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.
Two options are available to the Supply Manager; produce the widgets internally or acquire the widgets through outsourcing to various suppliers.
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).
The pros of outsourcing the acquisition of widgets also surround overall cost. As mentioned, if procurement of the widgets from outside sources is cheaper than manufacturing them internally, then Wonderful Widgets should consider this option. Other considerations to outsourcing are reduced or eliminated inventory during the manufacturing process, access to the best manufacturers in the field, ability to align costs with others within the field, facilitating access to new technology and greater procurement flexibility (Hamlett, 2013).
Cons surrounding outsourcing where Wonderful Widgets is concerned include the loss of manufacturing expertise (Simchi-Levi, Kaminsky, Simchi-Levi, 2008), the possibility of dependence upon suppliers and the loss of control over the costs of...