Please answer questions 2 and 3. (please don't repost answers that have been posted before and please show the calculation . Thank you !

CASE 14.1 Nrnberg Augsburg Maschinenwerke (N.A.M.) The Nrnberg Augsburg Maschinenwerke, one of By 2003 the company had reclaimed its preemiGermany's most successful manufacturing companies, nence as a global player in heavy truck and bus design, enjoys a long tradition. It dates from 1748, when the engineering, and manufacturing, as well as in print techSt. Antony Iron Mill opened in Oberhausen (located in the nology, rocket, and energy science. It had reestablished heart of the Ruhrgebiet industrial region) during the begin- both its plants and sales offices across the globe, and is ning years of German industrialization. The owners soon one of the largest diesel engine makers in the world. Karl founded additional iron and coal mills, and then established Huber was the N.A.M. regional vice president of sales for the firm as Gute Hoffungshuette (GHH). Shortly follow- South America, and he supervised a team of local sales ing, in Augsburg and Nrnberg, several companies joined representatives in the countries of that continent, plus a together to form Nrnberg Augsburg Maschinenwerke small group of people in the Munich headquarters. (N.A.M.). These two firms, GHH and N.A.M., would ulti- On August 15, Huber received an e-mail from mately merge in the early twentieth century. Leopold Escabar in Caracas, who had just returned from In the interim, N.A.M. had distinguished itself an important meeting with local authorities in charge through the work of Rudolf Diesel, who invented his of redesigning the local public transportation systems famous engine and then brought it to N.A.M. late in the for the Brazilian cities of So Paulo and Rio de Janeiro. nineteenth century. The diesel engine competed with Escabar had attended the meeting along with salespeople the internal combustion engine in early automotive from competing truck and bus companies. Escabar gave design and today powers heavy trucks, turbines, rail- Huber some good news and some bad news. Escabar road engines, and ships. Based on this success, N.A.M. had been told N.A.M. was favored to receive an order for swiftly expanded manufacturing operations and distri- 224 N.A.M. class \#4-G two-section articulated buses (or bution across the globe, only to have its foreign opera- "accordion" buses, as Escabar liked to call them), with tions compromised by international politics on two the possibility of securing a contract for an additional occasions. First, N.A.M. lost most of its foreign property 568 buses. To win the business, however, N.A.M. would in the wake of World War I, a setback that, among other have to meet cost and timing guarantees. adjustments, encouraged its merger with GHH in 1920. The customers first required that N.A.M. must Second, N.A.M. lost all of its foreign property again match or beat the total price per unit, including shipping, after World War II and had to rebuild and restructure that N.A.M. had received for a shipment of 233 buses to much of its domestic operation as well. In 1955, the com- the transit district of Buenos Aires, six months earlier. pany opened a truck unit in Munich, which would later That price was 124,500 per bus. Huber had built in a become the new company headquarters. small extra profit margin on the Buenos Aires deal, so he felt confident that to meet their pricing demand he could a recent order cancellation, would now be working at shave profit a little, if necessary, in this case. only 70 percent capacity through year-end. Within eight The second guarantee, however, was more wor- weeks, figured Berndsen, Prague could casily handle the risome: The Brazilian authorities were feeling political order for Brazil's first 25 buses. heat because they were badly behind schedule in imple- Huber eagerly agreed, as Berndsen decided to menting their transportation plan and needed proof to recommend Prague for this assignment. The problem show the public that their new programs were under was that this facility could not produce fast enough to way. So they had made this offer to N.A.M. on strict fulfill more than 20 percent of the rest of the contract condition that the company could ensure delivery of the (for the 224 buses), which meant that he would have to first 25 buses to Santos, the port that serves Sao Paulo, coordinate production and delivery on the rest of this by November 15 (only three months away). If N.A.M. order from other plants. Sighing audibly over the phone delivered this initial 90-day order on time, the company line, Berndsen said, "Thanks a lot for the new headache, would receive a contract for the remaining 199 vehicles Hubie. Let me mull this one over for a bit before I call to be delivered in full within the following 15 months. you back. But don't worry, we'll make your deadlineThe follow-on order for 568 more vehicles was, essen- and you will make your bonus. Just remember to cut me tially, contingent on ryeeting terms of the initial contract in for a piece." to the letter, with regard to the 224 buses. All buses were Huber chuckled, thanked him, and hung up. to be delivered to the Port of Santos. Berndsen decided to split the full order (224 buses) Huber whistled softly to himself as he read among the factories in Prague and the much larger plant Escabar's e-mail. This would be a major order. In a in Munich. To finalize both scheduling and pricing, he single stroke, it could move him ahead of his regional now needed to estimate the time it would take to fulfill sales targets for several quarters to come. Huber imme- the order, as well as the cost of transportation. He was diately sent back an e-mail, instructing Escabar to ten- inclined to use the Deutsche Bundesbahn to transport tatively accept the offer, assuring the local authorities the buses by train to the North Sea port of Bremerhaven, that they'd have their 25 buses in 90 days and the rest but he wasn't sure that this was the best solution for each within 18 months. N.A.M. would formally agree to the of the plants involved. proposal within five working days. Then he scratched Berndsen's immediate problem was the first shiphis head and tried to figure out how. Huber had four ment of buses, which would be ready to leave Prague on days before the next managing director's meeting, at October 15. Berndsen asked Marcus Weiss, his supplywhich time he would present the project and, with the chain analyst, to create a worksheet that would show all vice president for production, propose a plan to accom- costs and times required to get the buses from the Prague plish it. Huber lunged for the phone and, scarcely factory to the port of Bremerhaven, and he also asked glancing at the number pad, his fingers automatically Weiss to identify viable alternatives. (Europe possesses dialed 4823. an extensive network of rivers and channels that connect Dieter Berndsen, the production V.P., listened as together its network of commercial waterways. In fact, his old friend Huber described the opportunity, jotting the European Union champions a Waterways of the Seas down notes as he went. He explained to Huber that the concept that specifies four short-sea shipping lanes that factory in Munich was already producing to its limits, and involve its member nations.) Consequently. the Prague the two other German facilities were also facing a back- plant sometimes transported buses on barges via the log of orders through the fourth quarter. So Berndsen Elbe, north to Hamburg. The German plants occasionoffered two immediate possibilities. First, he consid. ally shipped north to Bremerhaven or Hamburg, via a ered wait listing a 40-bus order from the Thai military network of industrial waterways, or westward, over the at the Munich plant. He said he was reluctant to do this, River Rhein, to the port of Rotterdam in the Netherlands. however, because the Thais had ordered several product (See Exhibit 14.A.) modifications, and the Munich line had been already set Following is some of the information Weiss assemup to handle them. Second, Berndsen suggested sending bled for Berndsen: the new Brazil order to N.A.M.'s Prague facility. Prague was the smallest of all the European plants and had the - By train, the geographic distances between plants oldest, slowest assembly lines, but they were just finishand ports were as follows: Prague to Hamburg 490 ing up manufacture of an order of \#4-G's and, due to kilometers, Prague to Rotterdam 640 kilometers. - N.A.M. would need three days to get the buses - For transoceanic shipping on any of these routes, from the factories in Prague to the Port of N.A.M. works with Hapag-Lloyd AG. HapagBremerhaven or Hamburg by train and four or Lloyd is able to offer a cheap and flexible comfive days to reach Rotterdam. The advantage of modity cost, through its alliance with NYK, and Rotterdam comes, however, in the shipping time OOCL, for the ocean transport of the buses. One from there to Santos, which saves a day versus vessel could carry up to 125 buses as deck cargo, Bremerhaven or Hamburg, and ocean shipping but they would have to be disassembled at their charges are 5 percent less. } accordion junctions and then reassembled again at - The Czech railway could transport the load to their destination. the border with Germany, where the Deutsche - The cost per bus (in shipments of 20 buses Bundesbahn would take over the flatcars, which or more) from Bremerhaven or Hamburg to carry two buses each. The Bundesbahn quotes Santos is quoted at 6,000, and the trip requires a price of 1,643 per flatcar from Prague to 18 days. Hapag-Lloyd indicates that deck space Hamburg, which includes the service by its is available for the initial shipment of 25 buses Czech partner. If rail were used from Prague to on vessels departing Hamburg on October Rotterdam, the cost per flatcar would be 1,943. 24, October 27, October 31 , and November 3. In either port, it costs another 45 per bus to Hapag-Lloyd also has space on vessels leavhave it unloaded and driven to alongside the ves. ing from Rotterdam to Santos on October 23. sel. The vessel line can load and pack 20 buses per October 28, and November 2. day, charging 25 per bus and up to 30 buses with - Handling (unloading) in Santos is estimated to overtime charges. The overtime charges would cost another 94 per bus, and this includes reatamount to an additional 15 per bus (for buses taching the two halves. 21,22, etc.). All charges per bus included detach- - The interest for N.A.M.s line of credit is 10 percent. ing the two halves. Using the waterways instead of trains to reach the Hamburg port from Prague would decrease the Questions transportation cost by 48 per bus. Waterway 1. Assume that you are Weiss. How many viable alternatives transportation would increase the transport time do you have to consider regarding the initial shipment of necessary by three days to Hamburg. 25 buses? 2. Which of the routing alternatives would you recommend to - DAP (Delivered at Place). The seller clears the goods meet the initial 90-day deadline for the 25-bus shipment? for export and bears all risks and costs associated with Train or waterway? To which port(s)? What would it cost? delivering the goods to the named place of destination 3. What additional information would be helpful for not unloaded. The buyer is responsible for all costs and answering Question 2? risks associated with unloading the goods and clearing 4. How important, in fact, are the transport costs for the customs to import goods into the named country of initial shipment of 25 buses? destination. 5. What kinds of customer service support must be provided . DDP (Delivered Duty Paid). The seller bears all risks for this initial shipment of 25 buses? Who is responsible? and costs associated with delivering the goods to the 6. The Brazilian buyer wants the buses delivered at Santos. named place of destination ready for unloading and Weiss looks up the International Chamber of Commerce's clearing for import. Incoterms and finds three categories of "delivered" terms: How should he choose? Why? - DAT (Delivered at Terminal). In this type of transac- 7. Would you make the same routing recommendation for tion, the seller clears the goods for export and bears all the second, larger (199 buses) component of the order, risks and costs associated with delivering the goods and after the initial 90-day deadline is met? Why or why not? unloading them at the terminal at the named port or 8. How important, if at all, is it for N.A.M. to ship via water to place of destination. The buyer is responsible for all costs show its support of the European Union's Motorways of the and risks from this point forward including clearing the Seas concept? goods for import at the named cuuntry of destination. CASE 14.1 Nrnberg Augsburg Maschinenwerke (N.A.M.) The Nrnberg Augsburg Maschinenwerke, one of By 2003 the company had reclaimed its preemiGermany's most successful manufacturing companies, nence as a global player in heavy truck and bus design, enjoys a long tradition. It dates from 1748, when the engineering, and manufacturing, as well as in print techSt. Antony Iron Mill opened in Oberhausen (located in the nology, rocket, and energy science. It had reestablished heart of the Ruhrgebiet industrial region) during the begin- both its plants and sales offices across the globe, and is ning years of German industrialization. The owners soon one of the largest diesel engine makers in the world. Karl founded additional iron and coal mills, and then established Huber was the N.A.M. regional vice president of sales for the firm as Gute Hoffungshuette (GHH). Shortly follow- South America, and he supervised a team of local sales ing, in Augsburg and Nrnberg, several companies joined representatives in the countries of that continent, plus a together to form Nrnberg Augsburg Maschinenwerke small group of people in the Munich headquarters. (N.A.M.). These two firms, GHH and N.A.M., would ulti- On August 15, Huber received an e-mail from mately merge in the early twentieth century. Leopold Escabar in Caracas, who had just returned from In the interim, N.A.M. had distinguished itself an important meeting with local authorities in charge through the work of Rudolf Diesel, who invented his of redesigning the local public transportation systems famous engine and then brought it to N.A.M. late in the for the Brazilian cities of So Paulo and Rio de Janeiro. nineteenth century. The diesel engine competed with Escabar had attended the meeting along with salespeople the internal combustion engine in early automotive from competing truck and bus companies. Escabar gave design and today powers heavy trucks, turbines, rail- Huber some good news and some bad news. Escabar road engines, and ships. Based on this success, N.A.M. had been told N.A.M. was favored to receive an order for swiftly expanded manufacturing operations and distri- 224 N.A.M. class \#4-G two-section articulated buses (or bution across the globe, only to have its foreign opera- "accordion" buses, as Escabar liked to call them), with tions compromised by international politics on two the possibility of securing a contract for an additional occasions. First, N.A.M. lost most of its foreign property 568 buses. To win the business, however, N.A.M. would in the wake of World War I, a setback that, among other have to meet cost and timing guarantees. adjustments, encouraged its merger with GHH in 1920. The customers first required that N.A.M. must Second, N.A.M. lost all of its foreign property again match or beat the total price per unit, including shipping, after World War II and had to rebuild and restructure that N.A.M. had received for a shipment of 233 buses to much of its domestic operation as well. In 1955, the com- the transit district of Buenos Aires, six months earlier. pany opened a truck unit in Munich, which would later That price was 124,500 per bus. Huber had built in a become the new company headquarters. small extra profit margin on the Buenos Aires deal, so he felt confident that to meet their pricing demand he could a recent order cancellation, would now be working at shave profit a little, if necessary, in this case. only 70 percent capacity through year-end. Within eight The second guarantee, however, was more wor- weeks, figured Berndsen, Prague could casily handle the risome: The Brazilian authorities were feeling political order for Brazil's first 25 buses. heat because they were badly behind schedule in imple- Huber eagerly agreed, as Berndsen decided to menting their transportation plan and needed proof to recommend Prague for this assignment. The problem show the public that their new programs were under was that this facility could not produce fast enough to way. So they had made this offer to N.A.M. on strict fulfill more than 20 percent of the rest of the contract condition that the company could ensure delivery of the (for the 224 buses), which meant that he would have to first 25 buses to Santos, the port that serves Sao Paulo, coordinate production and delivery on the rest of this by November 15 (only three months away). If N.A.M. order from other plants. Sighing audibly over the phone delivered this initial 90-day order on time, the company line, Berndsen said, "Thanks a lot for the new headache, would receive a contract for the remaining 199 vehicles Hubie. Let me mull this one over for a bit before I call to be delivered in full within the following 15 months. you back. But don't worry, we'll make your deadlineThe follow-on order for 568 more vehicles was, essen- and you will make your bonus. Just remember to cut me tially, contingent on ryeeting terms of the initial contract in for a piece." to the letter, with regard to the 224 buses. All buses were Huber chuckled, thanked him, and hung up. to be delivered to the Port of Santos. Berndsen decided to split the full order (224 buses) Huber whistled softly to himself as he read among the factories in Prague and the much larger plant Escabar's e-mail. This would be a major order. In a in Munich. To finalize both scheduling and pricing, he single stroke, it could move him ahead of his regional now needed to estimate the time it would take to fulfill sales targets for several quarters to come. Huber imme- the order, as well as the cost of transportation. He was diately sent back an e-mail, instructing Escabar to ten- inclined to use the Deutsche Bundesbahn to transport tatively accept the offer, assuring the local authorities the buses by train to the North Sea port of Bremerhaven, that they'd have their 25 buses in 90 days and the rest but he wasn't sure that this was the best solution for each within 18 months. N.A.M. would formally agree to the of the plants involved. proposal within five working days. Then he scratched Berndsen's immediate problem was the first shiphis head and tried to figure out how. Huber had four ment of buses, which would be ready to leave Prague on days before the next managing director's meeting, at October 15. Berndsen asked Marcus Weiss, his supplywhich time he would present the project and, with the chain analyst, to create a worksheet that would show all vice president for production, propose a plan to accom- costs and times required to get the buses from the Prague plish it. Huber lunged for the phone and, scarcely factory to the port of Bremerhaven, and he also asked glancing at the number pad, his fingers automatically Weiss to identify viable alternatives. (Europe possesses dialed 4823. an extensive network of rivers and channels that connect Dieter Berndsen, the production V.P., listened as together its network of commercial waterways. In fact, his old friend Huber described the opportunity, jotting the European Union champions a Waterways of the Seas down notes as he went. He explained to Huber that the concept that specifies four short-sea shipping lanes that factory in Munich was already producing to its limits, and involve its member nations.) Consequently. the Prague the two other German facilities were also facing a back- plant sometimes transported buses on barges via the log of orders through the fourth quarter. So Berndsen Elbe, north to Hamburg. The German plants occasionoffered two immediate possibilities. First, he consid. ally shipped north to Bremerhaven or Hamburg, via a ered wait listing a 40-bus order from the Thai military network of industrial waterways, or westward, over the at the Munich plant. He said he was reluctant to do this, River Rhein, to the port of Rotterdam in the Netherlands. however, because the Thais had ordered several product (See Exhibit 14.A.) modifications, and the Munich line had been already set Following is some of the information Weiss assemup to handle them. Second, Berndsen suggested sending bled for Berndsen: the new Brazil order to N.A.M.'s Prague facility. Prague was the smallest of all the European plants and had the - By train, the geographic distances between plants oldest, slowest assembly lines, but they were just finishand ports were as follows: Prague to Hamburg 490 ing up manufacture of an order of \#4-G's and, due to kilometers, Prague to Rotterdam 640 kilometers. - N.A.M. would need three days to get the buses - For transoceanic shipping on any of these routes, from the factories in Prague to the Port of N.A.M. works with Hapag-Lloyd AG. HapagBremerhaven or Hamburg by train and four or Lloyd is able to offer a cheap and flexible comfive days to reach Rotterdam. The advantage of modity cost, through its alliance with NYK, and Rotterdam comes, however, in the shipping time OOCL, for the ocean transport of the buses. One from there to Santos, which saves a day versus vessel could carry up to 125 buses as deck cargo, Bremerhaven or Hamburg, and ocean shipping but they would have to be disassembled at their charges are 5 percent less. } accordion junctions and then reassembled again at - The Czech railway could transport the load to their destination. the border with Germany, where the Deutsche - The cost per bus (in shipments of 20 buses Bundesbahn would take over the flatcars, which or more) from Bremerhaven or Hamburg to carry two buses each. The Bundesbahn quotes Santos is quoted at 6,000, and the trip requires a price of 1,643 per flatcar from Prague to 18 days. Hapag-Lloyd indicates that deck space Hamburg, which includes the service by its is available for the initial shipment of 25 buses Czech partner. If rail were used from Prague to on vessels departing Hamburg on October Rotterdam, the cost per flatcar would be 1,943. 24, October 27, October 31 , and November 3. In either port, it costs another 45 per bus to Hapag-Lloyd also has space on vessels leavhave it unloaded and driven to alongside the ves. ing from Rotterdam to Santos on October 23. sel. The vessel line can load and pack 20 buses per October 28, and November 2. day, charging 25 per bus and up to 30 buses with - Handling (unloading) in Santos is estimated to overtime charges. The overtime charges would cost another 94 per bus, and this includes reatamount to an additional 15 per bus (for buses taching the two halves. 21,22, etc.). All charges per bus included detach- - The interest for N.A.M.s line of credit is 10 percent. ing the two halves. Using the waterways instead of trains to reach the Hamburg port from Prague would decrease the Questions transportation cost by 48 per bus. Waterway 1. Assume that you are Weiss. How many viable alternatives transportation would increase the transport time do you have to consider regarding the initial shipment of necessary by three days to Hamburg. 25 buses? 2. Which of the routing alternatives would you recommend to - DAP (Delivered at Place). The seller clears the goods meet the initial 90-day deadline for the 25-bus shipment? for export and bears all risks and costs associated with Train or waterway? To which port(s)? What would it cost? delivering the goods to the named place of destination 3. What additional information would be helpful for not unloaded. The buyer is responsible for all costs and answering Question 2? risks associated with unloading the goods and clearing 4. How important, in fact, are the transport costs for the customs to import goods into the named country of initial shipment of 25 buses? destination. 5. What kinds of customer service support must be provided . DDP (Delivered Duty Paid). The seller bears all risks for this initial shipment of 25 buses? Who is responsible? and costs associated with delivering the goods to the 6. The Brazilian buyer wants the buses delivered at Santos. named place of destination ready for unloading and Weiss looks up the International Chamber of Commerce's clearing for import. Incoterms and finds three categories of "delivered" terms: How should he choose? Why? - DAT (Delivered at Terminal). In this type of transac- 7. Would you make the same routing recommendation for tion, the seller clears the goods for export and bears all the second, larger (199 buses) component of the order, risks and costs associated with delivering the goods and after the initial 90-day deadline is met? Why or why not? unloading them at the terminal at the named port or 8. How important, if at all, is it for N.A.M. to ship via water to place of destination. The buyer is responsible for all costs show its support of the European Union's Motorways of the and risks from this point forward including clearing the Seas concept? goods for import at the named cuuntry of destination