Global Sourcing: Analyzing Wire Harness Supplier Costs and Risks

This case study analyzes the global sourcing of wire harnesses, comparing the costs of two potential suppliers, Original Wire and Happy Lucky Assemblies. The assignment calculates the total cost per unit for each supplier, considering factors such as unit price, freight, packing, and tooling costs. The analysis reveals that Happy Lucky Assemblies offers a lower cost per unit ($29.24) compared to Original Wire ($31.37), making them the more cost-effective choice. However, the study emphasizes that cost is not the only factor to consider in supplier selection. Other critical issues include supply chain risks, quality, lead times, building long-term relationships, payment terms, and the impact of lead times on forecasting. The study also examines the complexities of international versus domestic purchasing, concluding that international purchasing is more complex due to factors like warehousing, increased risk, and longer lead times. The case also touches upon the impact of technological changes and the importance of strategic decision-making in procurement. Ultimately, the analysis recommends Happy Lucky Assemblies based on cost while acknowledging the need for a comprehensive evaluation of other non-cost factors.

Surname: 1
Name
Institution
Course
Date
1. In order to Calculate the total cost per unit of purchasing from Original Wire consider the
following; normally all the costs and expenditures are taken up by a business for the
purpose of production of goods and services. The amount can then be divided by the
quantity in order to find the total cost per unit.
The total cost per unit of purchasing from the original wire costs Basis Calculation per unit at a
a. unit price of $30.
b. Packing cost is $0.75
c. Tooling cost $6,000
d. One time fixed charge will be 6000/6000
e. Freight cost is $5.20

Surname: 2
The following table shows the original quote for wire and the total cost per year for every unit
Original Quote for Wire
Annual Cost
Unit Price $30 $ 1, 800,000
Freight cost $ 5.20 $31,200
Packing cost $ 0.75 $ 45,000
Tooling Cost $ 6,000 $ 6,000
$ 1,8882,200
Packing Weight 10 pounds Cost per unit
$ 31.37
Therefore, the total cost per unit of purchasing from the original wire will be $ 31.37

Surname: 3
2. Here is a Calculation of the total cost per unit of purchasing from Happy Lucky
Assemblies
Happy Lucky Quote Costs
Yearly demand required 60,000
Unit Price $19.50 $ 1,170,000
Tooling $ 3, 000 $ 3,000
Lead Time 8weeks
Monthly requirements 3*40 foot container
Packaging costs (Containerization) $ 2 per unit 120,000
Cost of Inland Transport for export $200 per container 7,200
Freight Forward fee 100 per shipment 1200
Marine Insurance 0.50 per 100 dollars of
shipment
5850
Freight Forwarders’ fee $ 100 per shipment $ 1200
Cost of ocean transport $ 4,000 per container $144,000
Port handling at the U.S Port
authority
$1200 per container $ 43,200
Customs Duty 5% of unit cost $ 58,500
Transport and seattle Detroit 18.6 per 100 pounds $ 111,600
Customs Brokers $ 300 per shipment $ 3,600
Warehouse charges 4 weeks of inventory cost
i.e $ 1 per cubic foot
month
60,000
Sheila forecasted 15% capital rate
Cost of Hedging currency $400 per shipment $ 4,800
Additional admin costs 4 hours at $25 per hour $ 1,200
At least two five day visits to China $ 20,000 per year $ 20,000
Total Cost per Year $ 1, 754,150
$20.24
Total Cost per unit $ 29.24
3. The best suited supplier for Leila based on the total cost per unit will be as follows:
Here we consider all the costs and price units for every purchase (Cooper, Robin, 207).
According to happy lucky, the total quote of the cost per unit is $ 29.24. Compared to Original
Wires, the quote is much less, that is $ 31.37. If I were to recommend the best supplier, it should
be Happy Lucky over Original Wire because they are cheaper.

Surname: 4
4. The question of whether there are any other issues besides cost that Sheila should
evaluate is a s follows;
According to Chen, Yuh-Jen, (1651-1670) there are different methods structured for the purpose
of supplier section and evaluation for better supply chain development. Besides Cost, Sheila can
consider evaluating more issues in order to select the best supplier for her products. Some of the
identified issues include looking at the risks involved in the supply chain, this is because all
supply chains must incur risk. The extent of risk when purchasing from a global o international
supplier is even greater compared to local production.
Secondly, Quality is an important factor in a supply chain because few suppliers can be able to
deliver the best quality.
Third, time is an important aspect in supply chain management. Just in time or on-time delivery
determines when customers are able to receive the goods after the owner has sorted and
packaged them for delivery (Kumar., et al, 109-123.). Suppliers are rated based on how they
observe time for their deliveries. Delays in the supply chain disrupts the flow of the supply chain
including production. Companies experiencing slow supply chain movement are prone to low
service levels as well as order refill rate.
Creation of long terms ties; supplier selection must consider the possibility of long term business
as well as the cost reduction program to be implemented within the business. Cost reduction
programs can easily be implemented where suppliers can be able to approach easily.
Payment terms and INCO terms; Incoterms are essential in reduction of risk during delivery for
example Delivered Duty Paid is bound to increase with choice of term such as Free Carrier
(FCA).

Surname: 5
Lead Times; longer lead times are hard to be considered when forecasting supply. An agile
supply chain would be important as it determines demand (Stadtler, Hartmut, 3-28.). A company
should work at reducing lead times for maximum forecasting.
Building of supplier relationships; supplier relationships are now becoming cooperative than
adversarial (Rammal, Hussain G., et al, 78). Modern supply chains require suppliers to enhance
their service delivery through supplier development, involvement of suppliers in the design
process, total cost supplier selection, considering full service supplier strategies and building of
long term supplier relationships. In addition, enterprise resource planning, or enterprise wide
systems, shared internet services and databases is important in building supplier relationships.
5. As per the case study analysis, the question of whether I think international purchasing is
more or less complex than domestic purchasing? Why? And if it is worth the additional
effort can be answered after the following analysis
When comparing international and local purchasing, decision drivers must be taken into account.
Unfavorable decisions in sourcing can cost a business whether domestically or internationally.
International purchasing is definitely more complex than local purchasing (Jonsson., et al, 203).
There is need to invest in warehousing unlike local purchasing where warehouses are provided or
could not be required. In addition the extent of risk is greater in international purchasing than
local purchasing (Ageron., et al, 168-182.). There are longer lead times in international
purchasing hence making it difficult to quickly respond to demand as well as risk reduction. It is
easier working with domestic purchasing or sourcing because it allows for shorter lead times
leading to better quality control and market the products. Though international purchasing is not
as cheaper as some people would say if you do not have the required resources, it is more
complicated.

Surname: 6
The ability to make strategic decisions lies with the ability to master decision drivers. All the
quality, cost, timing, technical and commercial requirements for sourcing must be well
addressed.
Sheila is dealing with a technology that is standard and it is only a matter of time before it
changes. However, she is at a disadvantage because her technology will not be changing in the
next three years. The engineers talk point to a dynamic change in the technology they call net
generation automotive electronics that will do away with wire harnessing. Users prefer lighter
and smaller technologies that are reliable (Yeniyurt., et al, 351-362.). Though low cost country
sourcing enables countries to use materials from countries at low labor and cost of production, it
is not applicable in this case because it requires an ideal country with resource and a well-
regulated wage cycle. Geographical and political barriers continue to exist making logistics
development a hard task in international purchasing. Trade protectionism, volatile currency,
emerging new technologies and suppliers are the main challenges in international purchasing
hence hard to manage.
However, when we consider the total sales per year, the cost of purchase is $1,882,200, the cost
of purchase is $1,754,150; this is from Happy Lucky Quote. The company is able to save
$128,050 every year. Given this savings and other costs considered the Original Quote is the best
to work with.

Surname: 7
Works Cited
Ageron, Blandine, Angappa Gunasekaran, and Alain Spalanzani. "Sustainable supply
management: An empirical study." International journal of production
economics 140.1 (2012): 168-182.
Chen, Yuh-Jen. "Structured methodology for supplier selection and evaluation in a
supply chain." Information Sciences 181.9 (2011): 1651-1670.
Cooper, Robin. Supply chain development for the lean enterprise: interorganizational
cost management. Routledge, 2017.
Jonsson, Anna, and Daniel Tolstoy. "A thematic analysis of research on global sourcing
and international purchasing in retail firms." International Journal of Retail &
Distribution Management (2014).
Kumar, Amit, Vipul Jain, and Sameer Kumar. "A comprehensive environment friendly
approach for supplier selection." Omega 42.1 (2014): 109-123.
Rammal, Hussain G., et al. "Internationalisation of service firms through corporate social
entrepreneurship and networking." International marketing review (2014).
Stadtler, Hartmut. "Supply chain management: An overview." Supply chain management
and advanced planning. Springer, Berlin, Heidelberg, 2015. 3-28.
Yeniyurt, Sengun, John W. Henke Jr, and Erin Cavusgil. "Integrating global and local
procurement for superior supplier working relations." International Business
Review 22.2 (2013): 351-362.