transportation Tablets for the Masses Jacob Kindl is trying to capture the atten
ID: 1105371 • Letter: T
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transportation Tablets for the Masses 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: 1 USD = 107.2 JPY 1 USD 61.1 INR 1 USD = 3.4 RON 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? What is the price per tablet in USD for the Luca Enterprises offer? What costs, responsibilities, and risks does OptiShop assume under EXW, Bucharest? What other issues and transportation costs must Jacob consider to make an effective supplier selection? ich of the three options would you recommend? Why?Explanation / Answer
1. Takena Electronics in Nagao Japan is selling the tablet at a cost of 20,000 JPY per unit. At the exchange rate of 1 USD = 107.2 JPY, the cost per tablet in USD will be 186.56 USD.
As per Incoterm, DAP means "Delivered at Place". As per the terms, Optishop will only be responsible for the goods once it reaches Port of Long Beach. Takena electronics will be responsible for packing, all necessary legal formalities in the exporting country which is Japan. All carriage expenses up to the Port of Long Beach will be paid by Takena Electronics.
But all the customs duties, clearances, and costs in the United States has to be born by Optishop, which will be at his own cost and risks. As it is Open Account Optishop is free to pay back for the goods within the given amount of time after the goods reach him.
2) Assuming Raotex is offering one Tablet at the cost of INR 10,600. According to the given exchange rate, the cost per tablet in USD will be 173.48.
As per Incoterm, FAS means "Free alongside ship" according to this term Raotex will deliver only to the Port of Mumbai, India. Optishop has to bear all the costs and risk of loss or damage to the goods from Port of Mumbai. Raotex will clear the goods for export and his responsibility ends there. After Port of Mumbai, Optishop is responsible for goods.
Under Letter of Credit term the bank has to give a guarantee that the payment to Raotex will be received on time and in full. If Optishop is unable to pay the amount in the given time period then the bank has to pay it.
3) Price offered by Luca enterprises for a tablet in USD is 163.23.
As per Incoterm, EXW means "Ex Works" according to this term Luca enterprises is only responsible to provide the goods at the named premises or the destination. This term puts maximum risk on the buyer and minimum on the seller. Luca Enterprise will provide for the goods on its premises from their Optishop is responsible for clearing goods for export and bringing to the destination, incurring all the cost and risk of damage or any other risk themselves.
4. Issues and cost Jacob must consider before choosing and options are:
a) Who is going to bear the risk of any damage or loss of the shipment while traveling?
b) What is the cost charged by the seller and how much time they are giving to pay the amount back?
5. IN my opinion, Jacob should choose RaoTex from Bhopal for importing his tablets. Raotex is ready to clear all the legal formalities and make goods available till Mumbai Port from there Jacob can get their goods insured and delivered to the United States. There is a difference of USD 13 between the cost coated by Takena electronics from Japan and Raotex from India. The difference in price allows Jacob to go for any insurance if needed to get his goods delivered safely, and Raotex is also providing it on credit.
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