Barbara Blouses

Barbara’s Blouses

MH

July 10, 2016

1. What are some of the risks of buying overseas that one can avoid by buying from domestic sources?

The risks of buying overseas will have following risks which can be avoided if buying from domestic sources,

1. Foreign Exchange Risk: The fluctuation in currency exchange rates can increase landing cost of the item. Large companies often use currency swaps and other hedging strategies with their bankers to avoid such risks. However, if sourced domestically this risk can be avoided
2. The lead time of ordering is more and there will be risk of stock-out if the demand is high and items are not replenished.
3. Customs regulations and formalities can delay the shipment if there is an issue with trade compliance, there is a risk of penalty.
4. There is a risk of loss of shipment during transit due to natural disaster or negligence of shipping companies. The breakage will not be a risk as blouses are not fragile item.
5. Quality control is a major risk, in case of quality issues the shipment can be rejected or may result loss and reordering will take more time. In fashion industry, meeting demand at the right time is the key for success.
6. Time zones are different and communication becomes an issues.
7. Different Government regulation, political unrest, Infrastructure issues such as lack of electricity and gas to the supplier may result delays in shipment.
8. Language and cultural differences can create hurdles in placing and solving issues with the orders.

1. Purchase contracts issued by Barbara’s firm provide for the goods to be produced, shipped and received within five months of the date the contract is issued. Should the monetary amounts specified in the contract be in U.S. dollars or in the currency of the nation where the manufacturer is located? Why?

It would be better to contract in U.S. Dollars. The main reason is the stability of USD compared to other Asian currencies. Barbara’s firm is based in U.S. and it will be easy to make payments in USD. If supplier’s currency is used then buyer has to purchase the currency and it may result in foreign exchange risk. Asian suppliers also prefer dealing in USD due to less currency volatility.

1. Title to the goods can pass from seller to buyer at any point between the seller’s shipping dock and the buyer’s receiving dock. Which point should be used for the blouses Barbara’s firm is buying? Why?

In case of Barbara’s firm, Delivered Duty Paid (DDP) will cover all the charges from the port of loading from manufacturer’s site till buyers receiving dock. However, it may result in higher unit cost charged by the supplier. In order to minimize cost and take control of the shipment it will be suitable to use FOB (Free On Board – Manufacturer City). This will allow buyer to select its own shipping company which will be more reliable and able to take control of transportation cost. Buyer has to deal with freight forwarders or Third Party Logistics Company which will handle the shipment on buyer’s behalf. If manufacturer is given the responsibility of taking charge of transportation then there is risk of them choosing the cheapest option which can result in delays in shipment. Some suppliers are offer better per unit cost with DDP and in such case Barbara’s firm do not have to deal with any issues of duty, custom clearance, carriage charges etc. A cost and risk analysis can be done between the two options which can show which is cheaper and less risky for the buyer.