1. Find the total cost per unit of purchasingfrom Original WireMonthly Demand of 5,000 units = Yearly demand of 60,000 units Costs Basis Cost per unit Annual Costs (60,000 units) Unit Price $30.00 $30 $1,800,000 Packing $0.
75 per unit $0.75 $45,000 Fixed Tooling $ 6,000 $0.1 $6,000 Freight Costs $5.20 per hundred pounds $0.
52 $31,200 Total cost Per Unit Cost $31.37 $ 1,882,200 The total unit cost of an annual demand of 60,000 units purchasingfrom Original Wire is $31.37.2. The total cost per unit of purchasing fromHLA. Monthly Demand of 5,000 units = Yearly demand of 60,000 units Each shipment is one month=12 shipments annually=36 containers annually.
Costs Basis Monthly Cost per unit Annual Unit price (60,000 units) Unit Price $19.50 $19.50 $1,170,000 Fixed Tooling $3000 $3,000 Packing $2 per unit $2 $1,20,000 Inland Transportation $200 per container $0.
12 (200*3)/5000*60000 =$7,200 Freight Forwarders fee $100 per shipment $0.02 (100)/5000*60000 =$1,200 Cost of sea Transportation $4000 per container $2.40 (4000*3)/5000*60000 =$1,44,000 Marine Insurance $0.50 per $100 value .5% of $19.50 $5,850 U.S. Port Handling Charge $1200 per container $0.
72 (1200*3)/5000*60000 =$43,200 Customs Duty 5% of unit cost .05 of $19.50 $58,500 Customs Broker fee $300 per shipment $0.06 300/5000*60000 =$3,600 Transportation Seattle- Detroit 18.60 per 100 pounds $1.
86 18.6/10*60000 =$1,11,600 Warehousing Require 1-month inventory $1/cubic foot $60,000 Hedging Cost $400 per shipment $0.08 $4,800 Administrative costs 4 * $25/ hour $0.
02 $100/5000*60000 =$1,200 China traveling fee 20,000 annually $20,000 Total Costs Per unit cost $29.24 $1,754,150 Therefore, the total unit cost of annualdemand of 60,000 units purchasing from HLA is $29.24.3. Which supplier should Sheila recommend?I think Sheila should recommend purchasingfrom HLA. HLA have a cost advantage of $2.
13 per unit, which gives them a totalannually cost advantage of $128050. Some may argue using the Original Wire would saving lots of money oninventory since it is very close to the Autolink. And the communication betweenthe Autolink and the Original Wire might be more convenient and efficient. I believe Sheila should still purchase fromthe HLA. Because it said in the case, “it is a standard technology which isunlikely to change in next several years.” And there is alarge chance the wire harnesses will be replaced by bettercomponents. Because of those two reasons, the product is at the mature stage.
Therefore, we should focus on the cost aspect. And by using a global supplier,Autolink could have a more globalized supply chain.
