Tablets for the Masses

Jacob Kindl is trying to capture the attention of Black Friday shoppers for OptiShop, a discount chain with 1,500 stores in Canada and the United States. Jacob wants to offer a high power tablet computer at a price point of $249 that rivals much more expensive options from Samsung and Apple. He believes that it will be possible to sell 150,000 units during the holiday season and 15,000 units per month over the subsequent 12 months.

After much effort to ensure feasibility of the initiative, evaluate product quality, and compare supplier capabilities, Jacob has narrowed his focus to three options. Each supplier offers a reasonably priced, high quality tablet that meets OptiShop specifications. However, each supplier is in a different country, which gives Jacob some concerns about delivery costs, risks, and foreign exchange rate exposure. Highlights of each proposal are provided below.

Option 1purchase tablets from Takena Electronics in Nagano, Japan, a longtime supplier of products to OptiShop. Takena works on an open account basis and promises to make shipments of 4,500 units in 40-foot containers under terms Incoterm DAP, Port of Long Beach. The price offered per unit is 20,000 JPY (Japanese Yen).

Option 2purchase the tablets from RaoTex Industries, a Bhopal, India, based manufacturer. RaoTex has a solid reputation and Jacob nearly purchased smartphones from them last year. Their offer is based on OptiShop taking deliveries of 1,900 units in 20-foot containers under Incoterm FAS, Port of Mumbai. The price offered is 10,600 INR (Indian Rupees) using Letter of Credit payments.

Option 3purchase the tablets from Luca Enterprises, an electronics distributor in Bucharest, Romania. Luca sources tablets from contract manufacturers in Eastern Europe. Their offer is based on OptiShop taking control of the product at the Luca distribution center under Incoterm EXW. The price offered is 555 RON (Romanian New Leu), cash in advance.

As Jacob considered his options, he consulted an online currency converter to evaluate the quotes. He found the following exchange rates:

1. What is the price per tablet in USD for the Takena Electronics offer? What costs, responsibilities, and risks does OptiShop assume under DAP, Port of Long Beach?

2. What is the price per tablet in USD for the RaoTex Industries offer? What costs, responsibilities, and risks does OptiShop assume under FAS, Port of Mumbai?

3. What is the price per tablet in USD for the Luca Enterprises offer? What costs, responsibilities and risks does Opti Shop assume under EXW, Bucharest?

4. What other issues and transportation costs must Jacob consider to make an effective supplier selection?

5. Which of the three options would you recommend? Why?