Instruction for students: Select a manufacturing company to examine. Imagine tha
ID: 366525 • Letter: I
Question
Instruction for students: Select a manufacturing company to examine. Imagine that the CEO of the company has established you as a member of a committee to determining whether to make or buy key component parts of the company's final products. You have three options: a The component parts can be made in-house or produced internally. b. The component parts can be purchased from another domestic manufacturer c. The component parts can be purchased from an offshore supplier Required: Write a report for the CEO in which you explain the primary assumptions and considerations used in making your decision. 1. Explain the advantages and disadvantages associated with approaches A, B, and C 2. Identity the relevant financial information associated with approaches A B, and G 3. Identify the relevant non-financial information associated with approaches A, B, and C. 4. Finally, provide the CEO with a recommendation on which approach will be best to pursue by the company. Refer to Written Communication Rubric File, I will use the rubric as a reference in grading this assignment
Explanation / Answer
Manufacturing company is willing to go for the options for components needed for the manufacturing. There are three strategies as mentioned as a,b and c. Let us discuss each as mentioned in the question.
1.
If we decide to make the components in-house, then we can utilize the production capacity of our main manufacturing capacity. It will also build flexibility into manufacturing system as we can build components as needed and as much needed. In doing so, you need to do heavy investments before you can manufacture and divert your focus from core manufacturing.
If we purchase from domestic manufacturer then we can focus on core business areas, but supplier availability and material availability are constraint for you. You may have to build your inventories for safer side and look into the leadtime while manufacturing.
If we purchase from offshore supplier, definitely many suppliers will be available in the market which provides us good negotiation range. While for offshore supplier may take away the flexibility of the manufacturing system from us.
2.
a. Making in-house component will definitely bring down the cost of components but will incurr huge investments from the company. Also company will have to incurr operational and other relevant costs to it and will only increase the financial burden of the company.
b. Purchasing from domestic supplier will increase the cost per unit to the company and alos logistics cost will get affected by this decision.
c. Purchaing from Offshore supplier will again be of higher cost and higher cost for the company as well including import tax, excise tax etc. Also logistic cost will be much higher than domestic supplier and ultimately it will be reflected into final high cost per unit.
3.
a. In-house manufacturing will provide the company to enter into new segment of components and can be supplier to other manufacturers as well which will boos the company's balance sheet.
b. Domestic vendor will provide the material on certain terms and conditions, minimum order quantity, location etc. These are other than financial terms that you have to deal with supplier.
c. With Offshore supplier you have international rules & regulations to be followed, licences and permits to be taken, etc that will increase your workload with governments.
4.
As the setup cost for in-house is very high, it is not feasible optioin while going for international supplier will increase the regulatory mandates for the company. Thus I would suggest to CEO to go with the Domestic supplier only as it will reduce the initial investments, bring down the regulatory norms and logistic costs.