Alicia Wong

Case Study, 5-3
Diane Wilson
Principles of Buying -OPER2230, Section 2
Instructor Leopold Loff

Thursday, October 8, 2015

To: Leopold Koff, CEO- Thain Foods Limited
From: Alicia Wong, Corporate Supply Manager- Thain Foods Limited
Subject: Making Mustard In-House

Issue: We are currently out sourcing the production of mustard; it is a product I would like to bring in-house.
We have all the equipment that is needed in the production of this produce, but may need to source new suppliers or negotiate a new cost with the current suppliers. The cost to make it in house right now is higher than what we are paying to outsource.
I would like it invest more time in to seeing if it would be a viable option for TFL seeing that making it in-house will get rid of the drums that it is being ship in. Not having these drums will save space in the factory and we will know longer have the hassle of disposing of them.

If you could let me know it this is an issue you would like me to do more information on please let me know.

Respectfully,

Size-up

| | Why we should we making mustard in house | Many of the produces that are manufactured in the plant us mustard, that is currently being purchase from any outside sores. | Improvements to the facility | In the last 2 years there has bine $2 million invested in to upgrading and the improvement of equipment and processes. | What kinds of changes would be made to ordering | As there is already a large amount of raw materials being ordered for other produces most of what is needed there are already suppliers for, there would need to be a special mix if spices to be ordered in order to make the mustard. | What Is the facilities ability to make the mustard in house | We have the necessary equipment and the production department has the time and equipment to manufacture the mustard | What will be need | Will still need to outsource the spices to make the mustard, this being the only ingredients to the mustard that we do not already care. | No more drums | The drums take up storage space, and need to be rinsed and disposed of after the contents are emptied . |

Problem Statement:
Can we make mustard in-house or sure we keep purchasing it from and outside provider?
Analysis:
Strengths – State of the art processing equipment and processing controls.
Weaknesses – No expenses making the mustard. Mustard is an ingredient in many of the products protected, and take a certain set of spices to make the mustard right.
Opportunities – Having a new product that they can sold to customer.
Threats – Internal, to not be able to make mustard right will change the taste of other produces, if it doesn’t taste right I will change the taste of the other produces the mustard is use in. - External, customer my not like the taste of the new product with the in-house mustard in them.

Qualitative

* New state-of-the-air process equipment and process controls have bin add to the company over the last two years. * Production has the time and not addition labour hours would need to be added. * New produce that can be offered to customers * Alleviate warehouse space for other products by no longer storing the drums. * The ability to make more of the produce if run out or get low. * Will have to maintain the integrity of the mustard as to not change the taste of the produce it is used in.

Quantitative
Current cost break down pre month: 500 drums at 100,000 liters, $64 a drum, $8 a drum freight, 3 shifts 5days a week at $20 per hour, 10 minutes handling time for each drum, $0.02 per liter other overhead.
Current Cost per month: (500 x 64)+(500 x 8)+(500 x 10/60 x 20)+(100,000 x 0.02) =$39,666.67
Cost break down if make in-house: $0.15 per liter for spice blend, $0.1875 per liter for vinegar, $0.025 per liter for water, $0.105 per liter total labor and overhead.
In-house cost per month: (100,000 x 0.15)+(100,000 x 0.1875)+(100,000 x 0.025)+(100,000 x 0.105) =46,750
Cost Difference: Current – In-house 39,666.67 – 46,750 = (7,083.33)
Comparison on prices, show that to make the mustard in-house it will cost an addition $7,083.33. So on pricing only this may not be the best option, but there may be other factor that will add to the value of making the mustard in-house.

Alternatives:
Doing Nothing- if we leave everything as it is now will not need to put out the extra cost of making the mustard in-house, but we will still have to handle 500 drum of the mustard each month. The issue with this is that having the drums remove is a hassle and is making extra waste that may not be necessary.
Making In-House- make the mustard in-house will cost more to do, there will be no more drums. This will free up storage space for other this (like a safety stock for some of the produce that we make. Mustard is used in many of the other products being sold, it the taste is not the same it will change the taste in the other products it is used in.
Sourcing New Suppliers- new suppliers may reduce the cost of making the produces, but will the quality of the good be the same as the suppliers we a using now. It will take time to find suppliers for a better value with the same quality good. The smallest change to the produce could change the taste.
Have the Company that Make Mustard Work in the Same Factory- having the company in the same factory will cut out transportation cost and there will be no more need for the drums of mustard. Giving up space and equipment, so that the company can make and store all the needed raw material that they would need to make the mustard in the factory.

Recommendations & Action Plan:
I recommend that we stay with our current supplier of mustard. The cost to switch is too high right now, and there is no issue with the way thing are being handling. We should continue to look in to lower the cost of making the mustard in-house. Finding other supplies to provide some of the produces needed, at a lower cost. Needing to insure quality remains the some it will take time to have the right mix of spices in the mustard.