Land Command ATVs provides a wide range of all terrain vehicles for enthusiasts of outdoor adventures Their factory in Kenora, Ontario, sells thousands of different models every year One of their most popular ATVsthe Quadwranglerrequires an upgrade It's safe as it currently is, but growing concerns from the general public about injuries and even death resulting from use of this model call for a modification Land Command has decided to introduce an optional roll cage feature for these ATVs, but they lack the capacity to build these cages in house As such, Stuart McNamara (the Purchasing Manager for Land Command) sent requests for quotations (RFQ's) to five different companies around the world Two made Stuart's short list Metal Masters in Winnipeg, Manitoba and Custom Cages in Jinan, Shandong province, China Both have experience crafting roll cages for various vehicles, but have never worked with Land Command beforethey will incur some retooling costs The sales forecast for 2017 is 2,900 Quadwranglers In 2016, they sold 2,578 The packaged roll cages weigh roughly 23 kilograms The tubing is 153 cm x 13 3 cm x 13 3 cm (or 60 x 5 x 5 ) Metal Masters Quote Stuart received an in person visit from Metal Masters who sent in the first quote Winnipeg is roughly 200 kilometers from Kenora, which is almost next door neighbor status by Canadian standards They are keen to work alongside Land Command to develop these roll cages as well as any future metal work they might require Global outsourcing hasn't been kind to Metal Masters, and it's clear they are hoping to land this contract This quote covers unit price, tooling, and packaging, but not shipping Land Command has storage space at their factory, and have agreed to arrange their own shipping should they choose to go with Metal Masters The full quote is as follows Unit Price $280 00, taxes included, inclusive of tooling setup costs Metal Masters will pre assemble the cages, ready for installation on the ATV's in Kenora Packing costs Packaging cost in Winnipeg $0 75 CAD in addition to the quoted price of $280 00 Freight cost Metal Masters will ship Less than Truckload (LTL) a minimum of 20 cages (1,000 lbs ) to Kenora, palletized and shrink wrapped Land Command's preferred carrier has quoted a price of $5 per 100 lbs to carry the cages from Winnipeg to Kenora Packaging and pallets weigh an additional 2 kg per unit in addition to the product weight of 23 kg per unit 23 kg 2 kg 25 kg Shipping lead time 2 to 3 weeks Manufacturing lead time 2 weeks Custom Cages Quote Custom Cages emails their quote to Stuart from their Jinan office in Shandong If Land Command chooses this quote, they will have to account for various shipping costs to receive the goods Custom Cages will have to package the goods for inland transportation to the port of Tianjin, and from the port of Tianjin to the port in Vancouver Land Command will have to arrange for transportation of goods from the Vancouver port to their location in Ontario, and they will also pay for international shipping costs The second quote is as follows Unit price Custom Cages quotes $180 00 USD per Cage, FOB Port of Tianjin, China, minimum 264 Cages per shipment (1 x 40' Full Container), minimum 2,000 units per year Shipping lead time 17 weeks (from Tianjin to Kenora, via Vancouver) Manufacturing lead time 8 weeks There are other factors for Stuart to consider, including the following Each monthly shipment requires 22 crates per container x 12 cages per crate 264 Cages per 40' container Packing costs for shipping Cages are shipped in wooden crates, 12 per crate, knocked down, nested and packed with protective dunnage Cages weigh 25 kg per unit 300 kg per crate exterior packing including crate 400 kg A 40 foot dry standard ocean container will accommodate 22 wooden crates, each measuring 84 x 40 x 40 Therefore, total weight per container 400 kg x 22 crates 8,800 kg 19,395 lbs Freight cost ocean to Vancouver $ USD 2,900 per 40 ft container Export Packing Costs at Custom Cages in Shandong $2 USD per Cage Documentation Fee at Export $75 USD per container Freight Forwarder's Service Fee $100 USD per container Fuel Surcharge $300 USD per 40' container Customs Brokerage, customs clearance fee $ CAD 350 per 40' container Customs Duty 6 of invoice price of $180 USD per unit converted to CAD Port Handling Fees in Vancouver $100 CAD per 40' container Rail truck delivery Port of Vancouver to door in Kenora $ CAD 1,000 per 40' Container Some final assembly is required before installation in Kenora $25 CAD per unit To ensure compliance and quality, and continue the business relationship, Stuart McNamara budgets $20,000 CAD in travel costs to fly to China each year to visit the factory Stuart must absorb any international sourcing coststhis is not the supplier's responsibility However, he believes the Canadian price might be a better bet even though it is more expensive This said, it's uncertain where the Canadian dollar will be in the next few years Also, the Quadwrangler is currently a top selling ATV, but it might not remain as popular 2 to 5 years from now Stuart asks you for your advice about how to proceed What do you tell him Part 1 Negotiations take place when the Canadian and US Dollars are at par that is, $1 00 USD $1 00 CAD Determine which of the two options is best from a strictly cost comparison point of view 1 What is the total cost (net landed cost in Canadian dollars) per unit if the cages are sourced from China 2 What is the total cost (net landed cost per unit) if the cages are sourced from Winnipeg 3 What is the preferred option 4 How much money will Land Command save annually by sourcing under this option Part 2 Stuart is about to sign the contract is about to sign the contract, but his banker suddenly informs him that the value of Canadian currency has dropped dramatically since negotiations began The Canadian dollar is now worth only 75 cents in US funds In other words, $0 75 USD $1 00 CAD Your banker says that this devaluation might be temporary, linked to the falling price of oil, but he is not sure what the future might bring 1 Does the falling value of the Canadian dollar change your conclusions at all about the best place to source the cages If so, what is your preferred option now 2 When the Canadian dollar is only worth $0 75 USD, how much money will Land Command save or lose by sourcing the cages from the option that you chose when the currencies were at par (in Part 1 above) 3 How much money does Land Command stand to save or lose annually under the choice that you made in Part 2 Question 1 above Part 3 Given the case study presented to you, write one to two page summary for Stuart that addresses the following questions 1 Aside from the costs that you have accounted for in the above analysis, what other costs and benefits might you encounter when you compare the Metal Masters Option to the Custom Cages option 2 Is there any information missing from the details presented in this case study that might help you make a better decision What might they be Is it realistic for you to expect that you would be able to obtain these additional details 3 Stuart asks you for your advice about how to proceed What do you recommend Why

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Land Command ATVs provides a wide range of all-terrain vehicles for enthusiasts of outdoor adventures. Their factory in Kenora, Ontario, sells thousands of different models

Land Command ATVs provides a wide range of all-terrain vehicles for enthusiasts of outdoor adventures. Their factory in Kenora, Ontario, sells thousands of different models every year. One of their most popular ATVsthe Quadwranglerrequires an upgrade. It's safe as it currently is, but growing concerns from the general public about injuries and even death resulting from use of this model call for a modification.

Land Command has decided to introduce an optional roll-cage feature for these ATVs, but they lack the capacity to build these cages in house. As such, Stuart McNamara (the Purchasing Manager for Land Command) sent requests for quotations (RFQ's) to five different companies around the world. Two made Stuart's "short list": Metal Masters in Winnipeg, Manitoba and Custom Cages in Jinan, Shandong province, China. Both have experience crafting roll cages for various vehicles, but have never worked with Land Command beforethey will incur some retooling costs.

The sales forecast for 2017 is 2,900 Quadwranglers. In 2016, they sold 2,578. The packaged roll cages weigh roughly 23 kilograms. The tubing is 153 cm x 13.3 cm x 13.3 cm (or 60" x 5" x 5").

Metal Masters Quote

Stuart received an in-person visit from Metal Masters who sent in the first quote. Winnipeg is roughly 200 kilometers from Kenora, which is almost "next-door neighbor" status by Canadian standards. They are keen to work alongside Land Command to develop these roll cages as well as any future metal work they might require. Global outsourcing hasn't been kind to Metal Masters, and it's clear they are hoping to land this contract.

This quote covers unit price, tooling, and packaging, but not shipping. Land Command has storage space at their factory, and have agreed to arrange their own shipping should they choose to go with Metal Masters. The full quote is as follows:

Unit Price: $280.00, taxes included, inclusive of tooling/setup costs. Metal Masters will pre-assemble the cages, ready for installation on the ATV's in Kenora

Packing costs: Packaging cost in Winnipeg = $0.75 CAD in addition to the quoted price of $280.00

Freight cost: Metal Masters will ship Less-than-Truckload (LTL) a minimum of 20 cages (1,000 lbs.) to Kenora, palletized and shrink-wrapped. Land Command's preferred carrier has quoted a price of $5 per 100 lbs. to carry the cages from Winnipeg to Kenora. Packaging and pallets weigh an additional 2 kg per unit in addition to the product weight of 23 kg per unit. 23 kg + 2 kg = 25 kg

Shipping lead time: 2 to 3 weeks

Manufacturing lead time: 2 weeks

Custom Cages Quote

Custom Cages emails their quote to Stuart from their Jinan office in Shandong. If Land Command chooses this quote, they will have to account for various shipping costs to receive the goods. Custom Cages will have to package the goods for inland transportation to the port of Tianjin, and from the port of Tianjin to the port in Vancouver. Land Command will have to arrange for transportation of goods from the Vancouver port to their location in Ontario, and they will also pay for international shipping costs. The second quote is as follows:

Unit price: Custom Cages quotes $180.00 USD per Cage, FOB Port of Tianjin, China, minimum 264 Cages per shipment (1 x 40' Full Container), minimum 2,000 units per year.

Shipping lead time: 17 weeks (from Tianjin to Kenora, via Vancouver)

Manufacturing lead time: 8 weeks

There are other factors for Stuart to consider, including the following:

Each monthly shipment requires 22 crates per container x 12 cages per crate = 264 Cages per 40' container
Packing costs for shipping: Cages are shipped in wooden crates, 12 per crate, knocked down, nested and packed with protective dunnage. Cages weigh 25 kg per unit = 300 kg per crate + exterior packing including crate = 400 kg. A 40 foot dry standard ocean container will accommodate 22 wooden crates, each measuring 84" x 40" x 40." Therefore, total weight per container = 400 kg x 22 crates = 8,800 kg = 19,395 lbs.
Freight cost - ocean to Vancouver = $ USD 2,900 per 40-ft. container
Export Packing Costs at Custom Cages in Shandong = $2 USD per Cage
Documentation Fee at Export = $75 USD per container
Freight Forwarder's Service Fee = $100 USD per container
Fuel Surcharge = $300 USD per 40' container
Customs Brokerage, customs clearance fee = $ CAD 350 per 40' container
Customs Duty = 6% of invoice price of $180 USD per unit converted to CAD
Port Handling Fees in Vancouver = $100 CAD per 40' container
Rail / truck delivery Port of Vancouver to door in Kenora = $ CAD 1,000 per 40' Container
Some final assembly is required before installation in Kenora = $25 CAD per unit
To ensure compliance and quality, and continue the business relationship, Stuart McNamara budgets $20,000 CAD in travel costs to fly to China each year to visit the factory

Stuart must absorb any international sourcing coststhis is not the supplier's responsibility. However, he believes the Canadian price might be a better bet even though it is more expensive. This said, it's uncertain where the Canadian dollar will be in the next few years. Also, the Quadwrangler is currently a top selling ATV, but it might not remain as popular 2 to 5 years from now.

Stuart asks you for your advice about how to proceed. What do you tell him?

Part 1:

Negotiations take place when the Canadian and US Dollars are at par - that is, $1.00 USD = $1.00 CAD.

Determine which of the two options is best from a strictly cost comparison point of view.

1.What is the total cost (net landed cost in Canadian dollars) per unit if the cages are sourced from China?

2.What is the total cost (net landed cost per unit) if the cages are sourced from Winnipeg?

3.What is the preferred option?

4.How much money will Land Command save annually by sourcing under this option?

Part 2:

Stuart is about to sign the contract is about to sign the contract, but his banker suddenly informs him that the value of Canadian currency has dropped dramatically since negotiations began. The Canadian dollar is now worth only 75 cents in US funds. In other words, $0.75 USD = $1.00 CAD. Your banker says that this devaluation might be temporary, linked to the falling price of oil, but he is not sure what the future might bring.

1.Does the falling value of the Canadian dollar change your conclusions at all about the best place to source the cages? If so, what is your preferred option now?

2.When the Canadian dollar is only worth $0.75 USD, how much money will Land Command save or lose by sourcing the cages from the option that you chose when the currencies were at par (in Part 1 above)?

3.How much money does Land Command stand to save or lose annually under the choice that you made in Part 2 Question 1 above?

Part 3:

Given the case study presented to you, write one to two page summary for Stuart that addresses the following questions:

1.Aside from the costs that you have accounted for in the above analysis, what other costs and benefits might you encounter when you compare the Metal Masters Option to the Custom Cages option?

2.Is there any information missing from the details presented in this case study that might help you make a better decision? What might they be? Is it realistic for you to expect that you would be able to obtain these additional details?

3.Stuart asks you for your advice about how to proceed. What do you recommend? Why?