Case Study:

Barry Harris, a buyer at Ziemens, a London, Ontario$-$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 in Auburn Hills, Michigan, USA.

Happy Lucky Assemblies $($HLA$)$ of Guangdong Province, China.

A wiring harness is made up of wire, terminals, and connector bodies. A typical wiring harness would connect a switch to a light bulb or other electrical equipment. See example below.

The estimated demand for the harnesses is $5,000$ wiring harnesses $($or units$)$ per month.

Both suppliers will incur some costs to retool this harness.

The harnesses will be prepackaged in $24$ X $12$ X $6-$inch cartons.

The carton size is equal to one cubic foot.

Each packaged unit weighs approximately $10$ pounds.

Quote $1$: Supplier One $$ Original Wire

The first quote received is from Original Wire.

Auburn Hills is about $200$ kilometres from the Ziemens facility, so the quote was delivered in person. When Barry went down to the lobby, he was greeted by the sales manager and an engineering representative.

After the quote was handed over, the sales manager noted that engineering representative would be happy to work closely with Ziemens in developing the unit and would also be interested in future business that might involve finding ways to reduce costs.

The sales manager also noted that they were hungry for business, as they were losing a lot of customers to companies from China.

The quote includes:

Unit Price

Tooling

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 Ziemens$$ assembly operations are possible.

Original Wire$$s Quote:

Unit Price $=$ $$30$ USD

Packing Costs $=$ $$0\mathrm{.}75$ per unit

Tooling $=$ $$6,000$ one$-$time fixed charge

Freight Cost $=$ $$5\mathrm{.}20$ per hundred pounds or $$0\mathrm{.}52$ per unit

Quote $2$: Supplier Two $$ Happy Lucky Assemblies $($HLA$)$

The second quote received is from HLA of Guangdong Province, China.

The supplier must:

Pack the harnesses in a container.

Ship via inland transportation to the Port of Shanghai in China.

Have the shipment transferred to a container ship.

Ship material to Seattle.

Then have material transported inland to Detroit.

The quoted unit price does not include international shipping costs, which the buyer will assume.

HLA$$s Quote:

Unit price $=$ $$19\mathrm{.}50$ USD

Shipping lead time $=$ Eight weeks

Tooling $=$ $$3,000$