Question

Screens Plus (SP) Screens Plus (SP) is a manufacturer of high end computer monitors. The company assembles Ultra HD computer monitors in Calgary, Alberta and sells them online and through specialty electronics stores. The most popular model retails for $4,995 and SP bundles the monitor with high fidelity audio components that are purchased from externalsuppliers. Two components that are currently bundled are a set of external speakers and a package of specialized power supplies and HDMI connecting cables. Due to ongoing delivery challenges with their Pacific Rim suppliers and carriers, SP has decided to buy from suppliers in closer proximity to Calgary. The speakers will be supplied by an electronics company with operations in Juarez, Mexico and the connecting cables will be purchased from a manufacturer in San Francisco, California. The purchase contracts have been negotiated in principle. The speaker supplier sells its products FOB Destination, Freight Collect and Allowed. The receiversupplier only sells its products FOB Origin, Freight Collect. The remaining issue for the SP transportation director is to evaluate the delivery options that her analyst recommended for each product and make a decision. Relevantinformation is provided in the following table: Speakers Cables Manufactured in Juarez, Mexico San Francisco, California SP purchase price $175 CAD per set $225 CAD per unit Weight 28 pounds 5 pounds Dimensions 30” L x 18” W x 18” H 18” L x 8” W x 4” H Characteristics Sturdy, bulky, not easily damaged Compact, vibration sensitive, theft risk Freight terms FOB destination, freight collect and allowed FOB Origin, Freight Collect Option 1 Weekly LTL delivery 200 units $2,485 CAD Cost per delivery Weekly ground delivery 200 units $2,169 CAD Cost per delivery Option 2 Twice per month TL delivery 400 units $2,946 CAD Cost per delivery Twice per week airfreight delivery 100 units $2,411 CAD Cost per delivery Whatresponsibilities, control, and costs does SP bear under each of the FOB terms offered? Whatis the delivery cost and landed cost per unit for each speaker delivery option? Which delivery option do you recommend for the speakers? Whatis the delivery cost and landed cost per unit for each receiver delivery option? Which delivery option do you recommend for the receivers? What other supply chain issues and costs must SP take into considerationwhen making these transportation decisions? Describe the potential social impacts that accompany both choices and recommend strategies to manage these for each supply location. Describe the areas of major risk that pertain to this logistical plan if the Mexican supplier was to be used and propose strategies to manage these. Describe the elements of compliance that apply to importing the product assuming the US suppler was to be used.

Answer 1

The FOB terms that have been offered to SP are FOB destination for the speakers and FOB origin for the receivers. In both cases the shipping charges are as per Freight Collect terms.

FOB destination: In this term the responsibility of SP begins at the moment they collect the shipment. The control on selecting transportation does not lie with them and the cost incurred for the shipment will be borne by SP..

FOB origin: In this term the responsibility of transportation, the liability of damages during transportation and choosing the transportation means lie with SP. The supplier’s responsibility ends once the shipment leaves their station. Here SP will need to bear the cost of freight charges as well.

The speaker delivery has two options. LTL delivery with 200 units for $2485 per week or TL delivery with 400 units for $2946 twice a month.

LTL will cause a delivery cost of 2485/200 = 12.425 per unit

TL will cause a delivery cost of 2946/400 = 7.365 per unit

The landed cost will include other costs such as cost of the parts, custom duty, taxes, currency conversion charges, handling fees etc.

For the speakers I would recommend the TL delivery option of 400 units every two weeks for $2946.

Receiver delivery has two options as well. Among the two of them, the ground transportation will cost 2169/200 = 10.845 per unit and the airfreight will cost 2411/100 = 24.11 per unit. Again for the exact landed cost calculation we will need to add the additional costs.

While these costs show very basic decision making inputs there are other considerations need to be made. For example, the lead time of each of the delivery methods. Depending on the lead time, we may need to restock and place order. However, that again depends on our inventory management system. Do we keep safety stock or not? Do we order in bulk or operate with just in time inventory system? What is the demand for the speakers and receivers? What are the charges for additional costs such as custom duty, currency conversion charge, handling fees, and the cost of the parts? All these questions need answer in order to arrive at the optimal decision.