Global Resources Case Study

You are the President of Global Resources, LLC (GR). GR is a small company with approx. $30 million in annual revenue and about 100 employees in Allendale. Your company was founded in the 1981 by a gentleman who sourced products from Asia to sell to furniture (office and home), marine, and some automotive manufacturers in the Midwest (primarily the Grand Rapids area). Initially, GR sourced from Taiwan and Singapore, but now have trading partners (suppliers) also in China, Vietnam, and Thailand. GR is financially stable, with a very good Balance Sheet and plenty of cash reserves.

GR takes pride in its supply chain expertise. Customers may come to GR with a product design in mind or may need assistance from GR in developing a product. Once the product is defined, GR will source the product from one of their suppliers in Asia, qualify the suppliers production process, manage the supply chain, and inventory the product in their Allendale warehouse.

Pre-Covid, most products had a 6-9 week leadtime. Supplier manufacturing took 2-4 weeks (product dependent), and the transportation time from supplier to Allendale was about 4-5 weeks (26-35 days). However, 2021 and 2022 have been a different story as everyone knows, logistics cycle time and cost have increased beyond imagination. Now, it is July 1, 2022 and the rates and leadtime are out of control:

2019 July 1, 2022

40 Container Cost $5,000 $20,000 to $25,000

40 Container Leadtime 26 - 35 days 90 120 days

Air Shipment Cost $6 7 / kg $15 / kg

One of your largest customers, SimplyAmazing (SA), is a home furniture manufacturer in Grand Rapids. SA purchases wooden chair parts from GR, which GR sources from a supplier in Vietnam. SA has 60-70% of its sales between Thanksgiving and New Years and also introduces its new products in the Holiday season. SA has come to your team with a few new designs, which your Vietnamese supplier could easily produce. If you give the supplier a purchase order this week, it can produce two containers of product in 3 weeks. This is the volume needed to meet the Holiday season demand.

You meet with Gina, President of SimplyAmazing, to discuss this problem, but also, you need to talk about price:

Price: Normally, you sell a set of these chair components at $40 / set (and you have a 15% profit margin or $6 at this price). However, given the increased cost of ocean shipment, the price will increase to $60 / set (GR still has a 15% profit margin or $9). If air shipment is used, the price would be $80 / set (again, maintaining GRs 15% profit margin or $12).

Leadtime: If GR places the order with the supplier this week, and ocean shipment leadtime is 90 days, GR could receive the shipment in late October, which would give SA about 4 weeks to produce chairs by Thanksgivingthis is tight timing but manageable. However, if shipment time is more like 150 days, the shipment may not arrive until 2023!

Gina is very upset! Yes, she has heard in the news about supply chain issues, but GR has always taken care of it! The cost increase of ocean shipment will eat into SAs profits substantially, and air freight would eliminate all of SAs margin. She knows that a competitor, Promedio, sources its wood components from a supplier in southern Mexico. The Mexico supplier isnt FSC (Forest Stewardship Council) certified for sustainable forest management the Vietnamese supplier is certified. Gina stated that SA documents and advertises the FSC certification on its products. Also, she believes that SAs product is superior to Promedios but was not clear if that is due to SAs product design or the wood used in its product. Bottomline, after the discussion, she stated that she trusts GRs expertise, but demands that you meet in two days with a much better story and a solid proposal for her.

After returning to the office, you talk with your sourcing manager about the supplier in Mexico. She knows a little about the company, but not much. To qualify the company as a supplier (site visit and assessment, supplier set-up, qualification of components, etc.), it will take about 6-8 weeks and cost GR about $10,000 in travel and qualification costs. She notes that GR has never sourced from Mexico, so the supply chain is unknown. If the supplier is acceptable, there is likely a 4 week leadtime from placing an order with the supplier to receipt of materials in Allendale. Shipping cost from Mexico to Allendale will likely be less than the original ocean shipment cost from Vietnam. Your sourcing manager vents her frustration as welleveryone knows that supply chain leadtime and costs are rising. This is one of the major factors for inflation. Why doesnt Gina recognize this?

Regardless, you need to put together a strategy for your next meeting with Gina. Time is short and decisions need to be made in this meeting.

What are your proposals for Gina?