Scotts CaseStudy
1. What are the strategic risks and benefits of outsourcing production of the Temecula plant to a contract manufacturer(s) in China? Use any frameworks that you feel are relevant to assess this decision at the strategic level.
The strategic benefit for the company to outsource the production process is the potential savings base on low labor cost in China. And by moving all its product line to China, it can be easier for the company to manage the production.
The risks can be as follows. The contract manufacturer might unable to fully capture the “in-mold labeling” technology, which can lead to higher return rate and a decrease in customers’ reputation. The mold might be copied by the manufacturer as the result of failure in ethics. And the increasing in lead time might results in loss of market share.
(Frameworks 不知道怎么做)
2. Financially compare two of the options (stay in Temecula, outsource to China). Include all possible relevant financial measures and explicitly state important factors not included in the financial analysis.
Provide a brief assessment of the offshoring option.
We assume a condition of 10 year process, and a total working hour of 1920 hours/year.
For the cost segment:
If the company choice to stay in Temecula, within 10 years, it will receive a total saving of $627,230 and no savings in China at all.
Total labor cost for Temecula will be $43,770,650 and China will be $6,099,653, which means in China there going to have a major savings in labor expense.
Energy expenditure in Temecula will be $6,992,030 and China will be $3,572,313. So because of the saving program in local factory and increasing cost in Chinese electricity, the energy costs express less saving than labor.
Since there is a constant OH of 1M in the office, and 50% of direct labor OH for contract manufacturer, the total overhead cost in China will be $8,068,345, and the same type of cost in America will be $20,247,573.
What’s more, if the company puts its production line in China,
The strategic benefit for the company to outsource the production process is the potential savings base on low labor cost in China. And by moving all its product line to China, it can be easier for the company to manage the production.
The risks can be as follows. The contract manufacturer might unable to fully capture the “in-mold labeling” technology, which can lead to higher return rate and a decrease in customers’ reputation. The mold might be copied by the manufacturer as the result of failure in ethics. And the increasing in lead time might results in loss of market share.
(Frameworks 不知道怎么做)
2. Financially compare two of the options (stay in Temecula, outsource to China). Include all possible relevant financial measures and explicitly state important factors not included in the financial analysis.
Provide a brief assessment of the offshoring option.
We assume a condition of 10 year process, and a total working hour of 1920 hours/year.
For the cost segment:
If the company choice to stay in Temecula, within 10 years, it will receive a total saving of $627,230 and no savings in China at all.
Total labor cost for Temecula will be $43,770,650 and China will be $6,099,653, which means in China there going to have a major savings in labor expense.
Energy expenditure in Temecula will be $6,992,030 and China will be $3,572,313. So because of the saving program in local factory and increasing cost in Chinese electricity, the energy costs express less saving than labor.
Since there is a constant OH of 1M in the office, and 50% of direct labor OH for contract manufacturer, the total overhead cost in China will be $8,068,345, and the same type of cost in America will be $20,247,573.
What’s more, if the company puts its production line in China,