90.2K

Verified Solution

Link Copied!

You manage the operations for a department in a large retail establishment. Your entire business rests on being able to acquire inventory for your department from your supplier when needed and at a price that allows you to make a profit. You have been purchasing an average of $1M annually in inventory items from a supplier that has all their manufacturing facilities in the U.S. and your terms have been FOB destination. However, your supplier is planning to move the manufacturing of these products to China and, at the same time, change your terms to FOB shipping. You estimate that the shipping costs from China will run about 10% of the purchase price of the inventory. If you agree to this switch in shipping terms, your supplier would agree to charge you 10% less for each unit of inventory that you purchase. You and your boss have discussed the pros and cons from an operational perspective and you both feel that you will be able to get your inventory items when you need them. You must suggest whether to:

Stay with your current supplier, given what they have been proposed (manufacturing moved to China and terms changed to FOB shipping with a 10% inventory price decrease), or

Move to a different supplier that allows you to continue to purchase under your current conditions (manufacturing still in the U.S. and terms FOB destination with no change in purchase price).

Pretend that I am your boss and you are writing an e-mail to me indicating those questions that must be answered before you make a final suggestion. The proposed 10% price reduction sounds like a great deal on the surface, but how might the change in shipping terms impact other financial results? What changes might we need to make to accommodate a manufacturer in China? What hidden costs might be involved if we make the changes proposed by your current supplier?

Remember that youre trying to impress me, but that Im also pretty busy. Therefore, you need to make your points efficiently. Since youre trying to impress me, make sure that your e-mail uses proper grammar and addresses all the questions posed otherwise I might think you dont know what youre talking about and will dismiss your ideas completely.

Answer & Explanation Solved by verified expert

See Answer