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elimination of usual export duties-although exports from the SFTZ are subject to the 25% tariffs recently imposed by the US

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elimination of usual export duties-although exports from the SFTZ are subject to the 25% tariffs recently imposed by the US. It also makes easier for Zhuexus to maintain quality and comply with US medical certification guidelines. At the same time, Chinese authorities maintain tight control over the SFTZ and therefore would be able to quickly shut down exports from the SFTZ if an outbreak were to occur in China - or if political tensions with the US were to flare. If Care Med were to purchase products from Zbuexue, the likely route would be as follows: Products would be palletized, placed in a container for shipment, and then moved by train a short distance to the Port of Shanghai. There, product would be loaded onto a container ship. The container ship would depart Shanghai and arrive at the Port of Seattle, Washington, in approximately 13 days. At the Port of Seattle, containerized products would be load directly onto trains and shipped to Chicago via rail. In Chicago, cargo would be unloaded and palletized product would be loaded onto trucks and shipped to CareMed warehouses in Grand Rapids. The entire process is estimated to take from 24 to 28 days (See Appendix 2]. Zbuenue has a minimum order quantity of 1 container per month. CareMed: Importing Medical Supplies ahead of a Pandemic - The Year 2023 CareMed Inc. sells a wide range of personal protective gear, medical devices, and other medical supplies used in hospitals and private practices (see Appendix 1]. CareMed was founded ten years ago by Morgan Melendez and Victoria Contreras, two nurses who met while completing their MBAs at Grand Valley State University. The company is headquartered in Grand Rapids, Michigan, and has 623 employees and revenues of nearly $1 billion per year. CareMed's sales occur in the United States. However, the company imports 80% of its products from suppliers outside the US. To manage international suppliers, the company has offices in Shanghai, China, and Eindhoven, Netherlands. The medical device market in the US is governed by strict regulations and standards, designed to ensure patient safety. Imported medical equipment must undergo rigorous government certification before it can be sold in US markets. Certifying that imported supplies meet US regulatory standards represents one of the biggest cost drivers for CareMed. Morgan and Victoria have been watching the news closely and are concerned about a novel coronavirus that has emerged in Central Asia. The new virus, called the Eurasian Steppe Virus 2023 (or ESV-2023), is highly contagious and has been spreading quickly westward from Kazakhstan to Russia and Ukraine. China and other Asian countries to the east have not yet been affected. The World Health Organization (WHO) has been closely monitoring the virus's spread. The WHO is working closely with the Ukrainian government to stop the spread of the virus, but these efforts have been hampered by political instability in the country and a lack of funding from the international community. If the WHO's efforts are unsuccessful, the virus could reach Europe and the US in 6 weeks to 8 weeks. Morgan and Victoria think that it is only a matter of time before the virus spreads to Europe and the United States. When that happens, Morgan and Victoria are expecting a major surge in demand for exactly the types of medical supplies that CareMed sells. When that happens, CareMed expects annual unit sales of at least 150,000 units with average revenue per unit sale of $10,000. To prepare for a possible surge in demand, Morgan and Victoria are considering onboarding a new supplier. They have found two potential suppliers: Zbuexe Supplies located in Shanghai, China, and Schlechte Medizio, located in the Baden Wuerttemberg region of Germany. Schlechte Medizin GmbH (Germany) Schlechte Medizin was established five years ago and had revenues of roughly 5750 million last year. The company sells a wide range of medical products. Schlechte Medizin has an outsourced production model for personal protective gear, such as medical masks, gowns, and gloves. A network of suppliers in Ukraine and Russia makes the products then ship products to Schlechte Medizin for distribution. The company also operates several inhouse factories in the Baden Wuerttemberg region of Germany. These inhouse factories produce medical devices such as eye and ear scopes, stethoscopes, blood pressure monitors, and other small-scale equipment. Schlechte Medizin then ships all products from Germany to customers around the world. Schlechte Medizin representatives suggested that both the personal protective gear and medical equipment are compliant with US standards, although it is not clear whether this is the same as being certified. CareMed has asked for additional information on this point but has not heard back from their contact yet. Still, the company has executed some short-term contracts for a few well-known medical equipment companies. If CareMed were to purchase products from Schlechte Medizio, the likely route would be as follows: Products warehoused in Baden Wuerttemberg, in southern Germany, would be palletized, placed on trucks, and shipped to the Port of Hamburg, in northern Germany. From there, products would be loaded into a shipping container and placed onto a container ship. The container ship would depart Hamburg and arrive at the Port of Charleston, South Carolina, in approximately 21 days. At the Port Charleston, palletized product would be loaded back onto trucks and shipped to CareMed Warehouses i Grand Rapids. The entire process is estimated to take from 28 to 31 days (See Appendix 3). Schlechte Medizio has a minimum order quantity of 2 containers per month. Zhuovve Supplies (Shanghai) Zbuexe specializes in high quality healthcare products. The company has annual revenues of roughly $2.2 billion. It has long-term contracts with well-known US medical suppliers including Cardinal Health, McKesson, and Henry Schein. The company is ISO 9001 certified and has been awarded the prestigious AME Award for Manufacturing Excellence. However, in-depth reporting by the Wall Street Journal suggests that Zbuerue is currently undergoing a leadership change that has caused its service levels (lead time, on-time delivery, etc.) to drop off. The company's operations are entirely inhouse. Its production facilities are located in the Shanghai Free- Trade Zone (SFTZ). Operating in the SFTZ provides 2.omber of benefits to Zbuerue. This includes the CareMed's Internal Production Capabilities Relevant Data CareMed has collected the following data to conduct is analysis of its different potential options. Costs for each supplier represent the average costs Care Med would expect to pay for the mix of products it would likely buy from each supplier. Note that the pricing below is per unit. ZHUOYUE SUPPLIES (SHANGHAI Current Pricing (per unit) SCHLECHTE MEDIZIN (GERMANY) Current Pricing (per unit) CareMed is primarily a medical supplies distributor. In other words, CareMed typically purchases finished goods from external suppliers and then sells them to customers in the US. As noted above, all of CareMed's sales occur in the US and the company imports 80% of its products from international suppliers. Still, CareMed does have some options for internal production. It has a small inhouse facility that produces personal protective gear. This facility produced about 10% of Care Med's medical supplies last year. But with an expansion, Morgan and Victoria think that the facility could ramp up production to a volume equal to approximately 50% of the expected increase in sales. Such an expansion would require substantial fixed investment and the redesign of existing processes. An expanded facility would likely be able to begin production in 12 weeks. INFO FOR COST PLUS ANALYSIS Direct Materials Direct Labor Overhead $300 $700 13596 $200 $950 12596 SG&A Profit (mark-up) 1596 1296 2096 7% 2.55 31.1 2,400 2.55 31.1 2,700 INFO FOR TOTAL COST ANALYSIS Unit conversions Avg cubic ft per unit product Cubic ft per pallet Cubic ft per container Shipping costs Shipping to port of export per cube Cargo shipping costs per container Import duties (% value product) Port handling charges (% value of product) Rail freight charges per container Trucking costs per container per mile Number of miles trucked $0.50 $3,426 2596 1596 $3,500 $3.83 177 $0.75 $2,750 3.7% 8% SO $1.31 975 Expected increased unit sales Sales revenue (per unit) Material (per unit) Labor (per unit) Overhead % of labor) Fixed Costs (for expanded capacity) INTERNAL INFO FOR Care Med 150,000 $10,000 $900 $1,075 12596 $4,500,000 6. CUSTOMER OF CHOICE For the supplier(s) that you selected in 4a. or 4b. above, discuss how CareMed should structure their relationship to be the supplier(s)' customer of choice. Include in the discussion any risks that exist and can be minimized or offset by being the customer of choice.