Question

    Case: Insourcing/Outsourcing — The FlexCon Piston Decision

1. Perform a quantitative insourcing/outsourcing analysis using the data provided. What qualitative issues might affect your final decision? Identify any costs or issues that are not part of your analysis that might affect your decision. What is your recommendation regarding what FlexCon should do with its family of pistons? Support your arguments with evidence gathered during your analysis.

2. Assume your group decided to outsource the pistons to the external supplier. Identify a plan that would enable FlexCon to carry out this recommendation. Be as thorough as possible.

3. Discuss the primary reasons when and why insourcing/outsourcing decisions occur.

4. A major challenge with an insourcing/outsourcing analysis involves gathering reliable data. Discuss the various groups that should be involved when conducting an insourcing/outsourcing analysis such as the one presented in this case. What information can each of these groups provide?

5. Discuss the major issues associated with an insourcing/outsourcing analysis and decision.

Answer 1

Perform a quantitative insourcing/outsourcing analysis using the data provided. What qualitative issues might affect your final decision? Identify any costs or issues that are not part of your analysis that might affect your decision. What is your recommendation regarding what FlexCon should do with its family of pistons? Support your arguments with evidence gathered during your analysis.

FlexCon is a company that prides itself on the quality of its pistons. Lately, they have been relying on suppliers for major components while manufacturing simple items with relatively small differentiation. By doing this, too much of their talent is going to waste leaving them with a big decision of whether to keep outsourcing or to insource. They are already heavily dependent on suppliers for critical components. The cost it takes to insource is greater than the cost to outsource but deciding to outsource may jeopardize their quality. One critical issue that affects the decision to outsource is whether to jeopardize their quality. It was said that by cross-training employees and putting them in teams, there was a 30% increase in quality and a 20% gain in productivity when making the pistons. Gaining quality and productivity are definitely reasons to continue insourcing. If they did decide to outsource it would leave room for developing new products or expanding an existing product. Stated in their 6 key trends that influence insourcing and outsourcing, “Firms are continuing to become more highly specialized in product and process technology.” They should not waste time trying to explore new products; instead, they should keep improving the product they have to become more specialized so they can contribute greater cost differentials between firms. Developing another product will take time to experiment and perfect. They should focus on where they are excelling and continue to improve it. FlexCon has a good reputation when it comes to their pistons. By choosing to outsource, they are putting the quality of their product in the hands of their supplier, which could jeopardize their name as a “first-rate” piston manufacturers in the industry. Flexcon is known for its quality of pistons and by outsourcing this product they are giving their suppliers the opportunity to “buy-in” into the business and take control of prices. This would raise the outsourcing cost. Even though the cost to outsource is more than the cost in sources, I feel they should continue insourcing because they produce a quality product that has made them the company they are today. They have the talent to produce the products they need. They should continue to become highly specialized so they may contribute greater cost differentials between firms.

Assume your group decided to outsource the pistons to the external supplier. Identify a plan that would enable FlexCon to carry out this recommendation. Be as thorough as possible. Discuss the primary reasons when and why insourcing/outsourcing decisions occur.

When making the decision to insource or outsource products within a major company, it is important to take into consideration the various issues which may affect the future success of the company. One major problem with insourcing is maintaining a practical budget that allows for the production of quality goods without cutting into the profit margin. Outsourcing is usually a preferred method for manufacturing industries because it opens the door to other countries which may have the ability and resources to create a similar product but for a fraction of the expense. While outsourcing might cut down on the in-country costs for a company, it also may create future problems for the company. As with any major decision, success begins at the top with management and their open communication between other branches of the business. Once the top tier of the company has a better understanding of the impact outsourcing may have on the company’s at-home production, a plan of action may be created to best assess outsourcing options. As mentioned earlier, a favourable draw to outsourcing is the cost of production. While outsourcing the production of pistons would lower production costs for FlexCon, the potential quality of the product is at risk of being under par, especially if the buying firm lacks the technical ability to build the item. If a major outsourced component fails due to substandard manufacturing, the repercussions could end up being more expensive for the domestic company in the long run. Start-up costs in outsourced factories are also expensive, and when the future productivity of the product is unsure, the risks increase. To ensure maximum profit, steps such as creating an outsourcing cost analysis report can be taken to openly asses the risks and justify if they are worth taking. Before considering outsourcing the production of their major pistons, FlexCon would be best suited to conduct a study weighing the pros and cons of the expenses in outsourcing. Expenses from production and inventory to ordering, shipping and quality assurance all play a major role in the practicality of outsourcing production, so once again by having a plan or some statistical analysis a company may better decide what may work for their industry.

A major challenge with an insourcing/outsourcing analysis involves gathering reliable data. Discuss the various groups that should be involved when conducting an insourcing/outsourcing analysis such as the one presented in this case. What information can each of these groups provide?

First and foremost, the best option for an insourcing/outsourcing analysis consists of specialized and qualified marketing professionals. The knowledge of the marketing team coincided with manufactured goods suppliers will allow for the best possible solution for all parties involved. Another resource of reliance can include the use of internet material. Although not always reliable, data shared across the vast network can become a very important source of gathering data quickly and collectively. The primary information source should focus and depend mainly on the skill and collection of data obtained by marketing experts. Due to the experience of trustworthy marketing players, the wide availability and relevance of data pertaining to the market can be determined. The information can then be processed and evaluated for the overall strategic plan of the marketed manufactured goods.

Discuss the major issues associated with an insourcing/outsourcing analysis and decision.

When companies involve insourcing/outsourcing analysis and decisions, one of the major issue concerns is actually choosing whether to insource or outsource products. With insourcing options, strategic assessments must be made about the availability, total cost, and amount of resources needed. Direct and indirect costs from overhead to materials become essential parts of an insourcing production line. Also, high levels of investment become involved because all operating stages will be produced by the company itself. The strenuous ability to be flexible with one’s goods and strategies will ultimately define the effectiveness of the cooperation’s capability of insourcing products. Within an outsourcing analysis and decision, the key issue becomes the relationship with the supply partner. Many possibilities rest with outsourcing products, but many issues could also arise. Control loss becomes a reality when allowing another company to create a product. The coordination and communication also become more a more difficult task to handle when a company does not have full control over a manufactured good. The personal relationship between companies has to be an essential part of the execution or neither company will benefit from the endeavour. All in all, solutions and answers made should involve all aspects of the insourcing/outsourcing analysis key to the process of the product. Internal and external factors should be displayed and evaluated to determine the best possible course of action.