What Is The Right To Outsource The Outrigger Bracket?

B & L Inc. Case Study
This case investigates whether Brian Wilson, the materials manager for B & L, Inc., a Lancaster based company that manufactures and sells highway transport trailers, should or should not outsource an outrigger bracket (Part #: T-128) that the company is currently manufacturing inhouse. The outrigger bracket requires B & L, Inc. to manufacture and weld together 4 other parts (Part #’s: T-67, T-75, T-69, and T-77) to make the complete bracket. The company sells about forty trailers a year and customers also purchase the outrigger brackets as an accessory product to secure oversized containers to their trailers. To secure the containers properly, it requires mounting ten brackets to each side of the trailer and therefore,
Alison received three estimates, with the best estimate coming from Mayes Steel Fabricators, as the estimate exhibited the potential to save B & L, Inc. a substantial savings. At face value, B & L, Inc.’s manufacturing costs for the outrigger bracket were $150.10 and Mayes Steel’s manufacturing costs were $108.20, which is a difference of $41.90 per completed bracket. This is a significant savings. However, Brian still needed to consider that there was an ordering fee of $75.00 per order, which could make this initial appearance of savings inaccurate. Depending on the amount of orders B & L, Inc. makes, the total costs including the fees could be a savings or could be costly in the long run. For example, one hundred orders would cost the company $7,500.00 whereas ten orders would only cost the company $750.00. Also, if the company purchases in high quantities to save money on ordering fees, it could cost the company more in incurred inventory costs due to storing the brackets. On the other hand, in addition to more costs per order, ordering less quantities could leave the company without enough stock to supply the demand of their
has an annual demand of 40 trailers per year. Since each trailer requires 20 outrigger brackets, the total usage per part is 800 sets of five parts per year and since the cost is $150.10 per set the annual manufacturing costs for B & L, Inc. is $120,080 per year. Using the Economic Order Quantity (EOQ) method to calculate what the annual purchasing costs would be for B & L, Inc. if the company outsourced the manufacturing of the brackets to Mayes Steel Fabricators, the figure for the annual purchasing costs per 75 sets of brackets would only be $88,171.50, which would be a savings of $31,908.50 per year. Since each trailer requires twenty outrigger brackets per trailer, B & L, Inc. may instead want to purchase the brackets from Mayes in quantities of twenty. Therefore, recalculating the annual costs using 80 sets of brackets instead of 75 would bring the annual purchasing costs to $88,175.60, which would still be a savings of $31,904.40 per