Business Case Study Questions Paper.
This report provides insightful information regarding a start-up company, LPI that intens to
launch tablets as its first product. The report evaluates the merits that LPI will gain from
establish a private warehouse. The report underscores flexibility, cost efficiency, and suitable
management of human resources among others. Business Case Study Questions Paper. Further, the report analyses the most suitable incoterm that LPI can adopt in order to transport its product. It concludes that CIF is the most
appropriate incoterm as compared to other incoterm because it means that LPI products will be
delivered and that the goods can be used as collateral for financial purposes. Finally, the report
underscores the significance of insuring goods in transit because there is always the danger that
they may be damaged, lost or delayed in transit. Business Case Study Questions Paper.
Conducting business in the international arena can be challenging, especially for start-
ups. The venture should ensure that it has a suitable warehousing facility, dependable incoterms,
and insurance policy. A private warehousing plan is suitable for new ventures because it presents
the business with economies of scale, reduced operational costs, efficient use of human resources
as well as enhanced flexibility.
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Self-insurance is a suitable strategy is a suitable strategy for start-
up businesses like LPI because it acts as a very efficient and effective strategy of risk financing,
among other benefits. How the freight moves from one location to the other is another crucial
issue for a firm that intends to venture into the global corporate world. Freight insurance is
critical because there is always the danger that they may be damaged, lost or delayed in transit.
2.0 The Ramifications of LPI building a Private Warehouse in Vancouver
According to Bogdanov a private warehouse is a facility for storing goods that is owned
by big corporations or a single manufacturing unit (2013, p. 135). Business Case Study Questions Paper. It is part of a company’s logistic structure that stores merchandise – finished goods, raw material, goods in process, or parts – at and between the source and the consumption point and offers information to the owner on the condition, status and disposition of products being stored. Building a privately owned
warehouse will present economies of scale advantage to LPI between two points –
manufacturing and transportation. Warehousing saves on the cost of equipment and labour. Business Case Study Questions Paper.
Aspects that tend to determine private ownership of warehouse include the storage requirement’s
location, volume of flow and product type, ability to finance, questions of corporate image and
company policies (Bogdanov, 2013, p. 135). As a result, the decision by LPI to use private
distribution centre is driven by several factors: enhanced degree of control. By owning a private
warehouse in Toronto, LPI will have direct control of the merchandise. In addition, LPI will have
responsibility for the product until it is delivered to the consumer. The second benefit of using a private warehouse is flexibility (Melachrinoudis and Min, 2007, p. 210). LPI will enjoy a greater
level of flexibility in terms of design and operation of the warehouse in order to fit the
expectations of the consumers and the features of the merchandise. LPI can modify the
warehouse through renovation or expansion in order to facilitate changes in products or it can be
converted into a branch office location or manufacturing plant. The third benefit is related to
cost-efficiency (Melachrinoudis and Min, 2007, p. 211). Business Case Study Questions Paper. A private owned warehouse will be less costly to LPI in the long term. Given that there is adequate warehousing space, the cost of storing products will be lowered significantly. The third benefit of using a private warehousing is better utilization of human resources. LPI will enjoy greater care in terms of storage and handling when LPI’s own employees operate the distribution centre. The consumer will benefit if the workforce in the warehouse is put into good use. Additionally, it minimises errors since the merchandise are
supervised by internal workforce. Further, LPI will enjoy tax benefits. Business Case Study Questions Paper. The depreciation
allowances on equipment and building reduce payable taxes. In addition, LPI will gain intangible
benefits. By distributing its merchandise via a private warehouse, it will give LPI consumers a
sense of continuity and permanence of business operation. Further, the consumers see the firm as
a dependable, lasting and stable supplier of merchandise (Melachrinoudis and Min, 2007, p.
229). Business Case Study Questions Paper.
However, privately owned warehouse faces a number of disadvantages. Foremost, private
warehouse lacks flexibility. Warehousing experts argue that the major disadvantage of a private
warehouse it its core benefit – flexibility (Farris and Pohlen, 2008, p. 51). Second, private
warehousing may be very costly to LPI due to its costs and size. A private warehouse cannot
contract and expand in order to meet decreases or increases in demand. When there is low
demand, LPI must assume the fixed charges and low productivity associated to unutilized facility space. The third disadvantage is financial constraints. A distribution centre is a risky and long
term investment which may be hard to sell due to its tailor-made design. Four, LPI will incur
costs during the process of hiring and training human resources. In addition, the cost of buying
handling facilities makes start-up a time-consuming and costly venture. The fifth demerit deals
with rate of return. LPI investment in a warehouse can generate the same return rates as the
company’s other investments. In general, given the nature of LPI products, private warehousing
will enable it to monitor its products and meet consumer requirements (Farris and Pohlen, 2008,
p. 55 -60).
2.3 LPI’s Suitable Incoterm
In a sale and shipment contract, the responsibility of the buyer starts at the level where
the responsibility of the seller ends. The choice of suitable incoterm is a corporate decision
taken by the buyer or the seller depending on various factors, including: the export strategy of
the seller, regulations on imports and exports as well as the political environment of the two
nations. In a market that is highly competitive, the exporter may offer the buyer with prices that
are comparable to the ones in the domestic market of the buyer. Consequently, the seller may
deliver the products under such terms as DDP or DEQ (Ramberg, 2005, p. 219). However, as
explained by Paliu–Popa (2012, p. 106), if the seller wishes to assume lesser duties, he/ she may
arrange for transportation under such terms as, CIF, CFA, FOB and EXW. CIF, Cost, Insurance
and Freight, implies that the seller is mandated to meet the freight charges necessary to ship the
products to the named destination, but the any damage of goods or risk of loss and additional
expenses that arise when the merchandise is on board is transferred to the buyer (Bergami, 2012,
p. 35). Under CIF term, the seller is only supposed to clear the products for export. From a
corporate point of view, a CIF transaction will benefit LPI in various ways: it means that the products will be delivered to LPI. Also, it means that the goods can be used as collateral for
finance. The main danger of LPI using a CIF is that the contract transfers the risk loss or damage
to the buyer. FCA implies that the seller meets his responsibilities to after delivering goods at the
named point or place Ramberg, 2005, p. 219). If the buyer has not indicated the prices place, the
seller may select the delivery destination within the range or place stipulated. FCA will benefit
LPI because the seller caters for the risk of loss and damages that may be incurred during
shipment. In this arrangement, it is crucial that the buyer provides clear directions to the seller
regarding the delivery point. The danger that LPI will face in this type of arrangement is that
goods may be shipped to a different location. Business Case Study Questions Paper.
On the other hand, in an FOB contract, the seller meets his/her duty to deliver the goods
have been transferred to buyer at the ship’s rail. This implies that the buyer bears all the risks and
costs of damage or loss to the merchandise from that point (Bergami, 2012, p. 37). Using FOB to
import merchandise will give LPI an upper hand in reducing the general import expenses as well
as increase convenience. With FOB, LPI will have complete control over its freight expenses.
The company will have the merit of hiring its own forwarding agents at an agreed cost. In
addition, LPI will be able to get timely and exact data from the forwarding agent, thereby solving
any problems during shipment or service issues. However, since LPI will be shoulder all
transportation expenses including marine freight, unloading costs and insurance, LPI’s shipping
costs may increase if damages or losses are incurred during the process of shipping. Finally,
when it comes to EXW, the seller meets his/her duty to deliver when the merchandise has been
availed at the seller’s premises. This implies that the seller is not obligated for loading the
products, clearing the merchandise for export as well as bears all the risks and expenses involved
in moving the products from the premises of the seller to the desired location. This incoterm is not advantageous to the LPI because the company will assume all the risks and obligations and
also bear freight costs. Having considered the above four incoterms it goes without saying that
the CIF is the most suitable incoterm for LPI because it means that LPI products will be
delivered and that the goods can be used as collateral for financial purposes (Paliu–Popa, 2012,
p. 101 – 105). Business Case Study Questions Paper.
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4.0 The Rights and Duties of the Buyer (LPI) and Freight Forwarder (fellow Exhibitor)
Johnson (2010, p. 124) asserts that whether a business is selling or purchasing
merchandise to or from the global market, there is always the danger that they may be damaged,
lost or delayed in transit. Most companies in the distribution channel who facilitate the transfer
of merchandise operate under circumstances that limit their financial obligation in case of delay,
damage or loss. It is therefore important for traders to ensure that their goods are ensured against
damage, delay or loss in transit. By assigning the prototypes to be ferried by a fellow exhibitor to
the next exhibition in Vancouver, the LPI salesperson had limited protection for the prototypes
because the exhibitor typically had limited financial obligation in the event of damage, delay, or
loss. This is drawn from the globally ratified conventions and the standard trading conditions that
regulate the transportation of goods in the global market (Braithwaite, 2007, p. 333). It is worth
noting that several events may occur during the transit of goods that could result in loss of
money if the goods are uninsured. The loss of all the three LPI prototypes that were being
transported to Vancouver by the fellow exhibitor is a case in point. The outcome of such a loss is
loss of profit, buyer goodwill and productivity. LPI salesperson could have minimised the
consequence of such incidents by insuring the prototypes. By applying the principles of the STC,
the exhibitor had limited financial obligation for any claim for damage or loss of the prototypes
during transit (Braithwaite, 2007, p. 334). Often, it is hard to establish that liability for the loss lies within the fellow exhibitor – it could be the role of any other participant in the supply chain
– but the liability of the exhibitor is also limited. Business Case Study Questions Paper.
5.0 The Impact of Self-Insurance to LPI
Self-insurance is a concept that has been in use for several years to describe a number of
risk financing strategies entailing self-funding of certain losses. Most self-insured firms share a
common objective in desiring to gain increased management over their risk control strategies via
risk retention (Barnichon, 2008, p. 175). A successful self-insured programme can give LPI
enhanced control over anticipated losses and related plan expenses. LPI will enjoy a significant
level of flexibility in program structure and design. Cost saving is one of the most attractive
characteristics of self-insurance (Lohse, Robledo and Schmidt, 2012, p. 57). LPI will be able to
save if its insurer can manage accident costs and prevent accidents when they happen. A
carefully designed insurance plan can further protect LPI in case of a catastrophic event or losses
escalate. Self- insuring provides LPI with the opportunity to generate significant saving plan as a
consequence of favourable loss experience and an enhanced streamlined administrative program.
It demands an increased level of active engagement on the side of LPI, and this leads to lower
losses and fewer accidents. Key benefits associated with self-insuring include insulating the
venture from market cycles, improved cash flow and potential cost savings. Business Case Study Questions Paper.
A well designed self-insurance programme can act as a very efficient and effective
strategy of risk financing. However, before embarking on this plan, LPI should evaluate how
such a programme functions and how it associates to their goals and philosophy. First, by
implementing self-insurance LPI has the potential to save costs. Many corporations cite possible
cost savings as the primary reason for self-insuring their finished goods on transit to the
consumers. Possible cost savings can arise from controlling and reducing losses, enhanced
awareness of claims and safety procedures, minimising operational costs linked with commercial
insurance program and the chance to generate investment income because of maintaining risks of
the loss reserves. The second benefit of self-insurance that LPI will gain is market insulation. Business Case Study Questions Paper.
LPI will benefit from being insured from market cycles. These market cycles lead to fluctuations
in coverage availability and pricing. Also, it leads to improved cash flow. Under self- insurance
LPI can retain control over its losses. In general, the payments are spread over several years. In
addition, LPI will benefit from customised services. Self-insurance plan allows LPI to implement
a complete tailor-made service package. Self-insurers enjoy the flexibility to choose
organizations that have specialised experience and expertise. Through self-insurance, LPI can
target resources that are likely to produce the highest return on investment and significantly
influence cost savings (Lohse, Robledo and Schmidt, 2012, p. 57).
However, while self-insurance is seen by many as a good business aspect, it is not a silver
bullet plan to be executed in all situations. It is important, equally, that LPI understand common
mistakes linked with self- insuring in order to be informed adequately on the decision it can
make. Self-insurance will increase LPI’s administrative duties. While self-insurance offers LPI
with greater control over its programs, the cost linked with this feature is enhanced
administrative duties. In addition, self-insurance may lead to possible loss spikes. LPI will be
subject to the consequences of unanticipated accidents and losses. Further, self-insurance may
compel LPI to long term commitment. LPI will be compelled to implement the program over
longer period of time (Lohse, Robledo and Schmidt, 2012, p. 73). Business Case Study Questions Paper.
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6.0 Summary and Conclusion
In conclusion, the global market ecosystem is increasingly becoming competitive.
Therefore it is difficult for start-ups to thrive and survive if they do not carefully select their warehousing, incoterms and insurance services. a privately owned warehouse is suitable for a
new business venture like LPI because it enhances the degree of control, provides greater level of
flexibility in terms of design and operation, lowers operational costs by increasing efficiency,
minimises errors since the merchandise are supervised by internal workforce and ensures
continuity and permanence of business operation. The type of incoterm also determines the
success of the business venture and its profitability. Business Case Study Questions Paper. Incoterms determine whether the goods will be delivered safely to the buyer. FOB is a commonly applied incoterm in many international businesses. However, for LPI, CIF is the most appropriate incoterm because it means that LPI products will be delivered and that the goods can be used as collateral for financial purposes. In addition, the insurance of goods is critical because there is always the danger that they may be
damaged, lost or delayed in transit. A company should always ensure that it selects an
appropriate incoterm and insurance policy in order to minimise the possibility of loss, delay and
damaged on goods in transit. Finally, Self-insurance is a suitable strategy is a suitable strategy
for start-up businesses like LPI because it acts as a very efficient and effective strategy of risk
financing, among other benefits. Business Case Study Questions Paper.
Bibliography
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Bogdanov, A. 2013. Alternative wearehouses in logistics. Association Scientific and Applied
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Ramberg, J. 2005. To What Extend Do Incoterms 2000 Vary Articles 67 (2), 68 and 69. JL &
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