Overview:

Transportation and logistics managers often confront the modal selection problem.  They must determine which product should be shipped via which mode to lower total landed cost.  Each mode possesses unique characteristics and cost structures.  These differences make some modes better suited to transport certain commodities or products.  For example, products with a high value to density ratio tend to move by air or truck while items with a low value to density ratio tend to move by rail or water.  Total cost drives this decision.

The Megabox case analysis presents a modal choice problem involving four products.  Each product differs in value, weight, and cubic feet  Joe Perez, the distribution manager for Megabox, can ship each product by four different modal options:  (1) scheduled air with charter overflow; (2) contract air; (3) conference sea; and (4) non-conference sea.  Joe must select one, and only one, mode for each product based on the lowest landed cost. 

For the Summer 2012 version, your task is to determine how to ship only one product:  TV1.  IGNORE THE OTHER THREE PRODUCTS FOR THIS ASSIGNMENT!

Two factors complicate Joe’s decision.  First, he must remain within budget.  His budget to transport an item is the difference between the CIF and FOB prices.  Second, his customer in Zumburu has agreed to CIF pricing.  The customer expects Megabox to ship by the fastest means available whenever possible.  However, Joe will not ship by a mode that exceeds his budget. 

Key learning objectives:

This case includes several key learning objectives that support the overall objectives for the course.  You should pay attention to these learning objectives.  Problems incorporated into this case such as calculating inventory carrying costs or freight charges may appear on the next examination.  The key learning objectives for the Megabox case include:

·         Calculating inventory carrying costs for goods in-transit.

·         Calculating the appropriate freight charges by mode.

·         Determining the costs applicable to Megabox.

·         Determining the costs applicable to the customer in Zumbur

·         Identifying the total landed cost for TV1

·         Determining the most effective means to transport TV1 based on total landed cost while satisfying customer service and budgetary constraints.

·         Recognizing how INCOterms affect the responsibilities for the imports and exports.

·         Understanding how modal and product characteristics drive landed cost and modal selection.

Assignment:

Students must a thorough analysis.  The analysis must thoroughly investigate the problem and key issues, analyze the selected alternatives, and provide a compelling argument for the final recommendation. 

Your analysis must consider several additional factors in addition to the total landed cost.  These factors include:

·         An explanation of your calculations.

·         Whether the TV1 is within budget for that mode.

·         How this mode affects the service level provided to the customer.

·         Any other factors you considered relevant to the problem (should summarize the analysis of the issues and decision criteria).

·         Your assumptions, especially regarding whether the responsibilities for different costs were assigned to Megabox or the customer in Zumburu.  Be sure to defend/explain all assumptions.

·         An explanation of your results—i.e., why some modes are in budget for this product while others are not.  Your explanation should address how product or modal characteristics affected the different costs included in the analysis.

The recommendation section must clearly indicate your recommendation for which mode will be used for which product.  Your answer could recommend that each product move by a different mode.  Within this section of your report, you must carefully defend your recommendation.  Your defense should include cost and budget comparisons and other criteria used in making your final decision.  You must create tables to make comparisons across modes.  However, you must explain the content of each table—do not assume tables or figures to be self-explanatory.

Homework assignment:

1.  Must prepare a one-page executive that addresses the five points shown below.  You should write the executive summary for a senior executive in Megabox that is not familiar with the problem.

a.    Explains the problem confronting Megabox

b.    Identifies the key issues that will influence the final decision

c.    Identifies and explains the alternatives available for shipping the TV1s to Zumburu

d.    Explains the analysis that was performed

e.    Provides your final recommendation—your recommendation must be supported with cost figures as to why the recommendation is the best alternative

2.  Case write-up with consist of:

a.    Spreadsheet showing total landed cost for TV1

                          i.    Cost calculations for all costs in the case must be shown in the spreadsheet—example shown earlier in the learning objectives is not all inclusive—you must identify all of the relevant costs!

                        ii.    Total cost for Megabox must be clearly indicated

                       iii.    Total cost for Customer in Zumburu must be clearly indicated

                       iv.    Budget for Megabox (CIF-FOB price)

                        v.    Whether the product is within budget for each mode

PLEASE NOTE:  The spreadsheet is provided only so I can check your calculations.  You must use the results from the spreadsheets in your write-up of the following section.  You may not reference the spreadsheet.  Everything needed for me to understand your analysis must be included in the write-up.  You may include tables or results of calculations from your spreadsheet, but you may not refer me to the spreadsheet for results.

b.    You need to clearly indicate which costs are the responsibility of Megabox and the customer in Zumburu.  You need to explain why these costs are the responsibility of each.  The spreadsheet should be organized to reflect the responsibility (Megabox’s responsibilities should appear in a set of columns grouped together and the customer’s costs should also be grouped together).

c.    For each mode, you should explain your analysis results.  For example, why would you expect this mode to be more or less expensive and how did the product’s characteristics affect the cost.  For example, when shipping by air you should explain that since air has a shorter transit time, the inventory carrying cost is less for Megabox.  You need to remember that the inventory carrying cost is incurred for goods that are in the transportation system. 
The case includes four options to ship TV1s to Zumburu:

        Scheduled air with 20% premium charter overflow
        Contract air at a 10% discount off scheduled air but requires a space
              commitment and one-year contract
         Conference sea
         Non-conference sea

You do not need to determine how many TV1s will fit in a container!!!!!  The case indicates that 70% will move CL and 30% will move LCL if shipped by conference sea and the 90% will move CL and 10% will move LCL if shipped by non-conference sea.

Megabox will incur an inventory carrying cost as will the customer in Zumburu.

d.    Your final recommendation.  Please note.  You must support your recommendation with cost information from the spreadsheet analysis.  Your recommendation should NOT refer to the spreadsheet!  The spreadsheet is only for my information to check your results.  EVERYTHING NEEDED TO SUPPORT YOUR ANALYSIS AND THE RECOMMENDATION MUST BE INCLUDED IN THE WRITE-UP.  FAILURE TO USE SUPPORTING COST FIGURES OR TABLES WILL RESULT IN A SIGNIFICANT (FAILING) GRADE FOR THIS ASSIGNMENT.  The recommendation should begin with a single statement that indicates clearly what you recommend.  The remainder of the recommendation should explain why this is the single best way to ship the TV1 product to Zumburu.  You should compare and contrast the four options to ship the TV1.

Submission format:

Your assignment will consist of two documents:

1.  PDF containing:  (1) cover sheet, (2) executive summary, and (3) complete write-up of the case (assignment of responsibilities; analysis; and recommendation).

2.  Excel spreadsheet

The files will be named using the following convention:

Last First Megabox.docx

Last First Megabox.xlsx