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Can I get some help please on my case study for Global supply

Case Study: Stark Industries As a buyer at Stark Industries, your Sales team has approached you regarding a need to expand a product line. They believe that by branding a new light screen under your name, they can increase their market penetra±on signifcantly. Stark will simply buy and re-brand this product From a manuFacturer. They key is that the product does nothing to deteriorate your reputable brand. They are unsure how many they can sell. ²or the purpose oF this analysis, you should assume 30k in the frst year oF launch. It is likely that actual sales could be double that amount. It is expected to have a liFespan oF just 3 years. During that ±me period, assume 50k per year in the 2 nd year, and 20k in the 3 rd year, but it could be signifcantly more. You turn to your internal cost es±mators to understand more about the “should cost” oF this part. They advise that about 30% oF the value is graphene (~30 ounces per part, at $18/oz currently). Due to very ±ght technical specifca±ons, the manuFacturing process must be highly automated. This means that labor makes up only 15% oF the cost in most markets (this depends on whether the supplier is in a mature market or a development market). The remainder is overhead and other. You receive o³ers From the Following suppliers. Marvel Company has submi´ed a proposal oF $1560 per unit. They require no investment because they wish to retain the capital and intellectual property to sell to others. You have never done business with them, but their supplier assessment ranked them very high in both quality and delivery. Their price is fxed For the 3 years, but the graphene must be indexed with Stark taking all risk on the pricing. By the way, Supplier Rela±ons just advised that they have just hit the radar as being a “Yellow” risk due to high rates oF growth in the last 9 months. Downey Enterprises has submi´ed a proposal oF $1670 per unit, with reduc±ons oF 10% per year in years 2 and 3. They require $1M in investment and commit to not selling their product to anyone else. They have been a long term supplier. They have stood by you through thick and thin. They also know that price reduc±ons are a key part oF your perFormance review process, and their scorecard. Quality is strong. Delivery is pre´y good. They are willing to reduce the price by an addi±onal 8% each year iF volumes are more than 20% oF the projected volumes. They will split the graphene risk 50/50. Iron Inc. has submi´ed a proposal oF $1550 per unit, with reduc±ons oF 3% per year in years 2 and 3. They require $1M in investment. They have been a supplier For 2 years and perFormed very strong historically in both quality and delivery. Recently they have had quality issues, but they now have new management that is very Focused on quality. UnFortunately, one oF the spills occurred just a Few months ago, and has leµ a bad taste with Starks’ upper management . Iron Inc. is trying to get back in your good graces. Graphene ¶uctua±on will impact their pricing, with expected quarterly updates.
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Your colleague, Rick Smith, has thrown out another opTon to you. He heads up your manufacturing division and thinks that Stark could make this product on their own. ±he pricing is just $1150 to make it. ±hat is an outstanding price, but that does not include any overhead. Overhead is typically 15% of labor. SG&A is typically 10%. ±he investment is $5M. Historically, your labor costs increase at 3% per year. You quesTon whether you have the internal experTse to really make this and bring it to market in Tme to beat the compeTTon. So it seems there are 4 viable opTons. What do you recommend? For reference, your cost of capital is 12%. Some other things to consider relate to the manufacturing locaTons: Downey: Nagoya, Japan Iron: ±apei, ±hailand Marvel: San Antonio, ±X Stark: Palmdale, California ±he product is desTned for the U.S. market. All suppliers will bear the burden of currency ²uctuaTon. Please show the NPV of your considered opTons. Provide a thorough raTonale about why you are recommending who you are recommending.
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