Business Paper Procurement

Joshua Thompson

Procurement

Case: The Global Sourcing Wire Harness Decision

April 9, 2012

1.

Original Wire quote:

• Unit price = $30

• Packing costs = $.75 per unit

• Tooling = $6,000 one time fixed charge

• Freight cost = $5.20 per hundred pounds

The per unit cost (based on an annual supply)

Yearly Unit Cost=

(annual demand *( unit cost + packaging cost )) + tooling charge

( 60000 *( 30 + .75 )) + 6000

(60,000 * 30.75+6,000=$1,851,000

Unit Cost = $1,851,000/6,000= 30.85

Yearly Freight Cost =

#units * unit weight * freight cost

60000*10 *.0520 = $31,200

Unit Freight Cost = 31200/60000 = .52

Total Unit Cost = Unit cost + Freight Cost

30.85 + .52 = $31.87

2.

HLA Quote:

• Unit price = $19.50

• Shipping lead time = 8 weeks

• Tooling = $3,000

The per unit cost (based on an annual supply)

Yearly Unit Cost=

(annual demand *( unit cost + packaging cost )) + Tooling charge

(60000 *(19.50 + 0.00)) + 3000 = $1,173,000

Total Unit Cost = 1173000/60000 = $19.55

Monthly Freight Cost = $41,366

Unit Freight Cost = 41,366/5000 = 8.28

Total Unit Cost = Unit cost + Freight Cost

19.55 + 8.28 = $27.83

3.

Sheila should recommend Happy Lucky Assemblies because it has a cheaper per unit cost than Original Wire.

4.

There is a need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of $1.00 per cubic ft per month. The costs associated with committing corporate capital for holding inventory must also be calculated. Corporate cost of capital rate of 15 %. The cost of hedging currency – broker fees = $ 400 per shipment. Additional administrative time due to international shipping = 4hrs per shipment x $25 hr. Elements such as quality and technology need to be assessed as well. If one supplier clearly has better quality, than this may affect the total cost of ownership associated with using a given supplier. If a supplier is also...