Answer:1

Total cost per unit of purchasing from original wire

Costs Basis Calculation Per unit ($)

Unit price 30

Packing costs 0.75

Tooling $6000 one-time fixed charge $6000/60000 0.1

Freight costs $5.20 per 100 pounds $5.20/10 0.52

Cost per unit purchasing 31.37

Demand per year=5000@12 =60000 units

Tooling cost spread over 60000 units :6000/60000 units = 0.10 per unit
Freight cost/100 pounds =$5.20
Freight cost/1 pound =5.20/100 =0.052
Each unit weighs 10 pounds approx. hence per unit cost =0.052@10 =0.52

The total cost per unit of wiring harnesses purchased from Original Wire is $31.37.

Answer:2

Total cost per unit of purchasing from Happy Lucky Assembleies

Costs Basis Calculation Per unit ($)

unit price 19.5

Tooling $3000 one-time fixed charge $3000/60000 0.05

Packing costs 2

Inland transportation 200/ container ($200*3)/5000 0.12

Freight Forwarders fee $100/shipment $100/5000 0.02

Cost of ocean transport $4000/container ($4000*3)/5000) 2.4

Marine insurance $0.50 per $100 of shipment $487.5/5000 0.1

U.S Port handling charges $1200/ container ($1200*3)/5000 0.72

Customs duty 5% of unit cost (0.05*19.50) 0.98

 Customs broker fees $300/ shipment $300/5000 0.06

Transportation (seattle to Detroit) $1.86/ hundred pounds $0.186*10 1.86

Warehousing $1.00/cubic foot per month 1.00*1 1

Currency hedging-broker fees $400/shipment $400/5000 0.08

Administrative 4 hrs/shipment @$25/hour $100/5000 0.02

Visits to china twice a year $20000/60000 0.33

Cost per unit purchasing 29.24

Answer:3 Based on cost per unit only, Happy Lucky Assemblies should be recommended by Sheila
as one wiring harness from Happy Lucky Assemblies costs $29.24 and the same wiring harness from
the local firm Original Wire costs:$31.37 which is $2.13 less than Original Wire's cost per unit,
despite all the costs involved in importing the harnesses from China.

Answer:4 Sheila must assess the pros and cons of both the options carefully. While the cost
incurred from purchasing wire harnesses from Original wire maybe greater but Autolink and
Original Wire have the opportunity to collaborate andtake steps for cost reduction as they are
passionate and hungry for business, they are likely to be willing to go the extra mile to cut costs
with Autolink. Secondly, Sheila should also consider proximity as one of the factors while
evaluating both the options, Original Wire is located Hust 20 miles away from Autolink's
headquarters, which means delivery could be made daily, shorter leadtimes and also minimal
inventory and risk, but Original Wire is charging a higherprice. On the other hand, Happy Lucky
Assemblie's harness costs less but factors other than cost should be considered to arrive at an
optimal decision such as currency risk "foreign exchange ", hidden costs that haven't been
included in the unit price, political and geographical risks, the need to keep safety stock because
of longer lead time and also consider the multiple stop shipping (harnesses travel from
Guangdong province to the port in Shanghai, then travel via container ship to Seattle and then
inland transportation to Detroit) process.

Answer:5 It is definitely more complex than domestic purchasing as a host of costs and risks
are involved including warehousing cost, cost to maintain safety stocks, unit prices do not include
international shipping costs, political risk, the risk of natural disasters. Also, international
purchasing may lack cultural concurrence between the buyer and seller which might hinder
relationship inthe long run. Since, maHor players in the world market such as *hina haveemerged
as low-cost suppliers, business owners have discovered their profit margins can widen
colossally, hence the shift from domestic to international markets for purchasing. Also, the
instantaneous access to information between buyers and sellers worldwide has made it possible
for buyers to meet the right supplier who meets all the specifications eIectively and efficiently,
therefore making it worth the buyer's while to scour international supply markets in their
respective industries and select the right supplier.