Reference no: EM132192363

Brightfield Industries, Inc. of Chicago, Illinois found itself with a sudden great opportunity when a prospective customer in Spain called up asking about a huge new contract. The contract was considerably larger than anything Brightfield had ever fulfilled, and would, in fact, almost double their revenue from their last fiscal year by itself. Brightfield had the capacity to do the work, but they had never handled the logistics of such a sizeable order, and had only ever done regional trucking logistics to domestic customers. Brightfield prided itself on using outbound logistics nationally as a competitive advantage, and had also been sourcing from China and Malaysia very successfully for several years already. On the strength of this confidence in its logistics capabilities (plus the hope that they could quickly learn what they didn’t already know), Brightfield agreed to strike the deal, which included considerable penalties for delivery delays. The contract specified 600 units be delivered within 140 days at an expected profit of $41,538 per unit. The retail purchase value of each unit is normally $246,153, but Brightfield agreed to a volume discount of $226,153. To fulfill this new order, Brightfield reached out to its main supplier of subassemblies, Tienmu, Inc. in Shenzhen, China. Tienmu provided the subassemblies via an intermediary courier service, normally, but this order was to be so large that special terms needed to be negotiated. Each subassembly was several thousand pounds and was normally shipped in containers with substantial blocking and bracing, one per container. The material needed to be drayaged to the port of Shenzhen, loaded onto a ship, shipped across the Pacific Ocean to be offloaded onto rail cars in the US, and then moved via rail to Chicago, where it would be unloaded directly from the rail cars into the production facility of Brightfield, located at 1060 W. Addison, Chicago IL. Brightfield also has the option to use air cargo on an emergency basis for these bulky materials. A cargo 747 aircraft must be chartered to handle the size and weight, and can carry up to 10 units for a charge of $20,000 per unit more than normal transportation costs. Units delivered by air freight will reliably arrive at Chicago in approximately 2 days. Other raw materials used for this contract were sourced locally, and were ignored for the purposes of this case. After a 60-business-day production process in Chicago, the finished goods needed to be loaded back onto rail cars and moved via ship to the Port of Valencia, where the customer assumed control of the goods. Transport to Valencia most likely requires from 19 to 31 days, depending on various factors outside of Brightfield’s control, assuming transport and export clearance happened as expected. The customer was not familiar with logistics, per se, but had relationships locally to help with drayage and customs clearance. The customer was not able to arrange international transportation, and required Brightfield to arrange this. Once again, Brightfield has the option to load the cargo onto a 747 in Chicago for transport to Valencia. Such transports are, again, limited to 10 units per aircraft, but will incur $30,000 in costs beyond normal transportation costs for this leg. Risks Delay: The terms of the proposed contract require a tight window of 140 days for delivery of the entire production run. Failing to meet that 140 days incurs a stiff financial penalty of 5% per day, increasing to 50% on day 10. Delays past day 10 will cause the order to be contractually cancelled, effectively bankrupting Brightfield. Naturally, delays are the enemy as a result. Delivery will be determined by the Incoterms. Damage: Significant and unrepairable damage to any cargo piece would cause the cargo to be destroyed on inspection, and would constitute breach of contract terms, unless another piece could be delivered in time to meet the contract terms. Theft: Theft of any cargo piece would constitute breach of contract terms, unless another piece could be delivered in time to meet the contract terms. Cargo Loss: Cargo loss would have the same effect on Brightfield and the contract as a delay of 11 days. Case Questions: Based on what you read of this case, any research you do, and any reasonable assumptions you state, complete the following in a thorough fashion and with good business communications style: Propose a list of risks related to this contract proposal and conduct a qualitative or quantitative risk analysis. Determine which risks you consider to be worth addressing, and provide mitigation suggestions for those risks. Risks listed in the case are not necessarily the only risks worth analyzing. For the raw materials supply logistics from Tienmu, decide the route and modes of transportation, given the opportunities and risks of this contract proposal. Map the possible routes under consideration and provide a reasonable justification for preferring your chosen route. Estimate the time of arrival to Chicago. Write the full Incoterm you will require for this logistics movement, and explain why you chose it. How does this Incoterm and routing support your risk strategy? For the finished goods logistics to the Port of Valencia, decide the route and modes of transportation, given the opportunities and risks of this contract proposal. Map the possible routes under consideration and provide a reasonable justification for preferring your chosen route. Estimate the time of delivery. Write the full Incoterm you will quote for this logistics movement, and explain why you chose it. How does this Incoterm and routing support your risk strategy? Assuming everything goes as expected (best case), what is an estimated transportation cost for this contract?