Case study #1
Scotts Miracle-Gro, the largest company in the North American lawn and garden industry, has reached a point in its existence to make a significant management decision. The company is considering whether to continue with insourcing its spreader products or switch to outsourcing in China. The solution lies in an analysis of quantitative and qualitative data comparisons and deciding which ideology would benefit the company in the long haul.
When considering the costs it seems as though outsourcing would save a lot of money for the firm, however, we must think strategically. Thinking strategically means the long run, ...view middle of the document...
The financial pressures stemming from the initial leasing of the new facility in Temecula may have been one of the best things that have happened to Scotts Miracle-Gro. The management team went through breakthrough processes adding value to the company in areas that other companies lack. The increased costs endured during this time led the facility to successfully improve productivity through product and process innovations, and also trained its production line workers in lean management techniques. These improvements created a six percent increase in productivity and are estimated to continue for the next five years. They also realized how important it was to collect data considering the changes they were going through. They did this through computer-aided designs and research and development teams; further illustrating the competence of this facility and the management. In switching to outsourcing we would not only lose quality in our product but also an internal workforce team that a lot of other companies struggle and usually fail to provide. Furthermore, the increased risk of defective products and the added lead time that comes with the territory could potentially decrease the value of our company and hinder customer satisfaction.
In order to compete with the potential short term savings of outsourcing, the company must cut costs. Energy costs of the plant are currently at an annual total of $21,280,000. In 2009, however, this number will decrease substantially due to the expired surcharge. Assuming the company continues to use the same amount of energy it does now, energy costs will still amount to about $1,300,000 in 2009. I believe our answer to this problem is adopting solar power. Although a new technology, many large and successful corporations that have been around for a long time have made the transition to solar energy because of its costly benefits. These companies include Macy’s, Wal Mart, Apple and Ikea. The success of these corporations at significantly saving on energy costs through this transition can be used as a benchmark for Scott’s Miracle-Gro. Currently the initial costs of installing solar power panels have decreased due to its growing popularity.
Another large expense within the plant is labor costs. With 195 employees at an average rate of 16.25 per hour and assuming a...