Jacob Kindl is trying to capture the attention of Black Friday shoppers for Opti
ID: 1104444 • Letter: J
Question
Jacob Kindl is trying to capture the attention of Black Friday shoppers for OptiShop, a discount chain with 1,500 stores in Canada and the United States. Jacob wants to offer a high power tablet computer at a price point of $249 that rivals much more expensive options from Samsung and Apple. He believes that it will be possible to sell 150,000 units during the holiday season and 15,000 units per month over the subsequent 12 months.
After much effort to ensure feasibility of the initiative, evaluate product quality, and compare supplier capabilities, Jacob has narrowed his focus to three options. Each sup- plier offers a reasonably priced, high quality tablet that meets OptiShop specifications. However, each supplier is in a different country, which gives Jacob some concerns about delivery costs, risks, and foreign exchange rate exposure. Highlights of each pro- posal are provided below.
Option 1—purchase tablets from Takena Electronics in Nagano, Japan, a longtime supplier of products to OptiShop. Takena works on an open account basis and promises to make shipments of 4,500 units in 40-foot containers under terms Incoterm DAP, Port of Long Beach. The price offered per unit is 20,000 JPY (Japanese Yen).
Option 2—purchase the tablets from RaoTex Industries, a Bhopal, India, based man- ufacturer. RaoTex has a solid reputation and Jacob nearly purchased smartphones from them last year. Their offer is based on OptiShop taking deliveries of 1,900 units in 20-foot containers under Incoterm FAS, Port of Mumbai. The price offered is 10,600 INR (Indian Rupees) using Letter of Credit payments.
Option 3—purchase the tablets from Luca Enterprises, an electronics distributor in Bucharest, Romania. Luca sources tablets from contract manufacturers in Eastern Eur- ope. Their offer is based on OptiShop taking control of the product at the Luca distribu- tion center under Incoterm EXW. The price offered is 555 RON (Romanian New Leu), cash in advance.
As Jacob considered his options, he consulted an online currency converter to eval- uate the quotes. He found the following exchange rates:
1USD14107.2JPY 1USD1461.1INR 1USD143.4RON CASE QUESTIONS
1. What is the price per tablet in USD for the Takena Electronics offer? What costs, responsibilities, and risks does OptiShop assume under DAP, Port of Long Beach?
2. What is the price per tablet in USD for the RaoTex Industries offer? What costs, responsibilities, and risks does OptiShop assume under FAS, Port of Mumbai?
3. What is the price per tablet in USD for the Luca Enterprises offer? What costs, responsibilities, and risks does OptiShop assume under EXW, Bucharest?
4. What other issues and transportation costs must Jacob consider to make an effective supplier selection?
5. Which of the three options would you recommend? Why?
Explanation / Answer
Answer:
1. The price per Tablet in USD if Jacob Kindle purchases from Takena Electronics offfer are :
The cost per tablet in Japan Yen = 20000 JPY
1USD=107.2
Therefore 20000JPY=20000JPY/107.2USD
=186.57USD
Therefore the cost per tablet in USD =186.57 USD
Since the contract entered into Incoterm DAP , the Optishop need not bear any transportation cost as per the DAP terms the transportation cost will be borne by supplier and goods will be deleivered at the buyers designated place. However the Optishop has to pay import duties and taxes.
2.The price per tablet in USD for the Rao Tex Industries offer = 10600INR
1USD = 64.1 INR
therefore price per tablet in USD =10600/64.1
=165.37USD
In the above case as the deliver terms is incoterm FAS the Optishop has to bear the risk of goods from port mumbai. in the above contract the seller delivers the goods cleareed for exports and load to the particular vessel as ordered by buyer and thereafter the risk and responsibilty of goods lies with Buyer.
3.The Price per Tablet in USD for Luca Enterprises = 555RON/3.4USD
= 163.23 USD
In the above case the terms of delivery offered by Luca Enterprises is EXW as per this terms the seller is required will keep the goods ready at his place and therafter the risk and responsibility lies with the buyer to take the Goods, hence the risk and responsibility involved is higher and also the transportation cost should be borne by Optishop.
4.The other issues and Transporation cost Jacob must consider to make effective supplier selection are
A.The cost of transportation involved in each different cases
B.The terms in case of damage in the goods .
c. The Procedure and Time taken to get the custom clearance .
d. The time taken to bring the goods to the place of Optishop.
5 If the Optishop does not wants to any risk and transporation cost ,The better option for Optishop to purchase would be Option 1.
However if the Optishop wishes to take Risk the Better option would be Option 3 as the cost is low
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