Question

EFFECTS OF A DECISION TO CLOSE A DEPARTMENT AND OUTSOURCE

Outsourcing has become a common way of reducing costs in many organizations. Such decisions, though, often have repercussions that may not be captured “by the numbers.” Employee morale, product quality, and vendor reliability are some of the issues that should be considered. Let’s revisit the scenario described earlier at the International Chocolate Company. Recall that the Savannah plant manager, Marsha Mello (M), was considering outsourcing the production of gift boxes for the company’s fine chocolates. A conventional analysis of the decision pointed toward keeping the production operation in-house. Now let’s change the scenario a bit, and consider the following conversation between Dave Mint, plant controller (C), and Jack Edgeworth, supervisor of the gift box production department (SG). The conversation takes place after the two friends’ weekly tennis game.

1. Mint (C): “Well, you took me again, Jack. I’m starting to feel old.”

2. Edgeworth (SG): “It was a close match, Dave. Always is. Fortunately, it looks like we’ll be able to keep our matches up, too.”

3. Mint (C): “What do you mean?”

4. Edgeworth (SG): “I’m talking about the outsourcing decision Marsha was considering. Fortunately, the analysis showed her that we should keep making our own gift boxes. So my department stays in business. And I won’t have to consider a transfer. My wife’s very happy about that, with the twins in middle school and all.”

5. Mint (C): “Uh, Jack, I think there’s something you need to know about.”

6. Edgeworth (SG): “What’s that?”

7. Mint (C): “I’ve been doing some preliminary studies using a technique called activity-based costing. I think it could improve our decision making in a lot of areas.”

8. Edgeworth (SG): “So?”

9. Mint (C): “That outsourcing decision is one of the areas where I tried out the new ABC approach. I just finished the analysis yesterday. I was going to schedule an appointment with Marsha and you next week to discuss it.”

10. Edgeworth (SG): “I’m getting queasy about where this is going, Jack. What did your analysis show?”

11. Mint (C): “It changes the conclusion—pretty dramatically, in fact. The ABC study shows that we’d save over $40,000 each year by outsourcing.”

12. Edgeworth (SG): “Is that really all that much, Dave? Among friends, I mean?”

13. Mint (C): “It’s not a trivial amount, Jack.”

14. Edgeworth (SG): “Look, Dave, I don’t think I’ve ever asked anything of you before. But can’t you bury this one for me? Our family really doesn’t need another move. And I’ve got people working for me who will probably lose their jobs. We’ve done a good job for the company. Our product is top notch. Nobody’s ever complained about a thing.”

15. Mint (C): “I don’t see how I can withhold the analysis from Marsha, Jack. She has a right to all the information I have.”

16. Edgeworth (SG): “But you said you were just doing preliminary studies, Dave. Marsha doesn’t know anything about this one, does she?”

17. Mint (C): “Not yet, Jack, but I’ve got a professional obligation to show it to her.”

18. Edgeworth (SG): “You’re opening a Pandora’s box, Dave. What about employee morale if you close my department? And what about product quality, and reliability of the supply?”

19. Mint (C): “Those are valid issues, Jack. But they need to be addressed on their own merits, in a full and open discussion.”

20. Edgeworth (SG): “Could you at least share this so-called ABC study with me before you show it to Marsha? Maybe I’ll see something you’ve missed.”

21. Mint (C): “I don’t see why not, Jack. Come by my office tomorrow morning—say about 10:00.”

Identify any ethical issues you see in this scenario. How would you resolve them? What should the controller do?

Answer 1

The ethical issue in the whole scenario is that plant manager Marsha and plant controller Mint were making attempt to save $40000 of the company by outsourcing of gift boxes through the use of ABC technique, but the supervisor Edgeworth were not letting them to do so as he would have to consider a transfer on outsourcing.

Moreover, the social and employee ethical responsibilities of the company were on stake if it accepts the outsourcing of the gift boxes. The gift box production department has to be close down on the acceptance of outsourcing.

The resolution of the situation should be that the employee of the department should be absorbed by the other departments of the company and the outsourcing should be go through.

The controller should make the situation clear to the supervisor and absorb the employees of the Gift box production department in other departments of the company.

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