As purchasing manager, you have been asked to assess the outsourcing and possible off-shoring option for your employer, Ford Motor Corporation of Oakville, Canada. In play here is an RFP for a 2 year contract for an automotive part with an option to renew for a third year. In specific you are comparing a domestic and global sourcing options for the supply of an electronic navigation module for the Ford Winstar with information as follows:
Total Demand = 6,200 units per month
Package Size = 12” x 12” x 12”
Weight = 10 lbs
Option 1: Keep the component In House at Ford $32.21/unit
Option 2: Local Sourcing – Magna Corp. distance = 20 km
Unit Price = $30.310/unit
Packaging Costs = $0.824 /unit
Tooling /Retooling = $8,200 one-time fixed cost each year of the contract
Freight Cost = $5.90/cwt (hundred weight)
Option 3: Sun Components and Assemblies, Hong Kong, China
Unit Price = $19.52/unit
Shipping Lead time = 2 months
Tooling/Re-tooling = $4,300 one-time fixed cost per year
Training & Travel = $20,000/year
In addition, the Sun Components shipment requires 3 containers each month with the following
Container Stuffing Costs = $2.20/unit
Pre-carriage (Inland) Transportation (Hong Kong) = $200/container
Freight Forwarder’s Fee = $100
Ocean Transportation = $4,200/ container
Marine insurance = $.5480 per $100 declared value
US Port Handling Charges = $1200/shipment
Import Tariff = 5% CIF Cost (Including Transportation)
Transportation to Toronto from Vancouver = $19.30/cwt
Customs Brokerage Fees = $300/shipment
Inventory Holding Costs
Warehousing (1 month supply) = $1.210/cubic foot
Other Holding Costs = 15%
Foreign Exchange Hedging Cost = $400/shipment
Traffic Coordinator’s Time = 4 hours @ $25/hour / month
Assignment:
- Calculate the Total Annual Cost and per unit cost for Magna Corp. and for Sun Components. What is the percentage difference between the two?
- Are there any other qualitative or quantitative issues apart from cost that you should consider?
- Can you find ways to reduce your overall costs from Toronto or Hong Kong further to improve the viability?
- Which supplier, if any would you recommend? That is, what is your final recommendation to your management?
The case is worth 15% of your grade, is due at the beginning of class on week 7 and will be graded as follows in the rubric.
Case Study Project Marking Rubric.
Names:
| Section | Mark | |||
| Format/Professionalism of Report | /5 | |||
| Executive Summary | /5 | |||
| Introduction/Background Description | /5 | |||
| Identification of key issues & description of plan | /5 | |||
| Case Analysis | /5 | |||
| Recommendations/Conclusions | /5 | |||
| Appendices, Exhibits & Citations | /5 | |||
| /35 | à | |||
| Case Total | /15% | |||
Comments:
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