Original Wire Quote:

Unit price $=$ $$30$

Packing costs $=$ $$0\mathrm{.}75$ per unit

Tooling $=$ $$6,000$ one$-$time fixed charge

Freight cost $=$ $$5\mathrm{.}20$ per hundred pounds

Quote $2$

The second quote received is from HLA of Guangdong Province, China. The supplier must pack the harnesses in a container and ship via inland transportation to the port of Shanghai in China, have the shipment transferred to a container ship, ship material to Seattle, and then have material transported inland to Detroit. The quoted unit price does not include international shipping costs, which the buyer will assume.

HLA Quote:

Unit price $=$ $$19\mathrm{.}50$

Shipping lead time $=$ Eight weeks

Tooling $=$ $$3,000$

In addition to the supplier's quote, Sheila must consider additional costs and information before preparing a comparison of the Chinese supplier's quotation:

Each monthly shipment requires three $40-$foot containers.

Packing costs for containerization $=$ $$2$ per unit.

Cost of inland transportation to port of export $=$ $$200$ per container.

Freight forwarder's fee $=$ $$100$ per shipment $($letter of credit, documentation, etc.$).$

Cost of ocean transport $=$ $$4,000$ per container. This has risen significantly in recent years due to a shortage of ocean freight capacity.

Marine insurance $=$ $$0\mathrm{.}50$ per $$100$ of shipment.

U$.$S$.$ port handling charges $=$ $$1,200$ per container. This fee has also risen considerably this year, due to increased security. Ports have also been complaining that the charges may increase in the future.

Customs duty $=5\%$ of unit cost.

Customs broker fees per shipment $=$ $$300.$

Transportation from Seattle to Detroit $=$ $$18\mathrm{.}60$ per hundred pounds.

Need to warehouse at least four weeks of inventory in Detroit at a warehousing cost of $$1\mathrm{.}00$ per cubic foot per month, to compensate for lead$-$time uncertainty.

Sheila must also figure the costs associated with committing corporate capital for holding inventory. She has spoken to some accountants, who typically use a corporate cost of capital rate of $15$ percent.

Brokerage fees for hedging currency $=$ $$400$ per shipment

Additional administrative time due to international shipping $=4$ hours per shipment X $$25$ per hour $($estimated$)$

At least two five$-$day visits per year to travel to China to meet with supplier and

provide updates on performance and shipping $=$ $$20,000$ per year $($estimated$)$

ASSIGNMENT

Calculate the total cost per unit of purchasing from Original Wire.

Calculate the total cost per unit of purchasing from HLA.

Based on the total cost per unit, which supplier should Sheila recommend?

Are there any other issues besides cost that Sheila should evaluate?

Based on this case, do you think international purchasing is more or less complex than domestic purchasing? Why? Is it worth the additional effort?