This first case study is Case 3.2 Senco Electronics Company in your textbook. This case study explains the supply chain distribution channels and provides one option to transport goods by ship and another one by air. You are to read this case study and answer all four questions. It is expected that you use the calculations and strategies located within your textbook when answering these questions. It is also expected that you properly conduct research to add an additional dimension on top of your textbook readings to properly answer each of these questions.

CASE 3.2

Senco Electronics Company

Senco Electronics Company (Senco) is a U.S.-based manufacturer of personal comput- ers a nd o ther e lectronic e quipment. C urrent a ssembly o perations a re s till l ocated in t he 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 n ew assembly plant in C hina. Subsequently, Senco decided to also consider Viet Nam. 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-devel- oped ground transportation infrastructure in the United States to move our products. Now we w ill b e f aced w ith m oving e normous q uantities o f e lectronic p roducts a cross s everal 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 xed investment in loading/unloading facilities at both the new plant and our U.S. distribu- tion centers. Projected annual demand from the new facility is 2.5 million pounds. However, we expect this demand to grow by 5 percent annually over the next ve 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 prot and service goals." The relevant cost information for each alternative is presented in the following table.

OCEAN AIR

Total Transportation costs $150,000 $290,000

Inventory costs

Carrying 48,000 23,000

Handling 20,000 22,000

Ordering 7,000 15,000

Fixed cost 600,000 450,000

Total costs $823,000 $800,000

CASE QUESTIONS

1.If you were Skip Grenoble, which alternative would you advise Jim Beierlein to implement? What criteria would you use to arrive at your decision?

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

3.Graphically represent these two alternatives and their tradeoff point.

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

growth? What additional factors should be considered?