Joyce Johnson is a senior product managerfor International Fruit Distributors, a major U.S. basedfood processing company. Fruit Distributors, based in Long Beach, California, sells a wide variety of fruit concentrates, flavors, and extracts used in many popular food products. One of Joyce’s responsibilities is to negotiate the annual purchase contracts for fresh fruit extracts. One of her larger products is mango concentrate, which comes from fruit grown and harvested on a seasonal basis in various countries around the world.
Recently, Joycewas examining the costs associated with using one of her suppliers, Papa Growers, a Philippine mango grower and processor. International Fruit Distributors has used this supplier's high-quality product for a number of years. Papa Growers supplies a unique variety of mango, world renowned for its flavor. Papa Growers is the sole source of this variety, so access to this grower gives International Fruit Distributors a distinct advantage over other fruit distributors in the food processing industry.
Papa Growers has plantations in remote sectors of the Philippines and transports the harvested fruit in company trucks to its processing plant near the coast. At the processing plant, the fruit is sorted, cleaned, pureed, concentrated, and packaged for transoceanic shipment. The processing plant packages the mango concentrate (currently priced at $0.39/pound) in sealed foil bags. These bags each hold 50 pounds of product. The foil bags are then placed in specially designed cardboardboxes for shipping. The cardboard boxes are stacked on wooden pallets, 40 boxes to a pallet, for loading into climate controlled overseas containers. These metal containers are called TEUs, since they are roughly twenty-feetlong by ten feet wide.
Each TEU holds 20 pallets and is loaded onto an ocean freighter for shipment to the U.S. west coast. Papa Growers ship one full TEU container load per month, based on International Fruit Distributors MRP-based requirements. Through demand forecasting techniques, International Fruit Distributors estimates thatits demand for mango concentrateis relatively constant throughout the year.
The shipping charge for ocean freight transport is $4,500 per container. Once the freighter reachesthe Port of Long Beach, local stevedores unload the TEUs and move them (at a charge of $250 per TEU) to a dockside warehouse for storage and customs inspection. While in this warehouse, U.S. Customs conducts inspections and assesses import duties, amounting to 15 percent of the original unit purchase price (excluding freight charges).
After passing customs, International Fruit Distributorsmoves each TEU to a public refrigerated warehouse until needed for processing. The average storage time in the warehouse is one month. The cost to move the TEU from dockside to the warehouse is included in the monthly storage charge of $10.50 per pallet. The public warehouse also charges a one-time fee of $6.25 per pallet to cover their general and administrative costs. Accountants at International Fruit Distributorsestimate the inventory carrying charge at 24% percent annually which can be assessed by calculating the carrying cost per month, then applied against the original unit price of material in storage. International Fruit Distributors does not pay the invoice from Papa Growers for the mango concentrate until the TEU reaches the local U.S warehouse, thus limiting its holding or carrying cost.
When mango concentrateproduct is required at International Fruit Distributors’ Los Angeles processing plant, a local freight company moves the TEU container for $275 per shipment. Accountants estimate that receiving and quality-control procedures at the plant add costs totaling $8 per pallet. Due to the perishable nature of the product, the distance traveled, and the numerous “touch-points” involved in moving the mango concentrate through the supply chain, company operations experts estimate dollar losses of 3 percent of the total concentrate. Again, this estimate is based on the original product purchase price.
Production engineers calculate the budgeted factory yield of the mango concentrate when blending into various company products is 98 percent. In other words, International Fruit Distributors wastes 2 percent (in terms of original purchase price) of the product by volume during production.
Product is shipped FOB to grocery stores and other customers, meaning the stores take ownership of the product at the Los Angeles plant and assume all shipping costs to their locations.
Occasionally, due to quality inspection oversights, spoilage of mango concentrate will not be detected until after the product is shipped from the Los Angeles plant, requiringthe removal of tainted product from grocery store shelves. International Fruit Distributors incurs additional out-of-pocket costs totaling $25,000 for each incident. The company's records indicate that such incidents occur about once every six months.
In addition to the other costs, Joyce notes that International Fruit Distributors requires that the mango concentrate delivered costincludes a 17 percent assessment from original unit cost to cover general and administrative overhead costs within the company.
Please answer the following questions including showing all of your work:
1) How many pounds of mango concentrate are required?
a. (2 points). In a month?
b. (2 points). How many in a year?
2) (5 points). In computing the Total Landed cost for mango concentrate, we are interested in the incremental cost per unit (cost per pound) added along the supply chain, rather than the total cost added at each step along the chain (for example, total cost of ocean shipping). Why?
3) (10 points). Using some variation of business process mapping, graph out the mango concentrate supply chain focusing on when cost is added to the supply chain. (i.e. Display/draw the process from Papa Growers to Mom & Pop market, highlighting the points where cost is added to the process).
4) (4 points)Why would tracking this cost be important to International Fruit Distributors?
5) (45 points). Identify the individual cost components and the total costof delivering the product from supplier to retailer. Identify each cost in terms of the incremental addition to the product cost. Present your findings in the table below using 4 significant digits. Yes, some of these may be very small numbers --- but why might that be important?
6) (4 points). What conclusion can you draw when comparing the total landed or delivered cost to the original purchase cost?
7) (4 points). What does this suggest about the importance of supply chain management?
8) Assume that Joyce Johnson has asked you recommend ways to cut the total landed cost of mango concentrate. Given your above analysis, identify three costs you would recommend for further study to cut or reduce. How might you accomplish that?Be specific and realisticin your ideas and provide the first steps you would take to make that happen!(Hint: Starting a new mango grove in San Diego is not a viable option. It would cost much more than $0.39 per pound to produce the raw product there, plus loose the unique flavor!).
a. (8 points)
Recommendation #1:
b. (8 points)
Recommendation #2:
c. (8 points)
Recommendation #3:

  • CreatedAugust 05, 2013
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