Rondot Case Study Essay

734 Words3 Pages
Background
Glenn Northcott is a purchasing planner in Rondot Automotive. Their Jackson, Mississippi plant manufactures an average of 7million small motors which they distribute to their OEM customers. Their purchasing organization which has a hybrid structure is comprised of two groups—strategic purchasing (dotted-line reporting to purchasing manager) and plant purchasing department (straight-line reporting to purchasing manager). Currently, they are being pressured to cut down their plant costs and reduce their prices. Aside from these, they are also facing employment and global competition issues. Three months ago, an opportunity to outsource their painting operations to Greven was presented to Glenn. As part of the evaluation
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Analysis
1. Rondot will cut down cost by at least $294k annually if they outsource their painting operations. Comparison and computations are summarized below:
Wet-Based System
Greven E-Coating
- $0.25/unit
- system to be pulled out or upgraded soon due to cost and environmental factors = more cost
No additional inventory = costs stay the same
No change in production capacity
More control over the product
$0.18/ unit
($0.15 Greven + 0.03 for transpo & packaging)
More cost-efficient
Additional inventory needed = higher carrying cost Higher production capacity
Less control over the product
Savings
(WET PAINT) 7,000,000 units/ year x $0.25 /unit= $1,750,000 painting cost
(E-COATING, GREVEN) 60% will be outsourced to Greven (4,200,000 units) 4,200,000 x $0.18= $756, 000
40% will stay with Rondot (2,800,000 units)  2,800,000 x $0.25= $700,000 Total: $1,456,000 painting cost
SAVINGS: $294,000/ year

If possible, Rondot can negotiate with Greven for a cheaper price since they can only cover 60% of their volume. They can also look at other outsourcing vendors who can accommodate both hot and cold-bond processes. This is a more practical and cost-cutting alternative because as John Underwood from manufacturing engineering pointed out, they will need to upgrade or pull out the wet-paint system in the near future.

2. Outsourcing can also aid Rondot in facing the demand for price
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