...October 1, 2013 FlexCon Piston Decision 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 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...
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...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...
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...Insourcing/Outsourcing Case: The FlexCon Piston Decision Instructor's Guide Instructor's Guide The following describes how to arrive at the key numbers required to complete Appendix 1-3. This case requires the participant to calculate insourcing and outsourcing costs on a per-unit basis. One objective of this case is to familiarize participants with the idea of total cost, and to become accustomed to allocating costs on a per unit basis. Total cost per unit cost allocation allows valid comparisons between insourcing and outsourcing options. INSOURCING COSTS Direct Materials Costs When calculating direct material costs, the key numbers involve last year's production, the cost per 50 lb. block, and the average semi-finished raw material required for each finished piston. First, 50 lb./1.1 lb. required for each piston = 45.45 piston yield per block (288,369 pistons produced last year)/45.45 pistons per block = 6,345 blocks 6,345 blocks x $195 per block = $1,237,275 total direct material costs for blocks to support previous year's production This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. ($1,237,275)/(288,369 last year's output) = $4.29 direct material alloy cost per piston. Since the team expects material costs to remain constant, this figure applies to Year One and Two. FlexCon also spent $225,000 last year on other...
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