Denny Butler, chief procurement officer for Techno-Shades International (TSI), is looking to hit a home run for his fledgling technology company. TSI is only six months away from a huge industry event, the Consumer Electronics Show. During this Las Vegas trade show, TSI will introduce a new line of wearable technology focused on athletes and sports fans. The stylish sunglasses contain a lightning-fast wireless computer that captures performance data, provides navigation, accesses live feeds from sporting events, and allows hands-free messaging, among other capabilities.
The company feels that the product is a higher quality, lower price alternative to Google Glass and has staked its future on this rollout. Demand is expected to be very high and profits will soar—if Butler can find a contract manufacturer to assemble Techno-Shades and fill the U.S. supply chain concurrently with the Consumer Electronics Show.
Butler has been traveling the globe in search of a high quality, low-cost assembler for Techno-Shades. He is also wary of product espionage that could lead to copycat products filling the market too quickly. After conducting a thorough analysis of twelve different manufacturers, Butler has narrowed his consideration to three potential suppliers:
• Supplier 1 is located in Ashkelon, Israel. The company has experience making technology products, boasts excess factory capacity, and has a strong stable of satisfied customers. Product prices are reasonable but the geographic location presents safety risks. The price is 1,700 ILS (Israeli Shekel) per pair, delivered to the Ben Gurion Airport in Tel Aviv.
• Supplier 2 is located in Wulumuqi, China. The company is a former state-owned maker of Red Army GPS devices. The far inland location creates a very low labor cost but increases the length of supply lines and the distribution channel. The factory-based price is $459 per pair.
• Supplier 3 is located in Salo, Finland. The company is a world-class manufacturer of mobile phones and is interested in co-developing products with TSI. They are somewhat constrained by factory capacity and road congestion to the airport can be troublesome, but promise to meet all deadlines. The cost of the product, cleared through U.S. Customs to a freight forwarder in Newark, New Jersey, is 385 Euros per pair.
As Butler considered his options, he consulted an online currency converter to evaluate the quotes. He found the following exchange rates: 1 USD 1⁄4 3.935 ILS and 1 USD 1⁄4 .804 EUR.
Before making a final supplier selection, Butler thought that it would be wise to confer with Ricky Himmer, TGU’s vice president of transportation. The executives met at company headquarters to compare the options. Himmer was impressed by the thoroughness of the supplier evaluation process and cost analysis. However, he complained about offshore sourcing risks and possible transportation disruptions. Himmer also kept talking in acronyms about security regulation compliance and paperwork requirements.
By the time the meeting was over, Butler was worried. Had he missed something in his analysis or was Himmer ranting aimlessly about nonissues? Butler decided that the analysis of the three potential suppliers should take on another dimension—supply chain risk and what could be done about it.
CASE QUESTIONS
1. What issues should Butler evaluate in his assessment of transportation risks?
2. Analyze each supplier option that Butler is considering. What specific risks does each supplier option present?
3. Which supplier would you recommend that Butler choose to best balance company goals with transportation and supply chain risks?
4. What types of transportation security issues and requirements will confront TGU if they off-shore manufacturing.