EXERCISE: CRUNA, LOCAL VS. GLOBAL SOURCING Cruna is a Company manufacturing electronic sewing machines out of a modern plant, placed in the western outskirts of Milan, Italy. One of the two key components of the product is a subassembly formed by the electronic board and the control panel. Until today, this part has been purchased from Elettronica Pautasso, an historical supplier for the Company, having its production facilities in Orbassano, Italy. During the first meeting with the supplier, the new Chief Procurement Officer has been told that the subassembly price will raise from EUR 12,35 to EUR 13,00 as of January 1 st , 2018. Annoyed by an increase exceeding 5%, the CPO has screened the supply market and has found an Indian supplier, Kumartronics in Mumbai, which manufactures similar components for Cruna’s Asian competitors. The inquiry performed by Purchasing Department resulted in a EUR 8,00/piece offer, which is considered very interesting. Cruna’s Management has decided to launch a project to thoroughly evaluate the subject. Such a project should help deciding whether this supplier should be added to the vendor list and, eventually, replace Elettronica Pautasso. The reference data for this analysis can be found hereunder.

1. CRUNA: LOCAL VS
GLOBAL SOURCING
THE ROLLING WAVES:
ANDREA SINICO
ADRIAN BELLITTIERI
GIOVANNA GONZATO
JOANNA BITAR
JOSÉ DALLAGNOL
LOVRO DENONA

2. DESCRIPTION OF ALTERNATIVES
• MAINTAIN THE ITALIAN SUPPLIER
• CHANGE TO INDIAN SUPPLIER
• BOTH: BUY A PART OF PRODUCT FROM ITALY AND A PART FROM INDIA

3. TARGETS
• Buying at the same or lower cost
• Risk diversification (have more than one supplier)
• Increase the profitability
• Maintaining constant quality or improve it
• Having good relationship with suppliers

4. FULL ECONOMICAL ANALYSIS
Yearly consumption of subassemblies 100,000.00
WACC 5.00%
Container load 300.00
Truck load 500.00
Elettronica Pautasso
(Orbassano, Italy)
Kumartronics
(Mumbai, India)
Subassembly EXW unit cost 13.00$ 8.00$
Container Mumbai-Genoa - 1,000.00$
Container cost Genoa-Milan - 250.00$
Truck cost Orbassano-Milan 200.00$ -
Average stock level (months) 1.00 2.00
Customs duties - 10.00%
TOTAL UNITARY PRICE $ 13.40 $ 13.30
TOTAL YEAR COST $ 1,340,000.00 $ 1,330,000.00

5. FULL ECONOMICAL ANALYSIS
Ground 30%
Maritme 35%
Fuel Parcel of Transportation Cost
STD 27.45
MEAN 70.17
Highest 108.76
Lowest 29.78
1STD 97.63
-1STD 42.72
Oil Price Summary - 5yr
Unitary Fuel Parcel $ 0.12 $ 1.46
Fuel parcel on final price % Constant impact - 30% 10.96%
Max Fuel Unitary Cost - 50% parcel Constant impact - 30% $ 2.08
Fuel Impact Constant impact - 30% $ 0.63
Fuel Risk - To be added on final price $ - $ 0.31
Unitary Final Price Considering Fuel $ 13.40 $ 13.61
Total Year Cost $ 1,340,000.00 $ 1,361,000.00
Fuel impact on final Price

6. FULL ECONOMICAL ANALYSIS
Elettronica Pautasso
(Orbassano, Italy)
Kumartronics (Mumbai, India) Kumartronics (Mumbai, India)
- Considering Fuel Risk
*Consideration: straight line dispersion # of Products Bought Cost of Purchase Cost of Purchase Cost of Purchase
Gen 8334 $ 111,675.60 $ 110,842.20 $ 833.40 0.75% $ 113,425.74 $ -1,750.14 -1.57%
Feb 8334 $ 111,675.60 $ 110,842.20 $ 833.40 0.75% $ 113,425.74 $ -1,750.14 -1.57%
Mar 8334 $ 111,675.60 $ 110,842.20 $ 833.40 0.75% $ 113,425.74 $ -1,750.14 -1.57%
Apr 8334 $ 111,675.60 $ 110,842.20 $ 833.40 0.75% $ 113,425.74 $ -1,750.14 -1.57%
Mag 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Giu 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Lug 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Ago 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Set 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Ott 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Nov 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Dic 8333 $ 111,662.20 $ 110,828.90 $ 833.30 0.75% $ 113,412.13 $ -1,749.93 -1.57%
Total 100,000.00 $ 1,340,000.00 $ 1,330,000.00 $ 10,000.00 0.75% $ 1,361,000.00 $ -21,000.00 -1.57%
Net Present Value $ 989,737.69 $ 982,351.59 $ 7,386.10 $ 1,005,248.51 $ -15,510.81
% of
Increase??
Savings buying in India % of Savings
Price increse
due to India
Purchase
Cost paid every 2months :
226851,48 $ (2months stock)

7. RECOMMENDED ACTIONS
• Incorporate the Indian supplier to have a second option but maintain the focus on
your Italian local supplier.
• Maintain good relations with local supplier to lower the risks: seek help in case of
urgent demands, problems in time delay and geopolitical issues that can occur in
India.
• In this way we can put more pressure on our local supplier to lower or maintain the
cost at same level in the following years
• Having more than one supplier is safer
• Look for other suppliers options