Managing the. at COGMA

Transcription

1 Managing the Global l at COGMA Vanderbilt University Shuanghui Wu Bradford Cayer Erika Bacon Roe Rogers

2 Agenda 1 COGMA s Flows 2 3 Managing 4 and

3 Robustness of Goal: A robust strategy t Capitalize on available opportunities Maintain favorable financial position Provide rubrics for decision-making Position company for economic recovery

4 Flows Should the Feta Warehouse be closed and shipments made directly to customers?

5 - with CDC COGMA Factory Location COGMA CDC (Feta warehouse) Customer Assembly Plant

6 - without CDC COGMA Factory Location COGMA CDC (Feta warehouse) Customer Assembly Plant

7 Options FTL Shipments? LTL Shipments? Direct or CDC? Daily (JIT) Shipments?

8 Shipment Options FTL Shipments? LTL Shipments? Daily Shipments? FTL Shipments? LTL Shipments? Daily Shipments? FTL Shipments? LTL Shipments? Daily Shipments? COGMA Factory COGMA CDC Assembly Plant

9 1 2 3 Flow Options FTL shipments from Factories to CDC Daily Shipments to Plants (Status Quo) FTL shipments from Factories to CDC to Plants FTL shipments from Factories direct to Plants Shipment Options Total Annual Cost $ 5,074,417 $ 7,398,158 $ 14,160,189 LTL shipments from Factories 4 $ 3,644,769 to CDC to Plants 5 LTL shipments from Factories direct to Plants $ 2,740,694 6 LTL shipments from Factories to CDC $ 2,901,581 Daily Shipments to Plants

10 Option 5: Optimal Quantity Shipments from Factories to Plants (no CDC) Annual Cost Calculation Shipping Costs From To U / TL Miles $ / Mile $ / TL Days/Trip Total Cost Gouda Roquefort 472 1,800 $ 1.43 $ 2, $ 258,763 Gouda Mozzarella , ,839 Chester Roquefort ,252 Chester Mozzarella ,710 Brie Roquefort 386 1, , ,944 Brie Mozzarella 352 1, , ,766 Provolone Roquefort , ,008 Provolone Mozzarella ,472 $ 1,369,754 Holding Costs ($ / day) $ Average Inventory (units / day) 1,252 U / TL = Units per Trailer Load Inventory Holding Cost $ 1,370,940 $ / TL = Shipment Cost per Trailer Load Days / Trip = Days between shipments Total Annual Cost $ 2,740,694

11 Sensitivity Analysis Production Level Annual Su upply Cha ain Costs $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Intersection at 331 / 332 cars per day Option 5: Ship Optimal Quantities from Factories to Plants Option 6: Ship Optimal Quantities to CDC, daily shipments to Plants Production Level (Cars per Day)

12 Sensitivity Analysis Transportation Cost $7,000,000 Annual Supply Ch hain Cost $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- Intersection at $ /$113 $1.13 Option 5: Ship Optimal Quantities from Factories to Plants Option 6: Ship Optimal Quantities to CDC, daily shipments to Plants Transportation Cost ($ / mile)

13 Recommendations Based on analysis of the current situation, as well as likely trends for the future: Close the Feta warehouse and ship LTL shipments on a cost optimized i basis directly from the factories to the assembly plants. However, COGMA must continue to evaluate demand forecasts and transportation costs Respond effectively and rationally to market trends and conditions

14 Should steel purchases be moved to US suppliers?

15 Steel Steel Production Port Handling Costs $1,000 Unloading Costs at Port $2,500 Trucking From Port to Plant $500 Transport Steel to Docks $10,000 Shipping Out Of Port $2,000 Customs s Inspection $5 Total Import Transportation Expense: $16,005 Per container (100 tons)

16 Steel Transport Steel to Docks 2 Days Shipping Out Of Port 44 Days Trucking From Port to Plant 4Days Transit Time: 4 Days (Transport) + 44 Days (Shipping) + 4 Days (Trucking) TtlI Total Import ttransportation tti Time: 50D per ton per day Total Import Transportation Expense: $16,005 Total Holding Expense: $25,000 Total Importation Cost (per 100T container): $41,005

17 Steel Steel Price Comparison Domestic vs. Import Domestic Price Import Price Cost (per ton) $ 300 Cost (per ton) $ 150 Per Container (100 tons) $ 30,000 Per Container (100 tons) $ 15,000 Importation Costs $ 41,005 Total $ 30,000 Total $ 56,005 Savings Per 100 Tons $ 26,005 Given the current pricing, there is still considerable savings when purchasing steel domestically. In the event that domestic steel prices increase above $820 per ton, steel should be imported from China.

18 Steel Recommendations When Domestic Prices Are Below Breakeven $820 Point (with no discount) Purchase Steel Domestically

19 Steel $900 Introduction $800 Breakeven Price ($820) $700 Steel Price ($/Ton) $600 $500 $400 $300 Current Price ($300/T) $200 $100 $- 0% 6% 13% 19% 25% 32% 38% 44% 51% 57% 63% 70% 76% 82% % Discount Required

20 Some of COGMA s suppliers are offering significant discounts on high-volume purchases. Should COGMA take advantage of these?

21 Discounted Bulk Potential Problems with Bulk Purchases Holding Costs Risk of obsolescence Volatility of Demand Situation at COGMA Poor cash position Low risk tolerance given uncertain market

22 Discounted Recommendations We advise against purchasing in bulk from vendors, even at high discounts COGMA could re-evaluate this decision, on a case by case basis, when: Supplies are common to many COGMA products Volatility of demand of COGMA products is lower

23 Serving Customers Should exports be committed at the same price in won to hold on to the Korean customer?

24 Foreign Currency COGMA must take every possible step to minimize i i risks on contracts in foreign currency Currency forecasting is not a core competency Currencies are volatile High risk of loss Alternatives to reduce risk Buy currency futures to lock in prices Prepaid terms with a Letter of Credit Construct production facilities abroad (long-term)

25 Foreign Currency Contracts Accommodate customer needs while ensuring an acceptable level of risk for COGMA: Risk mitigation via foreign currency hedging Cost of currency hedging included in product prices Risk premium Consider benefits of Korean customer orders using Variable Product Costing

26 Offshoring and Outsourcing Short-term: Should not move production to Asia Requires major capital investment COGMA already has excess capacity Add capacity in Asia when conditions improve Cash flows Global automotive demand

27 Will the Federal government intervention remove the credit crunch soon or will it take longer to resolve?

28 credit crunch solution Uncertainty of impact and timeline Develop action plans in case of immediate market recovery Diversify customer base into other industries

29 Surplus Cash Uses Should COGMA s free cash flows be used to increase capacity and offer customers faster turnaround?

30 Surplus Cash Uses Surplus cash should be used to increase demand Developing eloping customers in other industries Offer favorable terms to gain new customers First priority is to maintain healthy financial position to be ready to capitalize on opportunities

31 Recommendation Recap Maintain favorable Close Feta warehouse, use LTL shipments financial a positions o s Purchase steel domestically if prices are below $820 per ton Avoid purchase of discounted bulk supplies Accept orders with risk mitigation premium Provide guidelines for decision- making Position for market recovery No back sliding on long-term goals

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33 Effect of Diesel Prices on Transportation Costs Tractor-trailers operate in the range of 6 7 miles per gallon. In August, 2008, Diesel prices were approximately $4.22 in the Midwest, for a total of $0.65 per mile. Total transportation costs during this time were $1.75 per mile. In February, 2009, fuel prices have dropped by half, giving a fuel price reduction of $0.325 per mile. Total Transportation Costs (Aug 08) Fuel Cost Reduction = $1.43 / mile

34 International JIT Higher exposure to transportation loss and delays High volatility of shipping times Impossible without a VERY large safety stock near manufacturer Alternatives Vendor Managed Inventory Warehouse next to plant

35 Offshoring vs. Outsourcing Offshoring Outsourcing Operational control (IP, quality, service, timeliness, etc) High Med Learning curve High Med Risk of being bypassed (eliminate the middle-man) man) None Med Level of management involvement High Med