CASE $3\mathrm{.}2$

Senco Electronics Company

Senco Electronics Company $($Senco$)$ is a U$.$S$.-$based manufacturer of personal comput$-$

ers and other electronic equipment. Current assembly operations are still located in the

United States and primarily serve the U$.$S$.$ market. Transportation in the United States from

Senco sites to its customers is primarily performed by motor carriers. Rising costs in its U$.$S$.$

operations caused Senco to evaluate the construction of a new assembly plant in China.

Subsequently, Senco decided to also consider Vietnam. Jim Beierlein, the new executive vice

president of supply chain management for Senco, is concerned with how Senco will transport

its products from Asia to the United States. "We've had the luxury of a well$-$developed ground

transportation infrastructure in the United States to move our products. Now we will be

faced with moving enormous quantities of electronic products across several thousand miles

of ocean. We really don't have that much experience with other modes of transportation."

Skip Grenoble, director of logistics for Senco, was called on for his advice. "Obviously, we

need to decide on whether to use ocean or air transportation to move our products from the

new locations. Air transportation will cost more than ocean but will result in lower inventory

costs because of the faster transit times. The opposite is true for ocean transportation. Moving

products by air will also result in higher ordering costs since we will be ordering more often

for replenishment for our U$.$S$.$ distribution centers. Using either mode will require some fixed

investment in loading$/$unloading facilities at both the new plant and our U$.$S$.$ distribution

centers. Projected annual demand from the new facility is $2\mathrm{.}5$ million pounds. However, we

expect this demand to grow by $5$ percent annually over the next five years. Although the air

transportation system appears to be the more expensive option right now, we need to take

into consideration our growth and how each mode will help us achieve our profit and service

goals." The relevant cost information for each alternative is presented in the following table.

CASE QUESTIONS

If you were Skip Grenoble, which alternative would you advise Jim Beierlein to

implement? What criteria would you use to arrive at your decision?

At what level of demand $($in pounds$)$ per year would these two alternatives be equal

$($see Appendix $3$A$)?$

Graphically represent these two alternatives and their tradeoff point $($see Appendix $3$A$).$

Which alternative would you recommend be in place to accommodate future demand

growth? What would be the advantages and disadvantages of producing the component

parts in China and shipping them to the United States for assembly before sale to customers?