1. $19.50 $58,500 Customs Broker fee $300 per shipment

1.     Find the total cost per unit of purchasing
from Original Wire

Monthly Demand of 5,000 units = Yearly demand of 60,000 units

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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 purchasing
from Original Wire is $31.37.

2.     The total cost per unit of purchasing from
HLA.

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 annual
demand of 60,000 units purchasing from HLA is $29.24.

3.     Which supplier should Sheila recommend?

I think Sheila should recommend purchasing
from HLA. HLA have a cost advantage of $2.13 per unit, which gives them a total
annually cost advantage of $128050. Some may argue using the Original Wire would saving lots of money on
inventory since it is very close to the Autolink. And the communication between
the Autolink and the Original Wire might be more convenient and efficient.

 

I believe Sheila should still purchase from
the HLA. Because it said in the case, “it is a standard technology which is
unlikely to change in next several years.” And there is a
large chance the wire harnesses will be replaced by better
components. 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.