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EyeCU
Eva Shen, Cleo Lu, John Rose, Justin Lee, Meg Goh
BMGT 477- Section 0201
Table of Contents
I. Executive Summary
Competition
Strategies/Competencies
II. Terms of Sale
III. Financing Requirements
Terms of Payment
Financing
Duties and Tariffs
Sourcing
Cost of Air Transport
IV. Ancillary Services
Marketing
Transportation
IT System
Documentation
Appendix
Works Cited
I. Executive Summary
EyeCU, is an American manufacturer of high-definition headsets designed to help those
with macular degeneration regain their eyesight. Accounting for 5% of blindness globally,
macular degeneration is one of the leading causes of blindness in the world. While the headset
does not cure users of their condition, it restores most of their vision, facilitating their daily
routine and improving their quality of life.
Our headquarters is located in Bethesda, Maryland. It is where we will maintain our
business network, manage finances, product development, product assembly, inventory, and
export services. We hope to expand our operations further and export our product to countries
across the globe. Since individuals above the age of 65 are most affected, we will export to
countries with aging populations. Another consideration is that the headsets are a fairly high
priced medical device (at ~$10,000 a pair), so we will be targeting wealthier populations. Thus
our plan is to export to South Korea. The our buyer and distributor is the College of Medicine at
the Korea University (CMKU). Our sales operations will also be supported by the Asan
Foundation, a philanthropic organization, to help us reach potential customers.
We have a competitive advantage as the pioneer of this new technology since there are
currently no comparable products in the market. This is also evident as it will be hard to imitate
the advanced technology used to create this product. With no alternative products in the market
that can reach the same effect as ours, our headset is rare and valuable for those who wish to
regain their sight. To ensure our success, we will constantly improve our product and maintain
our position as the top manufacturer of high definition headsets.
Strategies/Competencies
For the success of our company, we have implemented many strategies to facilitate our
operations in research and design, manufacturing and inventory management, exporting, and
transport. To save time and resources on research, we formed a strategic partnership with NIH
Services, a government-funded agency that functions as a subsidiary to the National Institute of
Health (NIH). NIH Services grants companies access to a database of information and data that
is necessary for developing their product at the cost of a copyright fee. In our case, we will be
paying NIH Services 10% of the revenue from every product sold in return for the usage of the
research findings from their database.
Forming partnerships is also our strategy for simplifying manufacturing and inventory
management. We conduct product development and testing in our headquarter, before sending
our finished designs to our contract manufacturer, Cadence Inc., a medical device supplier.
Located in Staunton, Virginia, Cadence Inc. specializes in custom designs and medical device
components. This partnership lessens our burden as Cadence Inc will take care of managing raw
material inventory, and production. The finished products will be delivered to Bethesda via UPS
by truck from Staunton.
We will also be partnering with United Bank to work on our exporting operations. They
will be helping us with managing finances, as well as preparing export documents. Expanding
from domestic to international sales includes many complications, thus we will need additional
assistance in this respect.
The strategy that ties all our partnerships together is our location. By establishing our
headquarter in Bethesda, we are in close proximity to our partners: NIH Services, United Bank,
and Cadence Inc. This facilitates communication, as well as transport of materials and
documents between each facility. Bethesda is also close to several nearby airports, has a mature
infrastructure, and is a thriving business district where companies of all industries can be found.
This allows for smoother transit for our domestic operations as well as our export activities.
II. Terms of Sale
EyeCU uses groundbreaking technology and the latest research to produce high definition
headsets for individuals suffering from macular degeneration. As the headsets are a recent
product that required significant development and innovation, we want to have the most control
over its production and sales around the world. For this reason, our terms of sale will be Delivery
at Place (DAP) Incoterm strategy. Using a DAP Incoterm agreement, we will export small
packets of our product by air to our buyer/distributor, CMKU.
As the exporter, we are responsible for the packing and transportation costs as well as
clearing goods for export. We will also pay for insurance as our cargo is valuable intellectual
property. Necessary documents for customs clearance will be provided to CMKU. We will
arrange for freight forwarders from the unloading point in the importing country, and cover
unloading costs as well as import duties to ensure a smooth delivery to CMKU.
As previously stated, our headquarters in Bethesda will be the location of the majority of
our operations. We will also be managing our export procedures in Bethesda. Our products will
be packaged in-house once we receive them from Cadence Inc. and prepared in our office for air
shipping to South Korea.
III. Financing Requirements
Terms of Payment
EyeCU will ask CMKU for a Letter of Credit for secure payment (see Exhibit A). While
engaging in international transactions, EyeCU wants to make sure that there is no issue when it
comes to the payment we receive from our buyers. EyeCU as mentioned before, is selling
directly to hospitals and clinics. As the manufacturer of the products we want to make sure we
get paid as soon as the shipment is made. CMKU will apply for a Letter of Credit at the Second
Seoul Bank located in Seoul, South Korea. CMKU already has approval for financing from
Second Seoul Bank.
Once the L/C has been issued it will be sent to United Bank, headquartered in
Washington D.C.. United will then review the L/C and forward it to us, where it will undergo
further evaluation. Once EyeCU makes sure the document is legitimate, we will then proceed to
produce and ship our eyeglasses. In order to receive payment our company will have to meet a
set of requirements, These requirements are as follows: ship the product by the 1st of every
month; use air transportation; be subjected to an inspection of goods before transport;
transporting product to the designated airport (Seoul Inchon ICN); as well having necessary
documentation in the form of an air waybill. After meeting these requirements, our firm will
know it is getting paid, as Second Seoul Bank is legally binded to payment. In the case that our
product is late, we will provide extra product for free and amend the L/C accordingly.
By engaging in air freight, we will be using an air transport document called an air
waybill (AWB). The air waybill will include the basic conditions and limitations of liability,
commodity description, shipping instructions and transport charges.
Financing
Our firm is going to leverage medical grants as seed money to help us with initial upstart
funding. EyeCU will use both public and private grants. We plan on receiving public grants from
the National Institute of Health, a government agency, as well as private grants from foundations
such as Aetna Foundation and Doris Duke Charitable Foundation . Our firm is also being
supported by a the Asan Foundation, a South Korean philanthropic association which focuses on
connecting people with the aid they need. Through grant funding, EyeCU is hoping to expand
research and development objectives. As a small company engaging in international business, we
are also going to partner with United Bank in Bethesda, Maryland to help us fund our endeavors.
United is based out of Washington D.C. and we believe the close proximity will make the overall
partnership more effective and efficient. United also has historically practiced safe and secure
banking practices.
Duties and Tariffs
Our product carries the six digit product code of 900490. This is the code for spectacles,
goggles and the like. The United States and South Korea currently have a Free Trade Agreement
(FTA) in place. The FTA between the U.S. and South Korea is currently being improved, which
will open the country up more to American products, such as EyeCU’s headsets. However, there
will be duty expenses when importing into South Korea. South Korea has a flat 10 percent Value
Added Tax (VAT) on all imports. There is a special excise tax which falls anywhere from 10 to
20 percent on luxury items and durable goods, but our eyeglasses are not to be found under either
category. The flat 10 percent (VAT) has to be paid in Korean Won within 15 days after the
goods have cleared customs.
Sourcing
The target production for our manufacturing operations is approximately 200 pairs of
headsets a month. This number will change based on perceived demand levels, derived from past
sales, marketing tactics, and market analysis. As previously stated, we rely on contract
manufacturers to make the parts of the headset and only have one supplier, Cadence Inc., due to
the low level of production. Cadence Inc. uses its existing suppliers to procure raw materials and
components to produce our headset’s components. The components include semiconductors for
our electronics as well as injection molding for our external-housing. In total, factoring in
shipping from factory, semiconductors, external-housing and quality assurance, our headset costs
about $1050 per pair to manufacture.
Given our low volume, we project our inventory to be minimal, thus we are to store our
product within the confines of our headquarters without the need for additional warehousing. Our
office consists of over 3500 square feet of space, so several air containers worth of merchandise
can easily be stored without hassle. The merchandise will then be prepared for shipping, with all
label application, instructions and packaging being arranged within each unit box. Label and
instruction production will be produced in-office with our own printer and paper. Packaging will
consist of high strength bubble wrap for about $40 a roll from UPS, with each shipment using
about one roll. The boxes themselves are generic cardboard, being sourced from UPS for $1 per
box, for a total of $200 per shipment.
Costs of Air Transportation
EyeCU views air transportation as the safest and fastest option for our advanced product.
We believe we already have the competitive advantage when it comes to product differentiation
and technology. By engaging in air freight, we bypass water travel time as well as ensure our
products are shipped in a more secure and reliable method.
The headsets will be packaged in individual boxes and shipped in a UPS L11 Container
with 200 boxes per container. Each box will be approximately 8 in x 4 in x 4 in and weigh
about .25 pounds. Our unit boxes will be put into several larger boxes for ease of transport from
ground to container and vice versa.Thus each container will be weighed in at approximately 50
pounds and measured as 14.8 cu. Ft. The L11 is one of UPS’s smallest containers for dedicated
air transport and holds up to 253 cu. Ft of content which is enough for our headsets. We plan to
ship around 200 headsets at a time, giving us an estimated cost of $1210 per shipment. This cost
will be defrayed as it will be included in the price.
IV. Ancillary Services
Marketing
Our marketing efforts will be made directly to hospitals and research institutions in South
Korea. We will work with our current clients by updating them regularly on the research and
innovations we are making to our product based on their feedback. We will also employ direct
marketing practices including virtual brochures and booklets that will be sent to CMKU. Due to
our position in the market as the first manufacturer of high definition headsets, we can expect a
high response rate from optometry practices, eye surgeons, and other specialists in the field
looking to provide the best for their patients. We will also provide 24/7 online support to our
clients to maintain strong relationships with them.
As other companies may enter the market to compete with us, we plan to launch a referral
program in the future to combat imitators. Hospitals and institutions that refer us to new clients
will be able to receive a discount on their next batch of headsets, and we will be able to utilize
our reputable history with current clients to persuade others to choose us over any potential
competitors.
Transportation
Our products will be shipped via air transportation primarily utilizing United Parcel
Service (UPS). The advantages of UPS are clear: they posses their own fleet of planes and run
timely and reliable flights 24/7. Their operations both within the United States and in our
customer countries in Asia are well established and are provide convenience of usage for both
ends. The company also provides the best dedicated business solutions in insurance, tracking and
discounts, with its customer Amazon being a prime example of the efficiency of UPS. Most
importantly, UPS operates a reliable return service, which is crucial to ensuring our product’s
reliability and our customer’s satisfaction; medical products like ours must never be used in
malfunctioning conditions.
Once our products land, shipping on the Asian end will continue to be handled by UPS
until infrastructure becomes local enough to warrant a transfer with an existing regional service
like DHL. With some customers, especially those in very urban areas, UPS may be able to
deliver our product for the entire duration of the journey. Given our low volume and compact
container size, our product can move directly from airport sorting lines to truck trailers to be
shipped out to our various customers. Our established services will have defined shipping tables
to determine arrival time and cost based on weight and distance, as well as standardized routes
and warehouses to keep our product accounted-for while on moving. Once our product has
reached our customer, electronic signoff can instantly confirm its reception.
Information Systems
We will be using IQMS’s EnterpriseIQ ERP software to manage our company’s
production schedule, accounting, purchasing quality control, and CRM. The software system has
an 88% approval rating in their industry and caters to both small and large manufacturing
companies, meaning that we will be able to expand with this software as we grow over time. It
can also be accessed over a cloud network, making it accessible worldwide without a
dependency on hard drives. This can be especially useful in the event we establish an office in
South Korea.
As ERP systems often charge based on the number of users, we sought to minimize the
staff who would require access. Three of our top supply chain managers would have access, as
well as the CEO and marketing manager. We felt that these positions would benefit the greatest
from the information available on the platform. Additionally, the cost accounts for the add-ons
we may need in regards to currency conversion and exchange rates which will be integral to
having a smooth relationship with our clients abroad as well as monitoring our costs and revenue
in real time. Though our suppliers and partners abroad will not have direct access to the ERP
system, we will provide information regarding sales forecasting and past demand levels to our
suppliers to maintain transparency and achieve more accurate production levels.
Documentation
Pro forma invoice: In the process of communication before formally signing the contract, we
issue the pro forma invoice. In the pro forma invoice, we will negotiate with our customers about
product quote, payment method, shipment cost and Incoterm. It is also the crucial document used
to confirm the order before officially issuing the letter of credit and commercial invoice.
Commercial Invoice: Commercial invoice is the final step of ordering process after deciding the
term of trade and term of payment. The commercial invoice states every detail of the transaction
including exporter name, consignee, airport of embarkation, packages, quantity, net weight, unit
price, total value, certification etc. It will also include DAP incoterm rules, which state our duty
and costs related to shipping the goods from the US to the exporter’s place. It is also one of the
important documents for import clearance and also one of the documents should be given back to
the partner bank to recover the payment as required by L/C.
L/C: Importer’s bank will issue the letter of credit to our partner bank after commercial invoice
issued. Letter of credit is the most important document for us to receive the payment and get
financial credit, which will specify every detail of the order and specify requirements for final
products, so we need to carefully negotiate with our customers for first time transaction.
Export Declaration: Before our products transporting to the airport, we have to declare the export
to CBP. The US Government requires that, for cargo values above $2,500, exporters should
declare their exportation by submitting an export declaration form, which includes information
such as our company’s name, the related party’s transaction, ultimate consignee, exporting
carrier, method of transportation, US port of export, foreign port of unloading, commodity
description etc. Since we have intermediate consignees who are responsible for delivering the
products to our final customer, we have to specify them in the document as well.
Manifest: This is one of the shipping document and will be prepared by our carriers, which is
required by the US Government and should include the basic information of the cargo such as
ownership, point of origin, destination, etc. In addition, the manifest should be submitted
electronically prior to the cargo arriving at the airport.
Packing List: One of the most important shipping documents that contain the description of the
cargoes, which is also one of the documents for import clearance and recovering payment as
required by L/C.
Air waybill: This is one of the shipping document and have the same function of a bill of lading
and will travel along the products. It will arrive at the same time at the destination airport with
products and is one of the documents accompanied with packing list and commercial invoice to
recover our payment from partner bank as required by L/C.
Insurance Certificate: Incoterm DAP indicates that we take responsibility before the products
departure the importer’s place except duty payment. We, as exporter, have to prepay the
insurance, which is the important document for import clearance.
The Ministry of Food and Drug Safety (MFDS) License: Korean government requires that any
medical devices should obtain the MFDS License before importing, which is the important
document for import clearance.
V. Projections
With a goal of 200 headsets per month, we expect our headset to see the same success
that it has seen stateside. Initial growth will be slow as we take the time to build up an entirely
new network of customers and attempt to make a dent in the different culture and markets of
these new countries. However, as time goes on, we should expect an ever-increasing growth,
with about 125% total increased growth within the next five years (see Exhibit B). Since we have
thoroughly beat our competition here at home, we have no doubt that EyeCU will find success
around the globe.
Appendix
Exhibit A. Letter of Credit Bank Holding CompanyUnited Bankshares, Inc.
International Square, 1875 I St NW, Washington, DC 20006
OUR ADVICE NUMBER: ZB00000052ADVICE DATE: 12MAR17 ****AMOUNT****ISSUE BANK REF: 2338/DRU/98295 USD**** BENEFICIARY: APPLICANT:EYECU INC. KOREA UNIV. COLLEGE OF MEDICINE 21967 WASHINGTON ROAD 97 HOSPTIAL DRIVE BETHESDA, MARYLAND 20619 SEOUL, SOUTH KOREA WE HAVE BEEN REQUESTED TO ADVISE YOU THE FOLLOWING LETTER OF CREDIT AS ISSUED BY:SECOND SEOUL BANK
4 NORTH TOWERSOUTH KOREA PLEASE BE GUIDED BY ITS TERMS AND CONDITIONS AND BY THE FOLLOWING:CREDIT IS AVAILABLE BY NEGOTIATION OF YOUR DRAFT(S) IN DUPLICATE AT SIGHT FOR 100 PERCENT OF INVOICE VALUE DRAWN ON US ACCOMPANIED BY THE FOLLOWING DOCUMENTS: 1. SIGNED COMMERCIAL INVOICE IN 1 ORIGINAL AND 3 COPIES2. FULL SET 3/3 AIRWAY BILL CONSIGNED TO THE ORDER OF SECOND SEOUL BANK, SOUTH KOREA NOTIFY APPLICANT AND MARKED FREIGHT COLLECT.3. PACKING LIST IN 2 COPIES EVIDENCING SHIPMENT OF: 200 HEADSETS – ADJUSTABLE—DEFAULT 52/18 135 DAP BETHESDA, MARYLAND SHIPMENT FROM: BETHESDA, MARYLAND TO: SOUTH KOREALATEST SHIPPING DATE: 01MAR17
PARTIAL SHIPMENTS NOT ALLOWED TRANSHIPMENT NOT ALLOWEDALL BANKING CHARGES OUTSIDE OF SOUTH KOREA ARE FOR BENEFICIARY’S ACCOUNT. DOCUMENTS MUST BE PRESENTED WITHIN 21 DAYS OF AIRWAY BILL DATE. AT THE REQUEST OF OUR CORRESPONDENT, WE CONFIRM THIS CREDIT AND ALSO ENGAGE WITH YOU THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS CREDIT WILL BE DULY HONORED BY US. PLEASE EXAMINE THIS INSTRUMENT CAREFULLY. IF YOU ARE UNABLE TO COMPLY WITH THE TERMS OR CONDITIONS, PLEASE COMMUNICATE WITH YOUR BUYER TO ARRANGE FOR AN AMENDMENT.Exhibit B. Projected Income
Year One Forecast
Number of headsets 2400Unit sale price $10,000Revenue per unit $8950Total revenue $21,480,000Shipping payment $14,520Shipping costs ($14,520)Export costs ($1,920,000)
Net revenue $19,560,000
Works Cited
“Age Related Macular Degeneration.” IAPB. N.P. Jan 2014. Web. 20 Apr 2017. <https://www.iapb.org/vision-2020/what-is-avoidable-blindness/age-related>.
"What Is the Cost of a Typical ERP Implementation?" ERP Software Blog. Microsoft Dynamics, 5 Sept. 2012. Web. 20 Apr. 2017.
UPS Freight Services. N.d. Web. Apr. 2017. <https://www.ups.com/content/gb/en/freight/index.html?WT.svl=PriNav>
“FDA Export Certificates.” U.S. Food & Drug Administration. N.P. 17 Oct 2016. Web. 20 Apr. 2017. <https://www.fda.gov/RegulatoryInformation/Guidances/ucm125789.htm>
UPS Air Containers and Pallets. N.d. Web Apr. 2017.<https://www.ups.com/aircargo/using/services/services/domestic/svc-containers.html>
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