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AssignmentWrite a memo answering questions 1-14. Be sure to label each answer with the correct question number so that the CEO (or other reader such as the grader!) can easily find the answer. For essay- or narrative-type questions use MS Word. Complete your answers to the CEO’s questions in narrative-type answers (MS Word or compatible). Try to have all information in one file for each question. If you use manual calculations, paste into document. Please prepare your answers primarily on the case contents and the text. If you use any assumptions then be sure that these are obvious. For example, it is not the reader’s job to note a word or a short prepositional phrase in a lengthy narrative response (e.g., “assuming that …” in the middle of a longish paragraph).

Be sure to show your work. For calculations you can use Excel or compatible; or manual and scan the pages into your answer file. Just be sure that the CEO or other reader can find and interpret the answers.

In order to help draw reasonable borders on the case, please prepare your answers primarily on the case contents.

If you use any assumptions then be sure that these are obvious.

Complete your answers to the CEO’s questions in narrative-type answers (MS Word or compatible).

Put all information in one file for each question. If you use manual calculations, then include them within your document.

Buffalo Manufacturing Company, Inc.

At any given time BMC's standard catalog will have about 500 different standardized molded parts. The exact number varies as the company adjusts the product line for current design trends, demand, and the like.

As a reminder, BMC has a flexible manufacturing system so adjusting the product line is very easy. BMC has the ability to manufacture custom items in lots of 100 or more.

Heretofore, BMC has been involved with the US domestic market. However, an architectural design firm is in the process of designing and overseeing the construction management of a pair of buildings in Hong Kong. Some 4,300 identical molded parts will be installed in the buildings to secure the light fixture being used.

Good news! Because of BMC’s reputation for a quality product, BMC has been contacted and invited to submit a bid on the project. BMC is reported to have one-heck-of-a-good-logistician!]

Even better news! CEO Elise Ennis calls you into her office. Small talk; weather has certainly been on the cool side. How about those Buffalo Bills? Made the playoffs 2 years ago and then went flat again. But in 2019 started 3 and 0!

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The CEO says that she appreciated your efforts at filling in with the earlier analyses. Hopefully Denise will continue to recover. She explains the basic scenario on a very large order that BMC will probably be invited to bid on. Building project in Hong Kong. Would be the first time the company would be involved with an international order so no real experience.

She is interested in a summary of the project; a cost estimate; and your recommendation(s), both as a logistician and separately as a management type with a strong Florida Tech background, on the overall possibility to pursue the order. Actual questions will be sent over later. She asks you to send her a memo to let her know the details, ok? [Once again, the “ok?” is pretty much a rhetorical question, no?]

You contact Sam Xi (the architectural firm’s POC) and shortly thereafter you receive an email with the particulars that you had requested.

From: Sam Xi, Clark Architects << [email protected]>> Sent: Nov 1, 2019To: [you]@BMC.comSubject: Hong Kong building project – molded partsGood talking to you today. Here is the info that we have available at the present time.#1. WE need 4,300 molded parts all of one style. We considered three styles (A, B, and C). Style A and style B are still in active contention. Style C will not work because of the mounting mechanism. #2 I believe that Tom Jones in BMC manufacturing has the specs.#3. Expect ship to Hong Kong port Victoria. Clark will take delivery when ship arrives Victoria harbor. Because of local situation, the seller’s price should include pay for expenses as follows: up to loading charges port of export; carriage to import port. CLARK to pay for unloading at port Victoria; insurance; load truck Victoria; transport to building site destination; import customs clearance; and import taxes. #4 Decision on requesting proposals to be made within 30 days. Bidders will be given a lead time of 3 weeks to submit proposal. Right now we plan to send out proposals around Dec 1, 2019. Regards, Sam

Well, this is the first time you had heard of Tom Jones’s involvement. So you dutifully trot over to manufacturing operations to talk to Jim.

Tom is aware of the proposal. He explains that, yes, Clark Architects had originally said that there were three designs (style A, B, and C). He rummages through his hold-box and pulls out a piece of paper with notes that he had taken.

Notes on HK building molded mountingsStyle A. Basically a cylinder 11 inches high by 11 inches in diameter. The


packing box has external dimensions of 12 x 12 x 12 inches. The package boxes cost $.90 each and weigh 1 pound. Cost to manufacture $5 each. Each fixture weighs 9 pounds.

Style B cone shape. Costs $6.25 to manufacture. For shipping the cones can be nested in packages of six per box. Padding is required so that the fixtures do not rub against each other. The external package dimensions are 12 x 12 x 48 inches. Each package costs $3.50 which includes the cost of the internal padding. The box itself weighs 4 pounds. The padding weighs 2 pounds. Each item weighs 9 pounds.

Style C globe shaped. Manufacturing is $7. Shipped 10 per package. Package is 12 x 12 x 90 inches. A filled box weighs 101 pounds. The package costs $3.75 including the internal padding.

Miscellaneous** Production costs include all normally anticipated manufacturing expenses except for options (e.g., different voltage).

** Manufacturing will be done in-house at the Buffalo facility.

** Any of the three given designs requires minimal changes to one of our catalog models & can be easily accommodated with no design cost. Minimum order of any design is 100 so could even do all 3 designs as long as 100 of any style is ordered.

HK uses 220-240v AC. The molding for the higher voltage is slightly different from the standard 110-120v AC version. There is an extra charge of $1.35 per items for the 220-240 v AC design.

Each mount requires either 2 retaining clips to fasten to a horizontal (ceiling); or 3 for a vertical (wall) surface. In our catalog, three retaining clips are included as a standard item. So, no extra charge. Do not want to establish a separate item for molding with 2 clips.

We add $2 per item as contingency just to be on the safe side.

Anticipate no problems with supply. Needed materials are on-hand or can be arranged.

Anticipate no problems with manufacturing.

Parts and materials are readily available. Might need to jiggle the production cycle, but the 4,300 units can be produced over a two-week production run in a number of lots.


These estimates should be good for the next 120 days.

You thank Tom and head over to the shipping section.

-=-=-=-

Sandy in shipping pretty excited to see someone from “headquarters”. Especially someone who wants to find out some details about shipping and shipping containers. You find out the following information.

[To simplify the analysis, use the following: Routing --- Use only the specified routing. There are many different routings that might be used. But we will not consider alternative routings. For example, BMC might use truck from Buffalo to the Port of NY/NJ and then ocean shipping to Hong Kong/Victoria. Or rail from Buffalo to another West Coast port; and then ocean freight. ]

Containers. BMC will use an entire container, even if there is less than a container load.

Use only standard 40-foot ocean containers. Use a 40-foot container even if you could actually use a 20-foot container; or 40-foot jumbo; or some other size.

-=-=-=--=-=-=-Talking to Sandy you got the following information.

Ocean shipping from the Port of Los Angeles.

Each truck can carry one 40-foot container.

The land rate per container from Buffalo to the Port of LA is $3.35 per mile.

Checking on Google, the standard distance from Buffalo ZIP code 14207 to Port of LA zip 90731 is 2,560 miles.

Because of the relatively low density and weight of the product, there is no practical limit to the number of items that can be put in a container.

In a really exciting development, the ISO’s on freight containers were updated not too long ago. Most of the 1995 editions have been replaced by the 2013 version! Actually, the ISO has started selling the standards. Rather than have you buy your own copy. Sandy gives you an excerpt that she had made of the most useful information.


Ocean rates from the Port of LA to the Port of Hong Kong are $425 per container.

No extra charge for the use of the container. This includes use of the container for up to 3 weeks before arriving at Port of LA.

Shipping company will handle return of the container at no charge to BMC. Hong Kong exports a lot so there is not usually a problem getting a return load.

Insurance cost is 2 percent of the value of the shipment ready to be loaded aboard ship in LA.

Port charge in LA is $350/40 ft. container.

Can assume that arrivals and departures are timely according to schedule so there will be no demurrage nor detention charges.

Port charges in Victoria Harbor are US$250 per 40 ft. container.

Many different pallets are available. Sandy burned a copy of the pages (attached). Looks like we should use the ULINE.COM H-1260 pallet. Should buy new pallets since there is not necessarily a big savings with used pallets. If we get used pallets, then we still need to buy the used pallets & then make any needed repairs & get them cleaned/sanitized/ processed for international shipping. Using new pallets has the added bene of simplifying the management and the analysis just a tad.

Packing of the moldings into the shipping boxes is built into the general BMC warehouse facility operations so there is not an additional cost to the order.

Loading of the pallets & shrink wrapping the pallets should be $25 per pallet.

Just her opinion. But this would be the first international shipment and it would probably be worthwhile to get some help from someone with experience in international processing.

Oh, by the way normally cannot pack higher than 60 inches plus the height of one pallet. That has to do with the center of gravity. Center of gravity is especially important for ocean transport. The higher the load usually the higher the center of gravity. With a slight smile she adds: We don’t want that ship rolling over because it is top heavy!


-=-=--From Sandy


Info from Sandy


-=-=-=FROM Sandyocean container dimensions[Adapted from www-foreign-trade.com reference library]

Ocean Container DimensionsSTANDARD 20'

INSIDE LENGTHINSIDE WIDTHINSIDE HEIGHTDOOR WIDTHDOOR HEIGHTCAPACITYTARE WEIGHTMAX. CARGO

19'4"7'8"7'10"7'8"7'6"1,172 cu ft 4,916 lb47,999 lb

5.89 m2.33 m2.38 m2.33 m2.28 m33.18 cu m2,229 kg21,727 kg

STANDARD 40' HIGH CUBE 40'


39'5"7'8"7'10"7'8"7'6"2,390 ft38,160 lb59,040 lb

12.01 2.33 m2.38 m2.33 m2.28 m67.67 3701kg26,780kg

39'5"7'8"8'10'7'8"8'5"2,694 ft8,750 lb58,450 lb

12.01 m2.33 m2.69 m2.33 m2.56 m76.28 m3,968 kg26,512 kg


OPEN TOP 20'(upgraded also available)

OPEN TOP 40'


聽 19'4"7'7"7'8"7'6"7'2"1,136 ft5,280 lb47,620 lb

5.89 m2.31 m2.33 m2.28 m2.18 m32.16 m2,394 kg21,600 kg

聽 39'5"7'8"7'8"7'8"7'5"2,350 ft8,490 lb58,710 lb

12.01 m2.33 m2.33 m2.33 m2.26 m66.54 m3,850 kg26,630 kg

聽聽 REEFER 20' REEFER 40'


聽 17'8"7'5"7'5"7'5"7'3"1,000 ft鲁7,040 lb45,760 lb

5.38 m2.26 m2.26 m2.26 m2.20 m28.31 m鲁3,193 kg20,756 kg

聽 37'8"7'5"7'2"7'5"7'0"2,040 ft鲁10,780 lb56,276 lb

11.48 m2.26 m2.18 m2.26 m2.13 m57.76 m鲁4,889 kg25,526 kg


聽聽 FLAT RACK 20' FLAT RACK 40'

INSIDE LENGTHINSIDE WIDTHINSIDE HEIGHTTARE WEIGHTMAX. CARGO

聽 18'5"7'3"7'4"5,578 lb47,333 lb

5.61 m2.20 m2.23 m2,530 kg21,469 kg

聽 39'7"6'10"6'5"12,081 lb85,800 lb

12.06 m2.08 m1.95 m5,479 kg38,918 kg

聽聽 FLAT RACKCOLLAPSIBLE

20'

FLAT RACKCOLLAPSIBLE

40'


聽 18'6"7'3"7'4"6,061 lb61,117 lb

5.63 m2.20 m2.23 m2,749 kg27,722 kg

聽 39'7"6'10"6'5"12,787 lb85,800 lb

12.06 m2.08 m1.95 m5,800 kg38,918 kg


聽聽 PLATFORM 20' PLATFORM 40'


聽 19'11"8'0"7'4"6,061 lb52,896 lb

6.07 m2.43 m2.23 m2,749 kg23,993 kg

聽 40'0"8'0"6'5"12,783 lb66,397 lb

12.19 m2.43 m1.95 m5,798 kg


=-=-=When you get back to your desk -- as promised – you find a note from the CEO.

[Your name]Thanks for stopping by. This order might be a good opportunity for BMC. As I understand it style C is not under consideration any longer. So, concentrate on styles A &B2. Here are the questions I need the answers to. We expect the invitation to bid pretty soon. . I need to decide if we continue to pursue this possible order. Send me a memo as soon as you canElise

Q1. Any other information (e.g., assumptions, facts, considerations) that you think we should know when making the decision? [Hint: consider doing this after you do the other answers!]

Q2. How many style A moldings can be loaded into a standard 40-foot ocean container? Explain/show work. How many containers will we need? Explain/show work.

Q3. How many style B moldings can be loaded into a standard 40-foot ocean container? Explain/show work. How many containers will we need? Explain/show work.

Q4. For style A, what is the estimated total cost to BMC of filling the order up to when Clark assumes the expenses? Explain/show work.[Hint: Besides the obvious manufacturing and shipping costs, are there any other costs that we should consider?]

Q5. For style B, what is the estimated total cost to BMC of filling the order up to when Clark assumes the expenses? Explain/show work.[Hint: Besides the obvious manufacturing and shipping costs, are there any other costs that we should consider?]

Q6. Can this situation be considered intermodal transportation (whatever that means)? Answer yes/no/other/? Briefly describe how the situation would (or would not) meet the definition of intermodal transportation.

Q7. “Terms of sale” code (20) what TOS code should be applied to this shipment? (30) Explain the rationale for your selection.

Q8. Might trade specialists be used to help us make the decision and/or the shipment? (20) Answer yes/no/other/???? (30) Identify at least two specific specialists who might help us? Briefly explain how/why the specialists could help us.


Q9. Your recommendations, as a logistician. Should BMC pursue this order? Yes/no/other Explain.

Q10. Your recommendations, as a manager (non-logistician). Should BMC pursue this order? Yes/no/other Explain.

Q11. Policy Briefly, one recommended policy for BMC to adopt to help support any decision the CEO might make on increasing international trade? Rationale for the policy? Expected impact? Impact if not adopted.

End of CEO’s questions to be answered in the memo-=-=-=-

You do not need to use a memo to answer the below following:

Information for Q12, Q13, Q14.Exchange rate between USD (US dollar) and HKD (Hong Kong dollar). In the paper today the current exchange rate is USD 1.00 = HKD 7.8432. But we know that exchange rates change all of the time. [Note: In case you are wondering, 7.8432 is an actual rate at 8 PM on 9/19/2019 from Bloomberg.com. Using 4 (or even 5 or 6 decimals) is pretty standard for exchange rates. For our work with USD and HKD we will use 4 decimals.]

Q12. As the seller of the goods, what is the best action that BMC could take to help mitigate the risk of a change in the exchange rate? Explain.

Answer Q13 and Q14 based on the following.The final contract stipulates that BMC will invoice and be paid in USD.

We will only consider two options for Clark (the purchaser of the moldings) to mitigate the exchange rate risk. [There a number of possible other mitigation actions.]First, Clark could use a futures contract to purchase USD at a rate of 1 USD to 7.6650 HKD. Second, Clark could use the spot market to purchase the needed USD on the day that the payment must be made. Purchase of the needed USD and processing of payment to BMC can normally be made in 2 hours or so.

Clark decides to use option #2 (use the spot market on the day that the payment is due).

BMC invoices Clark for USD 50,000. This is a round, easily used figure. It bears little relation to the earlier answers on projected costs. Rather it is an easy way for you to compute and explain the impact.


On the day that Clark must make the payment the spot exchange rate is 7.7567 HKD to 1 USD.Clark executes on that date and at that rate and makes the payment in USD to BMC.

Q13. What is the exchange rate impact on BMC as the seller of the product? Explain[Reminder to use the easily seen USD 50,000 figure.]

Q14. Compared to the option to purchase a futures contract, What is the exchange rate impact on Clark as the buyer of the product? Was it a good decision to rely on the spot market rather than to buy a futures contract? Explain?[Reminder to use the easily seen USD 50,000 figure.]

-=-=-=-The CEO awaits your analysis.


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