Senco Study

Running head: SENCO, CASE 2-1

Senco, Case 2-1

We compared the cost benefit of utilization of air and sealift options. To do this, we examined the origin and destination of the product, associated variables; amount shipped over time and supply chain reliability. Given this criteria, we would recommend the Sealift option to Mrs. Shannon, because of the established supply chain with China that will provide continued reliability for the company and its customers. In addition, the sealift option provides significant long term cost savings and can accommodate expected future growth.

Mrs. Shannon did state concerns with the company's lack of experience with other modes of transportation and switching to an overseas vendor. The relocation to China for production should provide reassurance (Trade, 2011). According to the Office of the United States Trade Representative website, China is our 2nd largest goods trading partner with $457 billion in total export and imports trade during 2010 (Trade, 2011). This standing could only be achieved with a well developed and reliable supply chain from Chinese to United States Markets.

For company transportations costs, the long term cost savings of the sealift option will be substantial. Largely, this is due to the expected 10 per cent annual growth over the next five years. For the air option, this growth will cause the variable costs of handling, carrying and ordering to spike and eventually surpass fixed costs in a short period. Also, the sealift option can absorb this annual increase and mitigate the costs far better. Ultimately, the best transportation choice is the one that delivers their high quality product in an amount of time the consumer deems acceptable at the lowest possible cost. For all these reasons, we believe the sealift option is the best option.

Level of demand would be:

Long-Run/Dynamic Analysis

y=a+bx

OCEAN AIR

520,000=410,000+b(1,500,000) 486,000=250,000+b(1,500,000)

-410,000=-410,000 -250,000=-250,000

110,000=b(1,500,000) 236,000=b(1,500,000)

/1,500,000=b /1,500,000=b

.073=b .157=b

y=410,000+.073x y=250,000+.157x

-250,000=-250,000

410,000+073x=250,000+.157x

160,000+.073x=.157x

160,000= .084x

/.084=.084

1,904,761= x

1,904,761 pounds

A= fixed cost

B=variable cost per unit

X=output level

Year 1 - 1.5M pounds increased 10% annually thereafter

Ocean