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ii.Valuable products: By taking the purchase price into account (85$ for CousinsAg and 80.11$ for Dong HaiSupply), it is self-evident that this product is valuable and we would not want to damage theproduct and to lose more money than what we intend to save. b.Fluctuations in the total cost: i.Exchange rate:The risk for the fluctuations in the purchasing price is higher for Dong Hai Supplysince we are exchanging the currency from RMB to USD, while for Cousins we areusing the same currency since we are in a domestic market. ii.Long lead-time: Due to the long lead time, which is more than a month for Dong Hai Supply (43days), this further increases the risk in fluctuations of exchange rate. Consequently,the increased/ decreased exchange rate will affect the company’s total cost. Therefore,the longer the lead time, the higher the IDC faces the risk of fluctuating exchangerate.13. Recommendations: a.Increase the quantity of units to fill the TEUThere are some hidden costs that are not considered while calculating the total landed cost.The total landed cost can be:Total landed cost = Calculated Landed cost + Risk of damage + Risk of Exchange ratefluctuationsSo, by shipping 600 units, even though the total landed cost will remain the same for DongHai Supply (the total costs don’t vary much if Q is little less or little more than the optimalquantity due to straight tangent close to optimal quantity) and will increase slightly ($0.04) for
CousinsAG (Costs increase as the quantity is changed from 406 to 600), but this will reducethe risk of damaged products, which will eventually decrease the overall total landed cost. b.Change the mode of TransportationThe long lead time may affect our customer’s service due to uncertain delivery schedules andhigh probability of disruptive weather patterns since we are using the ocean mode oftransportation. Therefore, we recommend IDC to change its mode of transportation fromocean to air.