Sher-Wood Case Essay
1. What motivated Sher-Wood to outsource its manufacturing to supliers inside or outside Canada in 2007 and 2011? Sales of one million wooden and 350000 composite sticks in 2006. Predicted high growth in its composite stick business in terms of volume and profitability. By outsourcing wooden and high end models, core focus of the company is narrowed to improvements in the quality of composite sticks with new and tougher compounds. 2011
Decline in sales volumes of sticks by 50% in 2010.
Regain demand by offering a competitive retail price over its rivals. Higher margins to retailers to market their products
Plan to reduce costs and optimization of resources by shifting operations to Quebec. Considered offshoring the manufacturing to China due to its cost reduction and R&D advantages as well as Quebec’s strict equipment regulations
2. What decision factors changed between 2007 and 2011?
Sher-wood was able to buy some of its competitors in order to efficiently rule the market and try to operate in such a way that is by far, better for the company. They also decided to outsource some of its products, such as the PMP 5030 which is a high end wooden stick to a local company in Quebec.
3. Which firm activities would be impacted by offshore outsourcing? How different were these influences between 2007 and 2011?
Some of the activities that may be impacted would be the assemble and handling of such products and the deadlines of launching. outsourcing may incur both real and intangible costs that are not part of the traditional labor, transportation and duties equation which could affect the company’s bottom line.
4. Should Sher-Wood outsource its remaning manufacturing to China? Will this solve Sher-Wood’s concerns?
Off-shoring of production to China is mainly done to save money. Transportation and customs: Air freight costs from China are can run abut $350/lb. Ocean shipping from China is several weeks spent in transit.
Political risks: Radical changes in policy like nationalization of factories, or changes in labor rules, can whipsaw manufacturing companies.
Currency risks: Sudden change in currency pegging brings uncertainty and unpredictability. The CNY is artificially undervalued between 15% and 40%
5. What alternatives exist? What are the pros and cons of each?
1. Still accept small batches and specialty orders with short turn around terms. – Utilizing competitors products to fill these orders and re-brand the product being purchased.
2. Utilize manufacturing facilities in neighboring countries that are more expensive than China but closer so the net cost is similar and provides for quicker response times. – Aside from proximity Mexico provide free trade agreements, and protection of intellectual property.
3. Lean manufacturing is a collection of techniques to improve manufacturing productivity – Overcome the apparent short-term cost advantage of overseas manufacturers.