The Process of Buying Small Engines

Beth’s current task is to determine the total cost of ownership for a variety of small-engine suppliers located in different geographic locations. After narrowing the options, Beth sent out RFQs to 10 suppliers that she thought had the potential to provide the right engines for Bull. Three suppliers—one each from China, Netherlands, and Ukraine—responded with interesting quotes. Beth’s dilemma: The quotes are different enough that she cannot make a simple “apples-to-apples” comparison. She knows that purchasing from each location will incur distinct costs (e.g., committing corporate capital to hold inventory).
Beth is also considering a local supplier—just 20 miles from her manufacturing facility—that she has done business with in the past. Not surprising, the local supplier quoted prices much higher than the three global rivals.
Key Information About the Engines
Bull’s marketing group estimated demand for the engines to be 3,000 per month (36,000 per year). However, since it is a new product, marketing’s committing to this forecast is hesitant—at best.
As Beth compared the quotes, she jotted down some notes.
• All three suppliers will incur some costs to retool for this particular type of engine. The tooling costs are included in the quotes.
• Each supplier will package the engines differently, changing the shipping requirements. Simply put, the number of engines that fit on a shipping container varies from supplier to supplier. However, the weight of the product is consistent, causing the weight to be the restrictive shipping criteria, not the cube. Beth considered some key shipping details.
o Product dimensions are 1.25′ x 1.0′ x 1.25′ (approximately 1.56 total cubic feet).
o Product weight is 45 pounds.
o A standard 40′ container holds approximately 2,400 cubic feet.
o A standard 40′ container holds approximately 45,000 pounds. (This is a maximum number. No container will be allowed to ship if it exceeds this weight.)
o All containers ship to the Long Beach port. Product moves to Avondale plant via truck.

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