Project Description:

By $2020$ increased demand for semiconductor chips in consumer electronics resulted in a chip shortage for many other manufacturing industries $($Straughan$,2023).$ Many North American automobile manufacturers viewed this shortage as a significant risk since most semiconductor chips are produced in Asia $($Semiconductor Manufacturing by Country $2023,$ n$.$d$.).$

Many countries have announced subsidies to encourage domestic production of semiconductor chips. For example, the United States government passed the CHIPS Act, which includes $$52$ billion in government subsidies for research and production of semiconductors in the US$,$ and similar initiatives were announced in the EU$,$ South Korea, and Japan $($Scott$,$ n$.$d$.).$

Meanwhile, federal and provincial government subsidies in Canada have already encouraged General Motors, Honda, Ford, Stellantis and Toyota to establish or expand manufacturing operations here. And recent subsidy announcements related to electric vehicles and battery production could further stimulate automobile production in Ontario $($Mai$,2023).$ Ontario is a popular choice for automobile manufacturers for many reasons. Regarding logistics$,$ the province is in the middle of the country. It has an excellent network of highways, railways, airports and ports, and land border access with four US states. Ontario has the countrys largest population and a skilled workforce for the automobile industry $($Canadian Provinces by Population $2023,$ n$.$d$.).$

What the province does not have, however, is semiconductor chip manufacturers. This is problematic for automobile manufacturers since modern cars incorporate about $100$ distinct electronic modules. These modules collectively include as many as $1,400$ individual semiconductor chips that control various electronic systems and account for as much as $40\%$ of an automobiles cost $($Buchanan$,2022)($See Appendix A$).$

Shortages in semiconductor chips can be traced to the origins of the COVID$-19$ pandemic. As more people began working from home, demand for cars declined while demand for smartphones, computers and other electronic devices increased. The semiconductor industry quickly pivoted to meet this new demand and could not resupply the automotive sector when market demand returned in $2020-2021.$ Adequate production capacity may be available by $2025,$ but the risk of another pandemic or shortages due to geopolitical tensions are real possibilities $($McKinsey & Company, May $2023).$

You have identified a business opportunity in this environment and started a company to provide semiconductor chips for automobile manufacturers in southwestern Ontario. Recognizing that automobile OEMs will purchase semiconductor chips in large volumes directly from the chip manufacturers, your business plan involves holding inventory of several varieties of infotainment chips. Infotainment chips are located in the drivers cockpit area of a car. They are required for the digital display $($e$.$g$.,$ calculation and visual display of speed, mileage, fuel level, etc.$)$ and audio$/$visual connectivity of navigation systems $($e$.$g$.,$ verbal commands and directional map displays$)($See Appendix A$).$

Your company, Ancaster Automotive Supply, is located in Ancaster, west of Hamilton, Ontario $($See Appendix B$).$ You source, import, and warehouse inventory of infotainment semiconductor chips from this location. When automobile OEMs in southwestern Ontario cannot obtain the applicable infotainment chips from overseas suppliers, they can order them from Ancaster Automotive Supply on a JIT delivery basis.

An$-$Kee Electronics Corporation

During your online research for a supplier of semiconductor chips, you contacted An$-$Kee Electronics Corporation, located in the Qidu $($chee$-$doo$)$ District of Keelung City, a port city near Taipei, in northern Taiwan $($See Appendix C$).$ Your initial inquiry drew a response from Hana Chen, International Sales Manager for An$-$Kee Electronics. She told you An$-$Kee had been in business for ten years, and most of its sales were to automotive manufacturers in China. So far, she has been unable to develop business in North America because other Taiwanese companies like TSMC and ASE Technologies have already dominated the global chip market.

In follow$-$up discussions, it seemed clear that the potential existed for your two companies to work together. Your business model and proximity to automobile manufacturers in southwestern Ontario was exactly the market opportunity An$-$Kee Electronics was looking for. Hana provided references and samples of several infotainment chips. After showing these samples to your contacts in the automotive industry, you were satisfied An$-$Kee manufactured the type and quality of products you wanted to hold in inventory.

As an incentive to commence the business relationship, An$-$Kee offered to ship your first order of semiconductor chips upon receipt of an LC for $50\%$ of the invoice value. The remaining $50\%$ would be payable as follows: $25\%$ would be payable in $120$ days by bank wire transfer, and the remaining $25\%$ would be on consignment $($i$.$e$.,$ payable when you sold the chips to your customers in Ontario$)$ plus a simple interest rate of $2\%$ on the outstanding consignment balance. These were favourable terms for a first$-$time customer, and Hana explained that An$-$Kee wanted to acknowledge that you were starting a new business venture. At the same time demonstrate its commitment to developing a market for its products in the Canadian automotive sector. She also provided a price list of various products with progressive discounts based on order quantities. An$-$Kee would purchase trade credit insurance to protect its receivables and only requested that you arrange to pick up and transport your shipment from An$-$Kees plant in Qidu District, Taiwan, to Canada.

Ancaster Automotives Opening Order

Over the next few weeks, you held discussions with the procurement and production teams at the major automobile OEMs in southwestern Ontario. You identified three types of infotainment semiconductor chips produced by An$-$Kee Electronics for inventory. Your opening order to Hana Chen consisted of the following three items:

An$-$Kee Semiconductor Chip An$-$Kee Part No$.$ Qty Ordered

Visual Display Chip$*$ AK$-3895733250,000$

AV Connectivity Chip$*$ AK$-9937194300,000$

NAV System Chip$*$ AK$-4274095200,000$

$(*$See Appendix D$)$

When placing your order with Hana Chen, you informed her that your freight forwarder, Yusen Logistics, would contact her to confirm shipment availability. You also asked her to ensure that An$-$Kees shipping department assembles your order on North American GMA pallets for storage in the automotive OEM warehouse racking systems $($iContainers$,2020,$ November $23).$

Once Hana confirmed receipt of your order, you contacted Charles Wu$,$ a sales representative with Yusen Logistics. You asked him to have his office in Taiwan contact Hana Chen and arrange a pickup at An$-$Kee Electronics, No$.18,$ Dahua $3$rd Rd$.,$ Qidu District, Keelung City, Taiwan $206589($Taiwan Postal Code, n$.$d$.)$ for delivery to Ancaster Automotive Supply, $569$ Jerseyville Rd$.$ W$,$ Ancaster, ON Canada L$9$G $5$A$2.$

You also told Charles you would send him a copy of your purchase order to An$-$Kee Electronics for import Customs purposes, but Yusen would have to get the shipment size and weight information from the shipper. You expected An$-$Kee would be ready to ship your order within $10-15$ days, FCA, An$-$Kee Electronics, No$.18,$ Dahua $3$rd Rd$.,$ Qidu District, Keelung City, Taiwan $206589,$ Incoterms $2020.$

You made it clear to Charles that you presently have no inventory of these items, so you must be able to alert your OEM customers regarding inventory availability. Accordingly, you will require information regarding the shipments transit time, including the route and carriers involved. You will also want to know if your shipment will be LCL or FCL $($TEU or FEU$)$ and how many cases and pallets it will consist of so you can prepare warehouse space in advance.

Project Deliverables:

Each group should consider themselves entrepreneurs, responsible for importing products to Canada for distribution. The scope of your role is to research and analyze your companys responsibilities and obligations and answer the following six questions, which make up this Term Project:

$1.$ Using the information in your eText, identify the stakeholders in this scenario.

$(10$ points total for this question$)$

$2.$ Since it is your responsibility to arrange transportation for your order, there are four Incoterms to choose from, including the FCA term you selected. Identify the other three Incoterms in this scenario and explain why you selected FCA. In other words, explain why the other three Incoterms are inappropriate $(3$ points each$)$ and why FCA was your best choice $(1$ point$).(3$ x $3+1=10$ points total for this question$)$

$3.$ Using the information in your eText, identify the interaction group type $(5$ points$)$ and the supplier interaction model $(5$ points$)$ in this scenario and explain why that model best describes the relationship between An$-$Kee Electronics and Ancaster Automotive Supply $(5$ points$).(5+5+5=15$ points total for this question$)$

$4.$ Using the information in your eText, classify the inventory in this sales transaction $(5$ points$)$ and draw up a commercial invoice to represent the first shipment. $(15$ points$)$

$(5+15=20$ points total for this question$)$

$5.$ Complete the following information for your opening order.

a$)$ Fill in this Chart $(1$ point each x $18=18$ points$)($Show your calculations for all answers.$)$

Part #

# Cases

# Pallets Net Weight $($kgs$)$ Gross Weight $($kgs$)$

Value TWD$

Value CDN$

AK$-3895733$

AK$-9937194$

AK$-4274095$

b$)$ Will Yusen consolidate your order in a $20$ or $40$ ocean container? Why?

$(2$ points$))($Show your calculations.$)$

$(18+2=20$ points total for this question$)$

$6.$ Recall the payment terms requested by An$-$Kee Electronics and answer the following questions for your opening order: $($Show your calculations for all answers.$)$

a$)$ What is the total value of your opening order from An$-$Kee Electronics in Taiwanese and Canadian currency? $(2$ points$)$

b$)$ What value will be shown as payable to An$-$Kee Electronics on your LC in Taiwanese and Canadian currency? $(2$ points$)$

c$)$ How much is the remaining $25\%$ payable in $120$ days by bank wire transfer in Taiwanese and Canadian currency? $(2$ points$)$

d$)$ How much is the remaining $25\%$ payable on consignment in Taiwanese and Canadian currency? $(2$ points$)$

e$)$ Identify the company or organization and your URL for currency conversions in this question. $(2$ points$)$

$(2+2+2+2+2=10$ points total for this question$)$

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