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.

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.

$1.$ The supplier must:

$2.$ Pack the harnesses in a container.

$3.$ Ship via inland transportation to the Port of Shanghai in China.

$4.$ Have the shipment transferred to a container ship.

$5.$ Ship material to Seattle.

$6.$ 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$

In addition to the supplier$$s quote, Barry must consider additional costs and information before preparing a comparison of the Chinese supplier$$s quotation:

The international sourcing costs must be absorbed by Barry, as the supplier does not assume any of the additional estimated costs and invoices Barry later or builds the costs into a revised unit price.

Barry feels that the U$.$S$.$ supplier is probably less expensive, even though they quoted a higher price. Barry also knows that this is a standard technology that is unlikely to change during the next three years, but which could be a contract that extends multiple years out.

There is also a lot of $$hall talk$$ among the engineers about next$-$generation automotive electronics, which will eliminate the need for wire harnesses, which will be replaced by electronic components that are smaller, lighter, and more reliable.

$1.$ List in order of importance the $10$ most important facts in this case.

a$.$ Why did you pick your first item as the most important consideration?

b$.$ How do you know this choice is correct?

c$.$ Refer to the assignment rubric for guidance on how you will be marked.

$2.$ Next, determine the cost to the buyer$$s door. This total cost estimate is known as the landed cost per unit or the cost for each wiring harness to the buyer$$s door.

a$.$ Calculate the total cost per unit of purchasing from the first supplier, Original Wire.

i$.$ Include unit price $+$ packaging cost per unit $+$ freight cost per unit.

b$.$ Calculate the total cost per unit of purchasing from HLA, including all the additional costs listed.

Note: Tooling costs will not be included since we do not know the life of the tool or how many parts it can produce when considering the Chinese supplier.

$3.$ Based on the total cost per unit, how much money could be saved in one year, two years, or three years if we went offshore?

a$.$ Refer to the assignment rubric for guidance on how you will be marked.

$4.$ Based on the total cost per unit, how much money could be saved in one year, two years, or three years if we went offshore?

a$.$ Refer to the assignment rubric for guidance on how you will be marked.

$5.$ Research and confirm current ocean freight costs and transportation lead times to Shanghai in China.

a$.$ How does the current information change your supply strategy change?

b$.$ Refer to the assignment rubric for guidance on how you will be marked.

$6.$ Describe the strategy you would implement to help maintain consistency of supply

a$.$ What are the three most important components of your strategy?