Victoria, a buyer at Hill Manufacturing, a Minnesota-based purveyor of dash components for auto manufacturers, was doing some number crunching. Hill Manufacturing was reevaluating its suppliers for a key component of the dash component, the wire harness. After some extensive evaluation, Victoria had narrowed it down to two suppliers and she was comparing them. Great Lakes Electronics, Inc. was a regional company and Shanghai Manufacturing was based in Guangdong Province, China. Given the following information that Victoria compiled, use total cost analysis to determine which supplier is more cost-effective for Hill Manufacturing. Late delivery of the wire harness results in either a lost sale (thus lost profit) or a customer backorder (each time there is a backorder, it costs $405). Assume for the cost comparison that the company orders 12 times per year, the order quantity is 4,000 units, and that the annual requirement (forecast) is 48,000 units. Each time that she orders from a domestic supplier, Victoria estimates that it costs the company $ 671 and each time she orders from international suppliers, it costs about $1,207. For purposes of calculating quality problems and declaring the value for customs and insurance, Victoria uses the expected invoice amount (purchase cost + packing/packaging) as a base. Victoria also knows that additional factory inspection trips will need to be made to the China facility to support the companys environmental, social, and quality goals.

What should Victoria do? Taking in consideration procurement rules of thumb regarding international sourcing and based on the analysis below, should she source globally or domestically? Enter Global or Domestic.

Important! Round each entry to the nearest whole number. Enter as ###,###. Enter negative numbers as -###,###.

Product Weight	10	pounds
Cost of working capital	10%	per year
Profit margin	15%	annual
Price of finished dash component	$ 400	per unit
Percent of late deliveries that result in backorders	20%	of late deliveries
Percent of late deliveries that result in lost sales	80%	of late deliveries

	Great Lakes Electronics	Shanghai Mfg
Quoted unit price	$35.00	$26.00
Packing cost (+ packing for international shipping)	$ 1.40	$3.02
Tooling cost	$4,000	$2,500
Invoice Terms	2/10, net 30	2/15, net 30
Domestic delivery distance (in miles)	100	2,200
Supplier quality rating (% problems)	3.00%	2.00%
Supplier delivery rating (% problems)	2.00%	3.00%
Number of forty-foot equivalents (FEU) per order		2
China inland freight and freight forwarding (per FEU)		$400
Ocean transport (per FEU)		$3,500
Marine cargo insurance (% declared value)		1.5%
U.S. Customs duty and fees (% declared value)		5.0%
U.S. port handling and brokerage fees (per FEU)		$1,293
Factory inspection trips to China		$20,000
Domestic U.S. Transportation Costs
Full truckload (TL>40,000 lbs.)	$0.85	per ton-mile
Less-than-truckload (LTL)	$1.10	per ton-mile
Note: per ton mile = 2,000 pounds per mile

Description	Great Lakes Electronics	Shanghai Mfg
Purchase Cost	$ 1,680,000	$
Packing Cost	67,200
Effective Invoice Amount	$ 1,747,200	$ 1,392,960
Effect of Discount Terms
Cash Discount	-34,944
Cost of Capital Savings	-4,853
Tooling Cost	4,000
Ordering Cost	8,052
Domestic Transportation Cost	20,400
China Inland Freight and Freight Forwarding
Ocean Transport
Marine Cargo Insurance
U.S. Customs Duty and Fees
U.S. Port Handling and Brokerage Fees
Quality Cost	52,416
Cost of Late Delivery
Backorders	77,760
Lost sales	46,080
China Factory Inspection Trips
TOTAL COST	$ 1,916,111	$ 2,273,874