Your assignment involves studying a specific part of Grainger’s supply chain. Grainger works with over 330 suppliers in the China and Taiwan region. These suppliers produce products to Grainger’s specifications and ship to the United States using ocean freight carriers from four major ports in China and Taiwan.
From these ports, product is shipped to U.S. entry ports in either Seattle, Washington, or Los Angeles, California. After passing through customs, the 20-foot and 40-foot containers are shipped by rail to Grainger’s central distribution center in Kansas City, Kansas. The containers are unloaded and quality is checked in Kansas City. From there, individual items are sent to regional warehouses in nine U.S. locations, a Canada site, and Mexico.
The Current China/Taiwan Logistics ArrangementThe contracts that Grainger has with Chinese and Taiwanese suppliers currently specify that the supplier owns the product and is responsible for all costs incurred until the product is delivered to the shipping port. These are commonly referred to as free on board (FOB) shipping port contracts. Grainger works with a freight forwarding company that coordinates all shipments from the Asian suppliers.
Currently, suppliers have the option of either shipping product on pallets to consolidation centers at the port locations or packing the product in 20-foot and 40-foot containers that are loaded directly on the ships bound for the United States. In many cases, the volume from a supplier is relatively small and will not sufficiently fill a container. The consolidation centers are where individual pallets are loaded into the containers that protect the product while being shipped across the Pacific Ocean and then to Grainger’s Kansas City distribution center. The freight forwarding company coordinates the efficient shipping of the 20-foot and 40-foot containers. These are the same containers that are loaded onto rail cars in the United States.
Currently, about 110,000 cubic meters of material are shipped annually from China and Taiwan. This is expected to grow about 15 percent per year over the next five years. About 85 percent of all the volume shipped from China and Taiwan are sent directly from the suppliers in 20-foot and container and $560 to ship a 40-foot container. What is the total cost to get the containers to the United States? Do not include U.S. port costs in this part of the analysis.
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