The Global Sourcing Wire Harness Decision
Ricky J. Myers
Embry-Riddle Aeronautical University
April 25, 2013
As Sheila Austin works out the decision to source from one of the two suppliers that have responded to her request for quotes for a new wiring harness for Autolink, she is faced with a decision to go with an international supplier in China, or from a local supplier. The initial look at the price quotes would steer towards the international source, but the underlying fees and costs associated with the international seller would make her think twice about accepting that deal. The in-depth analysis will steer her in the right decision to which supplier is the better candidate as well as how the cost per unit is broken down. Sheila needs to make her decision to start the retooling of the manufacture systems to accommodate the new design, and begin delivery. Which manufacturer will be the better option for Autolink to provide the product the assembly plant for installation? We’ll discuss the best choice of the potential suppliers that Sheila should start contracting with, and how that decision was made.
The Global Sourcing Wire Harness Decision
As the auto industry continues to update itself and keep their products current with modern technology, the need to change models is ever-increasing to keep up with customer demand. As we look at the manufacturing process and sourcing, overseas and domestically, for the necessary materials, parts and services, several factors will always stand out: How cost effective is the local market versus the international market for supplier pools? What quality can the manufacturer support for their price? How well can the buyer maintain the supply distribution channels for either storage or Just-in-Time deliveries? “Sheila Austin, a buyer at Autolink, a Detroit-based producer of subassemblies for the automotive market, has sent out requests for quotations for a wiring harness to four prospective suppliers. Only two of the four suppliers indicated an interest in quoting the business: Original Wire (Auburn Hill, MI) and Happy Lucky Assemblies (HLA) of Guangdong Province, China. The estimated demand for the harness is 5,000 units a month. both suppliers will incur some costs to retool for this particular harness. The harness will be packaged in 24 x 12 x 6-inch cartons each packaged unit weights approximately 10 pounds.” (Monczka, Handfield, Giunipero, Patterson, Purchasing and Supply Chain Management, 2011, pgs 805) Analysis
Sheila was quoted by two different local suppliers, both of which have the ability to handle the amounts needed and can retool their machinery to manufacture the wiring harness. The simple solution is to go with the local manufacturer, Original Wire, to incorporate an easier supply line. The more complex solution is to contract to happy Luck Assemblies in China to break into the global sourcing market. The costs are very differently calculated for both potential suppliers. The Original Wire quote was for a $30 unit price, $.75 packaging price, and a $.52 per unit delivery cost. The additional cost would be a one-time retooling fee of $6,000 for Original Wire to reset their machinery to manufacture the new wiring Harness.
Happy Lucky Assemblies (HLA) seems cheaper at first for the overall unit price, but with the outlying costs, it doesn’t seem so in the short term. HLA’s unit price is $19.50, packaging price is $2 per unit to ship, and international shipping costs start elevating the price towards Original Wire’s quote. Though, HLA’s on-time re-tooling fee is half of Original Wire’s at $3,000. There is also lead time that has to be factored in, and storage costs to keep a readily available supply on hand. This can drive the price per unit up, and may create a shortage if supply demand is not met on time. Quote 1 Analysis
Quote 1: Original Wire
Packaging (per Unit)
References: Monczka, R.M., Handfield, R.B., Giunipero, L.C., & Patterson, J.L. (2011). Purchasing and supply chain management. (5 ed.). Mason, OH: South-Western
Palletized needs. (n.d.). In an online Slideshare for pallet parcels. Retrieved from http://www.slideshare.net/parceldelivery/important-things-to-remember-for-pallet-delivery
Shipping Containers. (n.d.). In ShippingContainers24 online. Retrieved from http://www.shippingcontainers24.com/for-sale/costs
Shipping Container Rentals. (n.d.). In Shipping Container Pros online. Retrieved from http://www.shippingcontainerpros.com/shipping-container-rental.php
Please join StudyMode to read the full document