Flexcon Case Analyses Essay examples

901 Words Oct 29th, 2013 4 Pages
1- FlexCon should keep its family of pistons in-house. In fact, if it outsources its pistons, it will save money the first year- about $30,000 before tax and $18,000 after tax. However, the second year, Flexcon will lose a significant amout of money- about $124,200. Based on the case, “once a firm outsources an item or service, it usually loses the ability to bring that production capability or technology in-house without committing significant investment.” So, the savings brought by outsourcing the pistons manufacturing in the first year will not be useful because it will be used to cover a part of bringing the manufacturing back in-house. In addition, the company cannot keep the pistons manufacturing outsource because FlexCon will lose …show more content…
That will bring the quality-related to $0.25 per unit per year. a. The first year, Flexcon will save $84,000 before taxes and $50,460 after taxes. b. The second year, Flexcon will reduce its losses to $62,100.
We are still losing money after the second year. However, my group realized that new tooling was an important cost. Therefore, we start thinking how to reduce it. We find out that if the demand stays between 300,000 to 345,000 units, the supplier will not need new tools. Then, it will bring the cost of new tooling to 0 for the coming years. Let’s take the worst case scenario and try to compute the savings for year 3, if the pistons are outsourced. Purchase Cost | 12.20 | Transportation | 0.05 | New Tooling | 0 | Administrative Support | 0.09 | Inventory Carrying | 0.07 | Safety Stock | 0.18 | Quality-Related Costs | 0.25 | Ordering | 0.06 | Other Costs | 0 | Total Outsourcing Costs per unit | 12.9 | Total Savings | (13.13-12.9)*300,000= 69,000 | Less: Taxes on Savings (40%) | 27,600 | Net Outsourcing Savings | $41,400 | So, if the demand stays in the same range, we can reduce the new tooling costs to 0 and actually start saving money if FlexCon decides to outsource its family of pistons manufacturing.

4- When conducting an insourcing/outsourcing analysis such as the FlexCon’s one, we will need a crossfunctional team. We will need: * A group of engineers who will know how to make
Open Document