Ii valuable products by taking the purchase price

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ii. Valuable products: By taking the purchase price into account (85$ for CousinsAg and 80.11$ for Dong Hai Supply), it is self-evident that this product is valuable and we would not want to damage the product 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 Supply since we are exchanging the currency from RMB to USD, while for Cousins we are using 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 (43 days), 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 exchange rate. 13. Recommendations: a. Increase the quantity of units to fill the TEU There 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 rate fluctuations So, by shipping 600 units, even though the total landed cost will remain the same for Dong Hai Supply (the total costs don’t vary much if Q is little less or little more than the optimal quantity 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 reduce the risk of damaged products, which will eventually decrease the overall total landed cost. b. Change the mode of Transportation The long lead time may affect our customer’s service due to uncertain delivery schedules and high probability of disruptive weather patterns since we are using the ocean mode of transportation. Therefore, we recommend IDC to change its mode of transportation from ocean to air.

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