Your group that constitutes a new cross-functional team at Modern Office Equipment (MOE), a publicly-traded Minnesota-based producer of electric staplers for the home office and commercial office market, was doing some number crunching. It was January of 2023, and your team had sent out requests for quotations (RFQs) for manufacturing the companys premium metal stapler (the Optimus) and had gotten three responses: Duluth Castings, Inc. (DCI); Sichuan Metal Fabricators (SMF); and Nagashi Industries Vietnam (NI). And because SMF was based in China, you had also gotten quotes from a global logistics freight forwarder, Shanghai International Logistics, Ltd. (SIL), to have shipments delivered to the Port of Long Beach in California. Hai Wan Lines, Ltd., a Hong Kong Shipper, had been contacted to price shipments from Vietnam. Modern Office had done business with these service providers in the past and was comfortable using their services and their quotes for purposes of selecting a vendor for the Optimus. Overall, the process of collecting information had taken several months, including calculating the estimated shipping lead times. Your team is new to the job, and you didnt know that you were ultimately responsible for purchasing transportation too! Your predecessors had warned you that you would need to consider the total cost of ownership in the supply chainnot just the purchase price and contract terms. This was especially important given global sourcing, which often resulted in lower per- unit costs, but longer transit times, ever-changing currency exchange rates, different shipping terms and contracts, uncertain delivery schedules, weather uncertainties, multi-language requirements, political turmoil, and more recently, even high-seas piracy (See Exhibit 1 and 2)! Complicating matters, tensions in the South China Sea had escalated in 2009 when Chinese vessels surrounded the USNS Impeccable, increasing instability in the region.[i] Tensions continued to escalate in 2014 between China and Vietnam in the South China Sea as China deployed an oil rig in waters claimed by China, Vietnam, and Taiwan. Further, tensions continued to escalate on the Korean Peninsula as North Korea continued to escalate its nuclear program.[ii] Additionally, the global pandemic has put a strain on global supply chains and continues to disrupt product flow. With these issues in mind, your team developed an action plan and got to work. Your team preferred to do business with DCI as part of the companys incentive program for a Buy American campaign, but you didnt want to discard the other two suppliers without looking at the numbers. Your team reviewed some of the basic information you had collected. Modern Office Equipment made staplers for home and commercial use and sold them through large retail and office supply outlets, including online, at an average price of $35 per unit. The Optimus was the flagship product and has had steady sales for as long as anyone could reme.

1. Your group that constitutes a new cross-functional team at Modern Office Equipment (MOE), a
publicly-traded Minnesota-based producer of electric staplers for the home office and
commercial office market, was doing some number crunching. It was January of 2023, and your
team had sent out requests for quotations (RFQs) for manufacturing the companys premium
metal stapler (the Optimus) and had gotten three responses: Duluth Castings, Inc. (DCI); Sichuan
Metal Fabricators (SMF); and Nagashi Industries Vietnam (NI). And because SMF was based in
China, you had also gotten quotes from a global logistics freight forwarder, Shanghai
International Logistics, Ltd. (SIL), to have shipments delivered to the Port of Long Beach in
California. Hai Wan Lines, Ltd., a Hong Kong Shipper, had been contacted to price shipments
from Vietnam. Modern Office had done business with these service providers in the past and was
comfortable using their services and their quotes for purposes of selecting a vendor for the
Optimus. Overall, the process of collecting information had taken several months, including
calculating the estimated shipping lead times.
Your team is new to the job, and you didnt know that you were ultimately responsible for
purchasing transportation too! Your predecessors had warned you that you would need to
consider the total cost of ownership in the supply chainnot just the purchase price and contract
terms. This was especially important given global sourcing, which often resulted in lower per-
unit costs, but longer transit times, ever-changing currency exchange rates, different shipping
terms and contracts, uncertain delivery schedules, weather uncertainties, multi-language
requirements, political turmoil, and more recently, even high-seas piracy (See Exhibit 1 and 2)!
Complicating matters, tensions in the South China Sea had escalated in 2009 when Chinese
vessels surrounded the USNS Impeccable, increasing instability in the region.[i] Tensions
continued to escalate in 2014 between China and Vietnam in the South China Sea as China
deployed an oil rig in waters claimed by China, Vietnam, and Taiwan. Further, tensions
continued to escalate on the Korean Peninsula as North Korea continued to escalate its nuclear
program.[ii] Additionally, the global pandemic has put a strain on global supply chains and
continues to disrupt product flow. With these issues in mind, your team developed an action plan
and got to work. Your team preferred to do business with DCI as part of the companys incentive
program for a Buy American campaign, but you didnt want to discard the other two suppliers
without looking at the numbers.
Your team reviewed some of the basic information you had collected. Modern Office Equipment
made staplers for home and commercial use and sold them through large retail and office supply
outlets, including online, at an average price of $35 per unit. The Optimus was the flagship

2. product and has had steady sales for as long as anyone could remember. The stapler market was
fairly saturated and competitive, and should their product be out of stock at retailers, they
estimate that they lose almost all of those salesthe remainder result in backorders. Given this
likelihood of losing customers, the company had a service goal of 95% in-stock probability. On
the other hand, because of the excellent design and manufacturing quality, MOE had been able to
maintain profit margins of 7 percent. Before proceeding, you would need to forecast the annual
demand (D) and calculate average daily demand () and the standard deviation of daily demand (
). MOE normally estimated this over 360 days. Company policy was to use a nave approach to
forecast annual demand (i.e., last years actual demand is used as this years forecasted demand)
(See Exhibit 3). Your teams procedure was to start out developing a cost comparison of the three
suppliers using the companies respective EOQ as the order quantity.
Most of MOEs business was in the United States and all of its product flowed through MOEs
distribution center in Alliance, Fort Worth. The DC (known as the AFW-DC) was optimally set
up to receive rail shipments utilizing twenty-foot (TEUs) containers (length: 20ft; width: 8ft;
height: 8ft 6in), which could carry approximately 21,600 kilograms (47,600 lb.) and could hold
about 8,160 staplers.[1] (See Exhibit 4). The staplers were packed 6 to a carton that was
approximately 1 cu. ft. Each carton containing 6 staplers weighed approximately 6 pounds. TEUs
carrying staplers carried no other products, and TEUs coming from Asia must be shipped across
the Pacific Ocean from the Port of Shanghai or other ports (see Exhibits 5, 6, 7).
Your team had also gotten information on the costs for ordering and holding Optimus stapler
inventory. On average, it costs $900 to place orders with domestic suppliers and $2,500 to place
orders with foreign suppliers. These higher costs for international suppliers included translations
and increased communication in addition to preparing, reviewing, transmitting, and monitoring
purchase orders as well as costs to perform the receiving, inspection, and payment transactions.
The company normally calculated inventory carrying costs in two ways:
(1) it calculated the in-transit holding cost for the period that the inventory is in transit. For this
purpose, it uses the companys annual cost of capital (i) as the holding cost factor (Modern
Offices cost of capital (i) was 12% for a 360 day-year).
[1] Fork lifts normally load and unload standard containers through the container rear doors. This
can be accomplished with container ramps while the container is still on the truck or a crane can
set the container on a flat level surface. When containers are used on a regular basis, loading
docks are set at exactly that same height as the container to facilitate level operation. One TEU
holds about 1360 cubic feet of material.

3. Sichuan Metal Fabricators
The second quote received was from Sichuan Metal Fabricators (SMF) in China. SMF was a
large and very modern operation known for high quality production and low costs, primarily
because of low wages paid to factory workers. SMFs quote was in Yuan Renminbi (CNY, or )
which was trading at 0.16141 USD. The quoted unit price did not include local shipping costs,
freight forwarding, cost of inland transportation to port of export, ocean transportation, port
handling charges, or customs fees.
After manufacturing, SMF would package and load the TEU container(s). Modern Office would
contract with Shanghai International Logistics, Ltd. (SIL), a freight forwarder, to handle the
shipment from SMFs plant. Shanghai International Logistics would contact SMF to arrange
picking up and loading, confirm the chargeable weight, and ship FCA Long Beach.[1] SIL would
move the shipment overland by rail the 2,351 kilometers to the Port of Shanghai, a trip taking
only 2 days because of the new, fast Shanghai-Chengdu rail system. Due to port congestion and
shipping schedules, the average wait time for loading on a ship was 2 days. Once loaded, the
shipment across the Pacific to the Port of Long Beach took about 11 days and, once there, about
3 days to clear customs and move to a dockside rail spur. Once the shipment was loaded on the
railcar in Long Beach, it took an additional 3 days to ship FOB Origin Freight Collect to the
AFW-DC at a cost of $2,200 per TEU.
Shanghai International Logistics, Ltd charges 33,000 for each TEU that is shipped (includes port
processing fees and other charges) regardless of weight. Tariffs and duties are estimated to be
5% of the unit cost quoted by the supplier and are billed directly to MOE each month by Long
Beach U.S. Customs.
SMF Quote
Unit price (including packaging costs) = 79
Tooling = 25,000 onetime fixed charge paid at beginning of contract and amortized over one
year. Round to the nearest USD whole number.
Order processing lead time = 4 days
Overall, the standard deviation of the replenishment (shipping and order processing) lead time
(LT) was estimated to be 2.34 days.
What is the EOQ for each supplier? (Hint: you need to estimate annual demand (D) first.)