Case Worldwide Auto
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School
Northeastern University *
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Course
6214
Subject
Industrial Engineering
Date
Jan 9, 2024
Type
doc
Pages
2
Uploaded by BrigadierExploration14072
Case: Worldwide Auto Manufacturers, Inc.
Key Issue/ Problem Statement:
The executive team of operations needs to decide on whether to outsource the F-150 deck
housing production or manufacture them in-house.
Options with pros and cons identified:
Option 1: Manufacturing the housings in-house
Advantage: Control over the manufacturing process, flexible in case of changes.
Advantage: Just-in-time delivery will be possible, resulting, and lower inventory carrying
costs.
Disadvantage: High investments and capital allocation
Disadvantage: High per unit cost resulting in lower margins
Option 2: Outsourcing from a Local Supplier
Advantage: Low per-unit price
Advantage: Can focus on core competency, and allocate plant capacity for a core product
Disadvantage: Dependency on the supplier for on-time delivery
Disadvantage: Can lose control over the process
Recommendations: Outsource from a Local Supplier
From calculations, it’s clear that outsourcing will result in 8% cost savings. Although
outsourcing only makes sense for a cost savings of 20% or greater, in this case, it seems
to be a non-core product as out of 240 products only 11 are housings.
The risk of nonconformance will be transferred to the supplier, and the space required for
the new machine and operation space can be used for more core products.
The two machines purchased should be used for manufacturing products with more
volume and are more crucial to the company.
Once, worldwide has enough savings and invests in a third machine later, they can
always bring the manufacturing in-house as they already have ownership over the
fixtures.
It is important for the supplier to be local because only then JIT Delivery is possible,
better if the supplier is an old one as it will be easier to negotiate.
Key Takeaways:
Outsourcing must be strategic and can result in savings by eliminating the huge set-up
costs.
MAKE
BUY
Demand/Year
250000
Demand/Year
250000
Total No. of Years
3
Total No. of Years
3
Resin Cost/ Unit
$
1.73
Cost/Unit
$
4.17
Total Resin Cost for 3 Years
$
1,297,500.00
Total Cost for 3 Years
$
3,127,500.00
Molding Cost for 3 Years
$
360,000.00
No. of Order/year
100
Employee/ Unit
5
Cost/order
52
Output/employee/day
200
Total Order Cost for 3
years
$
15,600.00
Wage/hr.
23.4
Total Investment
$
3,143,100.00
Labor Cost to make 1 unit
$
0.94
Total Cost/Unit
$
4.19
Labor Cost for 3 years
$
702,000.00
Overhead Cost
$
1,053,000.00
Unit Cost Difference
$
0.36
Total Investment
$
3,412,500.00
Investment Difference
between 2 options
$
269,400.00
Total Cost/ Unit for 3 years
$
4.55
Savings
8%
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