1- FlexCon should keep its family of pistons in-house. In fact, if it outsources its pistons, it will save money the first year- about $30,000 before tax and $18,000 after tax. However, the second year, Flexcon will lose a significant amout of money- about $124,200. Based on the case, “once a firm outsources an item or service, it usually loses the ability to bring that production capability or technology in-house without committing significant investment.” So, the savings brought by outsourcing the pistons manufacturing in the first year will not be useful because it will be used to cover a part of bringing the manufacturing back in-house. In addition, the company cannot keep the pistons manufacturing outsource because FlexCon will lose too much money. By outsourcing the manufacturing of its family of pistons, FlexCon is more likely to lose an important amount of money after two years. It is why Flexcon should keep its pistons manufacturing in-house.

2- If my group decided to outsource the pistons to the external supplier, we will, first, ask to the supplier to pay a part of the transportation cost. We assume that the supplier agrees to pay half of the transportation costs. It will reduce the transportation cost per unit to $0.05 each year. The total outsourcing costs per unit will be then $13.53 for the first year and $13.44 for the second year. We compute the total savings and we find that:

a. After the first year, FlexCon will save $45,000 before taxes and $27,000 after taxes. b. After the second year, FlexCon will lose $106,950
So, we still need to reduce the losses in second year. The quality-related costs are a big spending. To make the outsourcing viable, we need to reduce this cost. So, we will pressure the supplier to improve the quality of the products and to reduce its quality-related costs by saying that if he does not do so, we