Foxtel TCO Analysis

Résumé du document

Sourcing in China started with low-tech products but it has evolved beyond that, says Jim Hemerling, a senior vice president in The Boston Consulting Group's Shanghai office. "Now, in addition to traditional products, another huge area is consumer electronics. I believe the next big wave will be industrial goods, with companies like ITT, Siemens, Honeywell and ABB leading the way." (http://knowledge.wharton.upenn.edu/index.cfm?fa=printArticle&ID=1166) We now realize how important it could be for Foxtel to source from China. After receiving bids from 3 different suppliers namely Legend, Great Wall and Panda, we compared them with the prices offered by our suppliers. We challenged our current supplier's bid with the total cost of ownership (TCO) of the Chinese suppliers. The TCO takes into account all the associated costs of dealing with a supplier. After comparing the world-wide costs per kit among various suppliers, we found that Legend Supplier provides the best potential for cost savings.

Extraits

[...] Extra WH capacity cost Since the safety stock will increase significantly, the warehouses in US and Brazil will have to be extended. We estimated the extra safety inventory to 6 weeks demand. Put into cubic meters and multiplied by the index used by Dell, we obtained the monthly cost for warehousing. Because we increased the safety stock by 6 weeks for each Chinese supplier, we have the same extra warehouse capacity required for each of the new suppliers. Supplier Development / Admin. [...]

[...] Ocean transportation times acquired from COSCO container lines. (http://www.coscon.com/ourservice/service.do?f=servicemap&locale=en). The basic freight rate information was acquired by requesting ocean quote to whole sale carrier, air parcel express on September (http://www.freight-calculator.com/apxocean.asp). For the freight rate from Shenzhen, Shanghai, and Guangzhou to Rio de Janeiro, we got the price quote from the representative of COSCO Container lines.(Interviewed with COSCO Container Lines - September For the Guangzhou's rate, we used the price quote of Advance Logistics, Chinese Logistics company (http://www.advchn.com/price_s_en.asp?page=2). The transit time to clear customs at China port, we assumed 3 days and in the U.S days, respectively. [...]

[...] Since we assumed that there is no change in inventory review system (periodic), the change in holding costs between different options would be associated with the increase in safety stock level. We took Foxtel's cost of capital as which is average cost of capital for the firms in Electronic manufacturing industry. (Source is quoted in Sources section). We did not include the in-transit inventory for holding cost analysis as the opportunity cost associated with that is already captured in Financing required for increase in Cash-to-Cash cycle. [...]

[...] To dispose the obsolescent products, the Foxtel will spend about $90 for disposal. The reason for different disposal cost among suppliers is that different transportation transit time among suppliers. Obsolescence cost Obsolescence rate is of total inventory value. The inventory value per kit would be the sum of material cost and transportation cost which includes export cost, import cost and port to facility cost. And the total inventory value would be inventory value per kit multiply by total inventory which includes in transit inventory and safety inventory. [...]

[...] Total scrap weight would be the numbers of scrap unit multiply 500, and the cost of recycling would total scrap weight multiply by $ Total labor hours would be total scarp weight divide by 2000 and the labor cost would be total labor hours multiply minimum labor wage. Obsolesces cost Obsolesces rate is of total inventory value. The inventory value per kit would be the sum of material cost and transportation cost which includes export cost, import cost and port to facility cost. [...]