American Greetings Case

John Carroll University
Department of Management, Marketing and Business Logistics
LG 361, Global Logistics – Spring 2016

American Greeting Case Assignment
  1. What is the cost to ship 1 card from China to the US?   Base your answer off the information provided in Exhibit 8. (1 point)
  2. Consider Category 4 cards.   What are the economics of China Sourcing vs. USA Manufacturing?   For this analysis you can ignore the inventory costs. (1 point)
  3. The Mexico wage rate at the time was $3.50/hour.   If you assume that Mexico has similar capabilities to China and that the transportation cost per card from Mexico to the USA is ½ that of China to the USA, how does this change your analysis for:
      a. Category 4 cards (1 point)
      b. Category 1, 2 or 3 cards (1 point)
  4. What concerns would you have about outsourcing to China?   Mexico? (3 points)
  5. What would you recommend for American Greetings in regards to their future greeting card production strategy? (3 points)
Please limit your answer to no more than 2 pages.

LG 361-1
American Greetings Case

  2. Outsourcing category 4 cards to China has an estimated bid price of $0.15 ($0.038 savings per cost of card).   In addition, the economics of this decision would include an additional 8 weeks to the average lead time.   From a manufacturing perspective, the longer lead time raises concern for the potential impacts to safety stock which may jeopardize service levels.
  a. Cost to ship 1 card from Mexico to the US - $11.11/2 = $5.55 per card
Category 4 US cost per card= $0.188
Hand finishing US direct labor cost = $7,390,478/ $17 per hour = 434,734 hours
434,734* $3.50 per hour = $1,521,569 = Hand finishing Mexico direct labor cost
Hand finishing US indirect labor = $747,577/ $17 per hour = 43,975 hours
43,975* $3.50 per hour = $153,912 = Hand finishing Mexico indirect labor
US total direct labor cost:     $ 8,701,481
US total indirect labor cost: + $...