Case: Scotts Miracle-Gro (the Spreader Sourcing Decision) Essay

1066 Words Mar 21st, 2012 5 Pages
Case: Scotts Miracle-Gro (the Spreader Sourcing Decision)
1. What are the strategic risks and benefits of outsourcing production of the Temecula plant to contract manufacturers in China?
Benefits
• Significantly low cost supply from contract manufacturers: Labor, electricity (government subsidy), overhead
Risks
• Some costs are expensive: freight cost from China, inventory (lead-time increase because of shipping), and quality control (testing shipped products from China in the US require some cost; time and money)
• Exposure of the know-how of “in-mold labeling” (need to provide skill & knowledge to suppliers)
• Losing the ability of process innovation
Huge benefit of supply from contract manufacturers from China is the significant
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Bowcombe might also fear the exposure of their know-how so that the suppliers might produce their own products and could be Scotts’ competitors. It seems Bowcombe believes that the “in-mold labeling” is Scotts’ strong competitive advantage in the market, which their competitors don’t have, but I strongly this agree with this. Considering the very simple structure of the spreader and the process of in-mold labeling (it is just molding), it is not hard to imitate. Their competitors might not have this technology, but this kind of processes exist anywhere in other industries. It is very much imitatable, which infringes one of the VRIN of the Resource-Based View theory. Thus, their “in-mold labeling” would not be their competitive advantage. Scotts should not afraid provide their know-how to the contract suppliers, and it is not so difficult to teach them. Sooner or later their competitors would imitate this kind of resource only if the value of the in-mold label is significant to their customers.
In addition, by cancelling their leasing contract of the Temecula facility, they can improve their ROI significantly because their plant & equipment occupies huge proportion of their assets.

3. What should Scotts do? Defend your answer.
According to my analysis above, Scotts should choose the option to outsource their production to contract manufacturers in China. It is mostly based on the two factors below.
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