Laura Mosier
SCM-Professor York
Case study #1
“Scott’s Miracle-Gro”

Scotts Miracle-Gro, the largest company in the North American lawn and garden industry, has reached a point in its existence to make a significant management decision. The company is considering whether to continue with insourcing its spreader products or switch to outsourcing in China. The solution lies in an analysis of quantitative and qualitative data comparisons and deciding which ideology would benefit the company in the long haul. When considering the costs it seems as though outsourcing would save a lot of money for the firm, however, we must think strategically. Thinking strategically means the long run, and using the statistics we were given we can estimate that the costs of outsourcing are growing quicker exponentially. Yes, the labor in China is cheaper but over a span of ten years wages are estimated to increase by 40 percent in China whereas in Temecula there is an estimated 3 percent annual increase, or approximately 30 percent over the next decade. The additional $8,000,000 freight charge when choosing to outsource would be the biggest expense. Over a span of ten years this is estimated to increase by 30%, almost 10.5 million dollars by 2017. The only area we would be saving on is the electricity costs (other than the obvious difference in the annual lease costs), but compared to the freight charges it is very little. The electricity costs in Temecula are due to increase only 25% (compared to freight charges increasing 30%) over the next ten years. This means by 2017 electricity in Temecula would increase to 20 cents per kilowatt hour as opposed to .078 cents in China. Assuming the 8,000,000 kilowatt hours used in 2007 for 2017 this would amount to $1,600,000 in Temecula and $624,000 in China. This savings is insignificant compared to the additional freight expense, and