Case 111: Vibrant Video V2 Manufacturer

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Analyze the responsibilities, control, and costs borne by V2 under the FOB Destination, Freight Collect and FOB Origin, Freight Collect terms for the speaker and receiver products. Calculate the delivery and landed costs per unit for each shipping option, and provide a recommendation based on these costs. Additionally, consider other supply chain issues and costs that V2 should evaluate when making transportation decisions.

Sample Paper For Above instruction

Introduction

Effective supply chain management and transportation strategies are fundamental in manufacturing companies, particularly in the context of international procurement and delivery. Vibrant Video (V2), a home theater projector manufacturer based in Portland, Oregon, faces strategic decisions regarding its supply chain logistics, especially its choice of suppliers and transportation options. The decision to source speakers from Tijuana, Mexico, and receivers from Manchester, New Hampshire involves understanding the responsibilities, costs, and control associated with different FOB terms. This paper analyzes these terms, evaluates the delivery and landed costs for each option, and offers recommendations to optimize V2’s supply chain performance while considering broader logistical issues.

Responsibilities, Control, and Costs Under FOB Terms

FOB (Free On Board) terms delineate the responsibilities of the buyer and seller during transit. Under FOB Destination, Freight Collect, the supplier retains ownership until the goods arrive at the buyer’s premises, meaning the seller bears risks and costs until delivery. Conversely, FOB Origin, Freight Collect, transfers ownership and responsibility from the seller at the point of shipment, with the buyer taking responsibility thereafter.

For the speaker supplier in Tijuana, offering FOB Destination, Freight Collect means V2 bears responsibility once the goods are shipped, though the supplier covers freight charges. The supplier retains risk until delivery at V2’s facility. In contrast, for the receiver in Manchester, FOB Origin, Freight Collect, V2 assumes responsibility at shipment, covering the freight costs and risks from the delivery point onward.

The costs involved include freight charges, insurance, customs duties (if applicable), and handling charges. Under FOB Destination, the seller may incorporate freight costs, but in this case, V2 pays freight costs directly. Under FOB Origin, V2 directly bears transportation costs from the point of shipment.

Calculating Delivery and Landed Costs

The delivery cost per unit depends on factors such as freight rates, shipment volume, and distance. The landed cost includes the purchase price, shipping, customs duties, insurance, and handling charges, providing a comprehensive view of the total cost per unit.

Let's assume hypothetical transportation costs based on distance and shipping modes. For the Tijuana speakers, FOB Destination, Freight Collect, suppose the freight charge is $50 per unit, paid by V2 upon delivery. Additional handling and customs charges may amount to $10 per unit, totaling $60. Since V2 effectively controls the process from delivery onward, its landed cost per unit would be the purchase price of the speaker plus $60.

For the Manchester receivers, FOB Origin, Freight Collect, suppose the freight cost is $30 per unit, paid at shipment. Additional costs similar to the above are $10, summing to $40 per unit. Thus, the landed cost per unit is the unit price plus $40.

Recommendations for Delivery Options

Considering cost efficiency and control, the FOB terms suggest that FOB Origin may be more advantageous for the receivers in Manchester due to lower freight costs and the immediate transfer of responsibility at shipment. However, V2 must weigh the risk of handling issues during transit and potential delays, especially given international shipping complexities.

For speakers in Tijuana, the FOB Destination, Freight Collect arrangement provides V2 greater control over the delivery process, potentially reducing delays and ensuring quality upon arrival. Although it may involve higher apparent costs, the control over delivery timing and condition could offset cost considerations.

Therefore, the decision should align with V2’s strategic priorities: cost minimization favors FOB Origin for receivers, while quality and delivery assurance favor FOB Destination for speakers.

Other Supply Chain Considerations

Beyond direct transportation costs, V2 should evaluate lead times, customs clearance procedures, inventory holding costs, and potential disruptions in the supply chain. Sourcing locally in Tijuana may reduce transit times and exposure to international delays, leading to improved responsiveness. Conversely, cross-border logistics entail customs documentation, tariffs, and compliance costs, which can complicate operations.

Risk management regarding transportation disruptions, such as strikes, natural disasters, or political instability, is vital. Additionally, V2 needs to consider supplier reliability, quality control, and the flexibility of its logistics partners to adapt to fluctuating demand or unforeseen delays.

Environmental impact is increasingly significant, prompting V2 to consider greener transportation modes or carriers with sustainable practices. This aligns with corporate social responsibility and can influence brand perception.

Finally, inventory strategies, such as Just-in-Time (JIT) or safety stock, depend on transportation reliability. A more dependable and faster delivery system reduces inventory costs and improves customer satisfaction.

Conclusion

By analyzing responsibilities, costs, and control under different FOB terms, V2 can optimize its transportation strategy. FOB Destination offers greater control over delivery quality for speakers at potentially higher costs, whereas FOB Origin may reduce transportation expenses for receivers but with increased responsibility during transit. Considering broader supply chain factors such as lead times, risks, environmental impact, and supplier reliability is essential in making informed decisions. Ultimately, V2 should balance cost-efficiency with risk management and strategic flexibility to enhance overall supply chain performance.

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