in charge of rede- and Nrnberg, several companies joined together to form signing the local public transportation systems for the Bea- Nrnberg Augsburg Maschineaweele (N.A.M.). Thesezilian cities of So Paulo and Rio de Janeiro. Escabar had two firms, GHH and N.A.M, would ultimately merge in attended the meeting along with salespeople from compet the early twentieth century ing track and bus companies. Escabar gave Huber some In the interim, N.A.M. had distinguished itself good news and some bad news. Escabar had been told through the work of Rudolf Diesel, who invented his N.A.M. was favored to receive an order for 224 NA.M. famous engine and then brought it to N.A.M. late in the class #4-G two-section acticulated buses (or "accordion" nineteenth century. The diesel engine competed with the buses, as Eacabar liked to call them), with the possibility of internal combustion engine in early automotive design securing a contract for an additional 568 buses. To win the nod today powers heavy trucks, turbines, railroad engines, business, however, NAM. would have to meet cost and and ships. Based on this success, N.A.M. swiftly expand- timing gunstecs. ed manufacturing operations and distribution across the The customers first required that N.A.M. must globe, only to have its foreiga operations compromised by match or beat the total price per unit, including shipping, international politics on two occasions. First, N.A.M. lost that N.A.M. had received for a shipment of 233 buses to most of its foreign property in the walce of Wodd War I, the transit district of Buenos Aires, 6 months earlier. That #setback that, among other adjustments, encourged its price was 124,500 per bus. Huber had built in a small merger with GHH in 1920. Second, N.A.M. lost all of its extra profit margin on the Buenos Aires deal, so he felt foreiga property again after World War II and had to re- confideat that to meet their pricing demand he could shave build and restructure much of its domestic operation profit a little, if necessary, in this case. well. In 1955, the company opened a truck unit in Munich, The second guaranten, however, was more word which would later become the new company headquarters some The Brazilian authorities were feeling political heat By 2003 the company had reclaimed los preemi- because they were badly behind schedule in implementing cence as a global player in heavy truck and bus design, ea- their transportation plan and needed proof to show the gineering, and manufacturing, as well as in pont technol- public that their new programs were underway. So they ogy, rocket, and energy science. It had reestablished both had made this offer to N.A.M. on the strict condition that its plants and sales offices across the globe, and is one of the company could ensure delivery of the first 25 buses (cantaard) to Santos, the port that serves So Paulo, by November mull this one over for a bit before I call you bacle. But doo's 15 (only 3 months away). IF NAM. delivered this initial worry, we'll make your deadline and you will make your 90-day order on time, the company would receive a con- boons. Just remember to cut me in for a piece." tract for the remaining 199 vehicles to be delivered in full Huber checided, thanked him, and hung up within the following 15 months. The follow on order for Beenden decided to split the full order (224 buses) 568 moce vehicles wes, essetially, contingent on meeting among the factories in Prague and the much larger plant in terms of the initial contract to the letter, with regard to Munich. To finalize both scheduling and pricing, he now the 224 boses. All buses were to be delivered to the Port nended to estimate the time it would take to fulfill the or of Santos des, as well as the cost of trasportation. He was indined Huber whistled softly to himself as he read Escobar's to use the Deatsche Bundesbahn to transport the buses by e-mail. This would be a major order. In a single stroke, it train to the North Sea port of Bremerhaven, but he wasn't could move him ahead of his regional sales targets for sure that this was the best solution for each of the plants several quarters to come. Huber immediately sent back in involved. e-mail, instructiog Escobar to testatively accept the offer, Bemdico's immediate problem was the first ship- assuring the local authorities that they'd have their 25 buses ment of buses, which would be ready to leave Prague on in 90 days and the rest within 18 months. NAM would October 15. Berndsen asked Marcus Weiss, his supply formally agree to the proposal within 5 worlding days. Then chain analyst, to acate a worlesheet that would show all he scratched his head and told to Egure out how. Huber costs and times required to get the buses from the Prague had 4 days before the best managing director's meeting, at factory to the port of Bremerhaven, and he also asked which time he would present the project and, with the vice Weiss to identify viable alternatives. (Europe possesses an president for production, propose a plan to accomplish it extensive network of divers and channels that connect to Haber lunged for the phone and, scarcely glancing at the gether its network of commercial waterways. In fact, the sumber pad, his fingers automatically dialed 4823. European Union champions a Motorways of the Seas con- Dieter Berndsen, the production V.P., linteoed as his cept that specifies four short-se shipping laces thatinvolve old friend Huber described the opportunity, jotting down its member nations.) Consequently, the Prague plant some- notes as be went. He explained to Haber that the factory times transported buses on barges via the Elbe, north to in Munich was already producing to los limits, and the two Hamburg The German plants occasionally shipped north other German facilities were also facing a bacldog of op to Bremerhaven or Hamburg, vin a network of industrial ders through the fourth quarter. So Berndsen offered two waterways, or westward, over the River Rhein, to the port immediate possibilities. First, he considered wait listing of Rotterdam in the Netherlands. (See Exhibit 14.1.) 40 bus order from the Thai military at the Munich plant Following is some of the information Weiss assem- He said he was relactant to do this, however, because the bled for Berndser: Thais bad ordered several product modifications, and the Munich line had already been set up to handle them. See- . By train, the geographic distances between plants ond, Berndsen suggested scoding the new Brazil order od ports were as follows: Prague to Hamburg 490 to NAMS Prague facility. Prague was the smallest of all Idilometers, Prague to Rotterdam 640 lilometers. the European plants and had the oklest, slowest assembly NAM. would need 3 days to get the buses from lines, but they were just finishing up manufacture of an the factodes in Prague to the Port of Bremerhaven order of #4-Gs and, due to a receat order cancellation, or Hamburg by train and 4 or 5 days to reach would now be working at paly 70 percent capacity throgh Rotterdam. The advantage of Rotterdum comes, yet-end. Within 8 weeks, figured Beadsen, Peague could however, in the shipping time from there to Santos eatly handle the order for Brazil's first 25 buses which waves a day versus Bremerhaven or Hamburg, lines, but they were just finishing up manufacture of an order of #4-G's and due to a recent order cancellation, would now be worlding at only 70 percent capacity through year-end. Within 8 weeks, figured Berndsen, Prague could easily handle the order for Brazil's first 25 buses. Huber eagerly agreed, as Berndsen decided to re- ommend Prague for this assignment. The problem was that this facility could not produce fast caough to fulfill more than 20 percent of the rest of the contract (for the 224 buses), which meant that he would have to coordinate production and delivery on the rest of this order from other plants. Sighing audibly over the phone line, Berndsen said, "Thanks a lot for the new beadache, Hubic. Let me the factodes in Pegue to the Port of Bremerhaven or Hamburg by train and 4 or 5 days to reach Rotterdam. The advantage of Rotterdam comes, however, in the shipping time from there to Santos, which saves a day versus Bremerhaves or Hamburg, and ocean shipping charges are 5 percent less. The Czech railway could transport the load to the border with Germany, where the Deutsche Bundesbahn would take over the flatcars, which carry two bases each. The Bundesbahn quotes a price of 1,643 per flatcar from Prague to Hamburg, which includes the service by its Czech partner. If mil were used from Prague to Rotterdam, the cost Chapter 14 - International Logistics 267 DENT Hale See GERMANY North wil POLAND OTHE UNITED KINGDOM BELGIUM CZECH AUSTRIA SWITZERLAND QUAL HUNGARY EXHIBIT 14.A Map of Central Europa per flatcar would be 1,943. In either port, it costs on vessels leaving from Rotterdam to Santos an another 45 per bus to have it unloaded and driven October 23, October 28, and November 2 to alongside the vessel. The vessel line can load and Handling (unloading) in Santos is estimated to cost pack 20 buses per day, charging 25 per bus and up acother 94 per bus, and this includes centtaching to 30 buses with overtime charges. The overtime the two halves. charges would amount to an additional 15 per bus The interest for N.A.M's line of credit is 10 percent (for buses 21, 22, and so on). All charges per bus included detaching the two halves. Using the waterways instead of trains to reach the QUESTIONS Hamburg port from Prague would decrease the 1. Assume that you are Weiss. How many viable alternatives trasportation cost by 48 per bus. Waterway trans- do you have to consider regarding the initial shipment of 25 portation would increase the transport time neces- buses? sary by 3 days to Hamburg 2. Which of the routing alternatives would you recommend For transoceanic shipping on any of these routes, to meet the loitial 90-day deadline for the 25-bus shipment? N.A.M. works with Hapag-Lloyd AG. Hapag-Lloyd Tain or waterway? To which port(s)? What would it cost? Is able to offer a cheap and Bexible commodity coat, 3. What additional information would be helpful for answering through its alliance with other ship lines for the question 22 ocean transport of the buses. One vessel could carry 4. How important, in fact, are the trasport costs for the initial up to 125 buses as deck cargo, but they would have shipment of 25 busca? 5. What kinds of customer service support must be provided to be disassembled at their accordion junctions and for this initial sluipment of 25 buses? Who is responsible? than rassembled again at their destination. 6. The Brazilian buyer wants the buses delivered at Santos. The cost per bus (in shipments of 20 buses or more) Weiss looks up the International Chamber of Commerce's from Bremerhaven or Hamburg to Santos is quoted Incoterms and finds three categodes of "delivered terms: at 6,000, and the trip requires 18 days. Hapag- Lloyd indicates that deck space is available for the DAT (Delivered at Terminal). In this type of transaction, the initial shipment of 25 buses on vessels departing seller clear the goods for export and beans all disles and costs associated with delivering the goods and unloading Hamburg on October 24, October 27, October 31, them at the terminal at the named port oc place of des and November 3. Hapag-Lloyd also has space tination. The buyer is responsible for all costs and rises (continued) 268 Part I. Elements of Logistics Systems from this point forward including clearing the goods for import at the same country of destination. DMP (Dwived at Place). The seller dears the goods for expont and bears all risks and costs associated with deliv ering the goods to the named place of destination not unloaded. The buyer is responsible for all costs and disks sociated with unloading the goods and deating customs to import goods into the named country of destination .DDP (Dared Duy Puld). The neller bears all risks and cores associated with delivering the goods to the named place of destination ready for unloading and clearing for import 7. How should he choose? Why? 8. Would you make the same routing recommendation for the second, larger (199 buses) component of the order, after the initial 90-day deadline is met? Why or why not