Summary
The scenario depicts Wonderful Widgets, a firm specializing in the manufacturing and distribution of a single product, widgets. The company is able to produce widgets using its current equipment, facility, layout and materials and is able to procure the product through various suppliers. Recently, it has been noted that operational costs have been rising each month.
Problem at Hand
In the scenario, the Supply Manager is responsible for making all decisions pertaining to the procurement of the product. Since operating costs are rising, the Supply Manager must be proactive in seeking solutions to reduce these costs and streamline certain processes. This must be accomplished by the end of the current quarter. Further, Corporate will see the savings or another increase in operating costs when the quarterly report is reviewed.
Options
Two options are available to the Supply Manager; produce the widgets internally or acquire the widgets through outsourcing to various suppliers.
Internal Production
The pros of producing the widgets internally surround the overall cost of their production against the cost of purchasing them from an outside source (Hamlett, 2013). If the purchase price is higher than what it would cost Wonderful Widgets to manufacture the product, and the firm has the capability to meet production standards, then consideration should be given to produce the widgets internally (Hamlett, 2013).
Cons surrounding internal production include the possibility of losing alternative sources for the widgets, design flexibility and access to other firm’s technological innovations and thus the potential to even-out a competitor’s advantage (Simchi-Levi, Kaminsky, Simchi-Levi, 2008).
Outsourcing
The...
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...ifference between manufacturing them and outsourcing their production. This makes it unclear as to whether minimizing total landed costs is feasible. Additionally, the assignment instructions were confusing. It was unclear whether to discuss distribution strategies or procurement options.
Works Cited
Hamlett, K. (2013). Chron. Reasons for Outsourcing in a Manufacturing Industry Retrieved from http://smallbusiness.chron.com/reasons-outsourcing-manufacturing-industry
-1292.html
Lister, J. (2010). Chron. The Disadvantages of Integrating Internal and External Suppliers.
Retrieved from http://smallbusiness.chron.com/disadvantages-integrating-internal-external-suppliers-36054.html
Simchi-Levi, David, Kaminsky, Philip, Simchi-Levi, Edith, (2008). Designing and Managing the
SupplyChain: Concepts, Strategies and Case Studies, 3rd Edition. New York, NY: McGraw Hill.
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