Alicia Wong is the Corporate Supply Manager for Thain Food Limited (TFL). She wants to give a proposal that expresses a valid reason to insource the mustard that the company is currently being bought from an outside supplier. She has one month to prepare a good proposal and present it to TFL’s CEO. TFL has been in business for 30 years and has a business network consisting of major food chains, hotels and restaurants in North America and Europe. It offers a variety of food products such as: wide range of syrups, fudges, cone dips, sauces, mayonnaise and salad dressings. For the past two years, the company has invested 2 million dollars to improve their new equipment and to implement improved processes. Currently, employing 120 people under a corporate structure. The current practice of purchasing the mustard consist of buying 500 drums or 100,000 liters of mustard, costing $72 per drum. ($64 per drum plus freight cost of $8 per drum). TFL runs three eight-hour shifts five days a week. Paying the workers $20 per hour and it takes 10 minutes to handle each drum. After the processes of handling the drums is completed, they are given to a contractor for proper disposal adding other costs of $0.02 per liter. Costing a total of $38,000/month excluding labor and overhaul.
Alicia Wong’s new plan to insource the mustard notes that mustard is made with 60 percent solid, 20 percent water and 20 percent vinegar. The solid portions is mainly made up of mustard flour, salt and other spices. Water is currently supplied by the city and vinegar is a raw material that TFL orders regularly. The costs are as follows: * Spices = .15/liter * Vinegar = .1875/liter * Water = .025/liter * Labor & Overhead = .105/liter
Making monthly calculations for 100,000 liters of mustard, we need 60,000 liters of spices as well as 20,000 liters of both water and vinegar. * 60K liters * .15 = $9,000 * 20K liters * .1875 = $3,750x2 * 20K liters * .025 = $500 * 100K liters * .105 = $10,500
The total cost per month to insource the mustard including labor and overhaul is approx. $27,500. * Excluding labor = $17,000
Annual Costs for each option (100K liters per month = 1.2 million liters annually)

Buy Mustard: $.38 per liter -- (38,000/100K = .38) * 1.2M * .38 = $456,000 annually

Make mustard: $.275 per liter -- (27,500/100K = .275) * 1.2M * .275 = $330,000 annually * Excluding Labor = (17,000/100K = .17 per liter) -- 1.2M * .17 = $204,000 annually

Annual Savings from Making
Insourcing mustard yields an annual cost savings of $126,000, which is a substantial savings for this company. (Included labor cost in the insourcing) * .38 - .275 = $.105 * .105 * 1.2M = $126,000
If we take out the labor cost the savings increases to $252,000 (.38 - .17 = .21) – (.21 * 1.2M) = $252,000

Alicia Wong’s suggested new plan is supported by the workers because they would not have to haul and rinse the bulky drums. However, the quality assurance team is concerned about the mustard changing the taste of many of the the dishes that TFL supplies to their customers. Assuming that the quality is priority for the major food chains, hotels and restaurants. TFL’s small change can also impact their profitability, but it is also true that Wong’s proposal will save the company up to 27 percent off of the current spending. Another assumption is the workers not having to carry the drums and they will just have to conduct the processes of mixing the species, water and vinegar together. Noting the fact that the water and vinegar can be supplied through pipelines, the workers will have to spend their time mixing and regulating the mustard making process allowing a greater utilization of the worker’s time. Along with this, TFL would be able to cut the lead time between ordering the mustard and getting it the next day. This would help TFL to be more prepared in case of rapid growth.

Information that is Missing Alicia assumed that TFL should make the mustard because they were already ordering the materials to make it and it was a simple transition. The fact is that there is more information to be collected. It said in the case that the flour, salt, and other spices could be readily bought. She has already contacted a supplier about making this spice blend for them. The main concern with this is quality. They need to run tests first in order to make sure that the quality of the spice blend will hold up to the old quality of the mustard. With this new supplier they need to figure out how long it will take to ship and what method of shipping they should use to transport it there. With that being said they are going to be delivering 15,000 liter lots. Before they were shipped 100,000 liters of mustard at a time. They will need to figure out how many lots they need to order at a time and how much lead time they will need to provide. Also they will need to figure out how long the spice blend can sit before using it because what if they have an excess amount. Another thing is making the mustard is going to take more time for workers. They need to run through the process of making this mustard because there is always a way of improvement. While they go through this process they need to also think about if they should hire additional workers so others do not need their time stretched. The main change to all this is going to be the replication of the mustard. If the quality does not match the old mustard then many of their products will be altered and taste different. With that being said they need to run a bunch of test in order to collect data on how it affects the other products. Replicating a product is not a simple task. I know my grandma will give me a recipe for her oatmeal raisin cookies and they never turn out like the way she makes them. There will always be something different in the process.
This information could greatly affect the proposal because the way the case presents it it makes the process sound like it’s just a flip of the switch and they are now making mustard. It could take a long time before they start producing mustard because if this new supplier of the spices cannot make the formula right then they will have to find a new one or develop a new plan. They do not have enough information collected yet in order to make a decision right away. If Alicia wants the board to make a decision she will need to collect more information and begin running tests.

Implementation Plan 1. Set up a group meeting to review this proposal 2. Make the calculation on make or buying decision 3. Contact possible spice supplier and give product specifications 4. Contact vinegar supplier to place a bigger order 5. Place and train workers on new tasks 6. Review and enhance the mustard making processes to reach maximum efficiency

The other possible storage and delivery methods for the current situation need to be explored first, to determine what is best for the company. It may be possible to find a different method of storage to eliminate the drums that ultimately have to be disposed of wasting the workers time. A larger container to transport and store the mustard could be an option which is also more environmentally responsible. The transportation cost difference would be an important factor to note to the CEO. If other changes can be made that save more money before transitioning to insourcing the mustard, they should be evaluated. The costs savings needs to be worth it in order to justify the decision to the CEO, and if it is possible to save a significant amount in a way not involving a change that risks the quality of the mustard, it should be favored.
Additionally, to make a proper proposal the increase in demand and overhead will need to be calculated exactly. The fact that the workers would not have to leave the production line to rinse and dispose of the empty drums implies that they are adding more value relative to the time spent on the mustard process. The changes in throughput, cycle and lead times are likely going to have a large impact in terms of productivity. There needs to be an increased emphasis on the quality factor from here on out if they wish to make the mustard. Each batch will need to be tested and approved which will require specific metrics to be created in order to rate the taste and consistency that is desired. It might also require additional workers to be brought in which will increase the cost. Lastly, it would be a good idea to analyze some other mustard suppliers to reference when presenting to the CEO to enhance your credibility.

Questions 1. Is making the mustard a good decision? 2. Should they make the spice blend instead of having another company test and try to make it for them? 3. What is estimated saving (or loss) in dollar value with Alicia Wong’s proposal? 4. If the supplier cannot perform at the level Alicia wants what would be some options for her to pursue and how would she go about that?