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MGT 337: SUPPLY CHAIN MANAGEMENT - EVALUATION 2 QUESTION #6 Gianna, Primo's Chief Marketing Officer, and Marco, the Chief Operating Officer, are arguing over the fate of the Bean Boiler. The Bean Boiler is Primo Cafe's most basic model. It is competitively priced at $20 per unit and the company reliably sells 25,000 units per month. Fixed annual costs and variable costs for the Bean Boiler are presented below. Gianna sees the Bean Boiler as a loser. There are lots of competitors that are rapidly eating into Primo's market share - and although sales have been stable, the company's best projections are that Bean Boiler sales volume will decline by 25% year-on-year over the next five years. Gianna wants to pull company resources from the Bean Boiler now and invest immediately in a new product - a French press she's designed called the Brassage Frais. Marco is not convinced. From manufacturing perspective, producing 25,000 Bean Boilers a month is easy. Plus - given its current cost structure and demand volume - the Bean Boiler pulls in about $6,000,000 in profits per year. Marco doesn't see why the company should give up those profits for an unproven product like the Brassage Frais. And while Marco concedes there's nothing special about Primo's production process - other companies make essentially the same product in the same way - Marco is convinced it is cheaper to produce in-house than outsource. In fact, when Marco asked you to find a potential outsourced supplier for production of the Bean Boiler, the best price you could find was $14.00 per unit (previous negotiations with Legit Mig from Q3 fell through and the company has since gone out of business). In-House (Cost to Make) Direct Materials $2.00 Direct Labor $5.00 Variable Mfg Overhead $5.00 Total Variable Costs Per Unit $12.00 Fixed Annual Mig Overhead $300,000 Outsource (Cost to Buy) Price Per Unit $14.00 Apply the make-buy framework as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Marco wants a recommendation on what Primo Cafe should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why?MGT 337: SUPPLY CHAIN MANAGEMENT - EVALUATION 2 QUESTION #5 Primo Cafe has long relationship with Techno-Gadgets Limited to produce the temperature and pressure gauges that go into the Caffissimo. However, Techno-Gadgets recently underwent an ownership change and since then the quality of their products has declined. Elise, Primo's CEO and founder, is in negotiations with Techno-Gadgets to resolve the issue, but in the meantime, you have been tasked with looking for new potential suppliers. Your search has lead you to two overseas companies: Tokyo Techtonics Inc. and Allesgute Engineering GmbH. Tokyo Tectonics Inc. is located in Japan and quotes you price of *12.00 (15 Japanese Yen) per gauge. Allesgute Engineering GmbH is located in Germany and quotes you a price of (12.00 (15 Euro) per gauge. In order to help determine which company has the best cost structure, you have collected the following information. Current USD/JPY exchange rate: $1 = V1.50 Expected USD/JPY exchange rate in six months: $1 = $1.20 Current USD/EUR exchange rate: $1 = 60.8 Expected USD/EUR exchange rate in six months: $1 = (1.20 Additional Costs Tokyo Tectonics Inc. Allesgute Engineering GmbH Shipping to port of export 4.25 $ 5.30 Ocean freight $ 30.25 $ 27.50 Duties on imports 1.50 1.80 Transportation to warehouse $ 3.75 $ 3.00 Marco wants to move quickly and lock up a contract with Allesgute Engineering immediately. Elise is inclined to give Techno-Gadgets six months to resolve its issues. At that point, she is interested in inking a deal with Tokyo Tectonics. Apply exchange rate calculations as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Calculate the current and future total cost for each supplier in USD. 2. Marco wants a recommendation on what Primo Cafe should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why?MGT 337: SUPPLY CHAIN MANAGEMENT - EVALUATION 2 Question #4 Primo Cafe has been purchasing aluminum castings from BIS PT for many years. Two years ago, on a weekend morning, Marco received an emergency call from a salesman for BJS. Its factory in Indonesia was on fire! Employees and firemen had been killed during the incident, and there was significant damage. BIS had been an excellent supplier to Primo Cafe - and the loss of BIS would have severely impacted Primo Cafe's operations and profits. The salesman understood Primo Cafe's reliance on BJS and stated that "Bis will do everything possible to keep from shutting down your company." Indeed, BIS met its commitment. BJS quickly moved production to a qualified factory in Singapore, while it rebuilt the Indonesia plant. During the transition to Singapore, BIS air shipped product to Primo Cafe and BIS paid the additional cost of air shipment (normally, product is shipped by ocean freight at Primo Cafe's cost). Primo Cafe-owned tooling in Indonesia estimated at $250,000 was destroyed in the fire. Using its own money, BIS built new tools for parts that were in production to meet Primo Cafe's unit demand. While there were anxious moments during the transition, fortunately, Primo Cafe did not miss any customer commitments, and, other than the additional staff hours working through the transition with BJS, there were no additional costs for Primo Cafe. Fast forward to today. Primo Cafe's legal team is performing a tooling audit. The audit is meant to confirm the status of Primo Cafe-owned tools that are located with suppliers. Primo Cafe's legal team has sent you a list of tools to check, including $250,000 of tools at BIS. After contacting BIS, you discover that some of the tools are no longer in service because they were destroyed in the fire two years ago. More specifically, you find that BIS rebuilt $150,000 of the tooling in Singapore to meet Primo Cafe's production requirements at the time of the fire. However, an additional $100,000 of the tooling was not rebuilt, since parts produced from those tools were from old product designs and no longer used by Primo Cafe. The legal teamn states that by contract BIS must maintain tooling in good condition for 15 years, regardless if the tools are used or not. The legal team states that by contract BIS owes Primo Cafe $100,000 - the value of the tools destroyed but not rebuilt. Legal is demanding payment! Marco wants a recommendation on what Primo Cafe should do. Applying the ethical framework presented in class, complete the following. Include a discussion from at least 2 of the 5 approaches. 1. Step 1 - Recognize an Ethical Issue a. Is this an ethical issue? Provide a detailed explanation for your reasoning. 2. Step 2 - Get the Facts: Answer the following questions a. What are the relevant facts of the case? b. What facts are not known? C. What individuals/groups have an important stake in the outcome? d. Are the concerns of some individuals/groups more important than others? Why? e. Do you know enough to make a decision at this point? Why or why not? 3. Step 3 - Develop Options 8 MGT 337: SUPPLY CHAIN MANAGEMENT - EVALUATION 2 a. Describe three potential courses of action that you and Marco could take b. For each potential course of action, describe the potential outcomes for the individuals/groups involved 4. Provide a proposed recommendation to MarcoMGT 337: SUPPLY CHAIN MANAGEMENT - EVALUATION 2 QUESTION #3 Primo Cafe is thinking about outsourcing production of the Bean Boiler. Currently, the cost of producing the Bean Boiler in-house is $13 per unit. You have found a supplier - Legit Mfg LLC - who can produce the Bean Boiler at $12.50 per unit. Legit Mfg has the capacity to produce the Bean Boiler in large volumes (30,000 units per production run). Primo Cafe sells up to 304,500 Bean Boilers per year - so your plan is to buy 300,000 units from Legit Mig and make any additional units in-house. Legit Mig quotes you a contract price of $3,450,000 for 300,000 units based on the following cost information. Legit Manufacturing LLC DM 1.120 DL 6.590 OH 3.295 50% Tooling 0.050 COGS 11.055 SG&A 1.106 10% TC 12.161 Profit 0.365 3% Sell Price 12.530 You know that Legit Mfg will have to retrain their employees to accommodate production of the Bean Boiler as well as retool some of their existing machinery. But - having seen the Bean Boiler produced in- house - you also know that once employees learn the new process, production becomes relatively standardized after the first run. Based on this knowledge, you believe that Legit Mig's cost model needs to be adjusted in a few ways: The product price should be calculated without tooling cost and should reflect an 70% learning curve. After calculating the product price per unit for each run the tooling cost should be added back in to arrive at a total price per unit for each run. Adjust the given cost plus model and then apply a learning curve as presented in class to complete the question below. Complete all calculations in the excel file that you will upload with your exam. 1. Marco wants a recommendation on what Primo Cafe should do. Given the information above - and what you know about the product you are sourcing - what would you recommend? Why?6. Consider the market shown in the figure below. 30 25 S 20 Price (5) 15 10 D uit 2 4 6 8 10 12 Fi ikin Quantity (thousands) Now assume that government puts a price floor on this product at $20 a unit. What will be the value of consumer surplus after the price noor is imposed? 0 $60,000 he $40,000 $20,000 tatio 430,000 Stan