Case Study: The Global Sourcing Wire Harness Decision

Quote 2

The second quote received is from Happy Lucky Assemblies of Guangdong Province, China. The supplier must pack the harnesses in a container and ship via inland transportation to the port of Shanghai in China, have the shipment transferred to a container ship, ship material to Seattle, and then have material transported inland to Detroit.

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

HLA Quote:

Unit price = $19.50

Shipping lead time = Eight weeks

Tooling = $3,000

In addition to the supplier's quote, Sheila must consider additional costs and information before preparing a comparison of the Chinese supplier's quotation: Each monthly shipment requires three 40-foot containers. Packing costs for containerization = $2 per unit. Cost of inland transportation to port of export = $200 per container. Freight forwarder's fee = $100 per shipment (letter of credit, documentation, etc.). Cost of ocean transport = $4,000 per container. This has risen significantly in recent years due to a shortage of ocean freight capacity. Marine insurance = $0.50 per $100 of shipment. U.S. port handling charges = $1,200 per container. This fee has also risen consid- erably this year, due to increased security. Ports have also been complaining that the charges may increase in the future. Customs duty = 5% of unit cost. Customs broker fees per shipment = $300. Transportation from Seattle to Detroit = $18.60 per hundred pounds. Need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of $1.00 per cubic foot per month, to compensate for lead time uncertainty. Sheila must also figure the costs associated with committing corporate capital for holding inventory. She has spoken to some accountants, who typically use a corporate cost of capi- tal rate of 15%. Cost of hedging currencybroker fees = $400 per shipment Additional administrative time due to international shipping = 4 hours per shipment $25 per hour (estimated) At least two five-day visits per year to travel to China to meet with supplier and provide updates on performance and shipping = $20,000 per year (estimated)

Calculate the total cost per unit of purchasing from Happy Lucky Assemblies.