Alicia Wong has to consider many things before deciding whether she should make the mustard in house or externally. If the mustard she buys externally from TFL, Thain Foods would be spending on average about $.54 cents per liter. While this doesn’t seem that much on a small scale, overtime the cost begins to add up. In addition, the company would only spend $.46 per liter when producing in house. With an average order of 100,000 liters, Thain Foods will save around $7.920 per order.
Overall per year, the company will save around $96,000 by just saving $.08 per liter. Making the mustard internally can provide many benefits. One of the reasons to make internally would be because of the cost. As previously stated, the company would make about $8,000 per order. By saving that money, the company can save the consumer money by cutting the price or by gaining additional profit. Another reason to make would be in order to avoid sole source dependency. The company will be able to search for the perfect supplier for all of the raw materials for the best price.
Instead of allowing another company to make deals for the raw materials, the larger company could use its weight to leverage for better prices.
Also, by making internally the workers would no longer need to carry and rinse the drums. No longer would a contractor need to come in to wash the drums for the company. Rather, the company could find other purposes for the drums efficiently. Another reason is the production has time and equipment to make the mustard.
All of the items are in place to make the mustard without any further workers or contractors necessary. Finally, the company could ensure quality assurance. Potential risk can be eliminated because the company knows exactly what’s happening with the quality of the mustard and what needs to be done to fix any potential problems Although there are many reasons to make the mustard, there are also many reasons not to. First of all, the change from external to internal may hurt to quality or taste of the product. For example, the way TFL mixes the raw materials and makes the mustard could be kept a secret and not allow the company to continue to make a great product. Thain Foods would need to make sure they know exact recipe and procedures to make the mustard if they were to change from externally to internally. Also, if Thain Foods finds another way to make better mustard they could keep it as a competitive advantage and not worry about their recipe getting to competitors.