The question of outsourcing Essay
The question of outsourcing
Outsourcing is an option that is employed by service as well as manufacturing firms that seek to stream line their operations and reduce the costs. “In today’s business environment it’s difficult to find a manufacturing company that produces 100% of its products internally. Across all industries today, companies are outsourcing non-core manufacturing operations to reduce product cost, improve operational performance, and gain flexibility.
Manufacturing outsourcing transforms both the supply chain and the product development environment into a much more complex network of internal and extended stakeholders who need to work as one efficient and integrated team, with segregated and secured information exchanges. ” (‘Manufacturing Outsourcing’) The outsourcing of the manifold production line to a third party can provide significant levels of savings for the Bridgestone Industries in terms of cost savings, increased profitability and better overhead burden which is manageable by the company.
The proposed budget for 1991 as made adjusted for an outsourced production line of manifold depicted a sales level increase from $226. 5 million in 1990 to $237 million in 1991. The costs associated with direct materials would decrease by $34. 4 millions by decreasing the direct material costs from $69. 5 million in 1990 to $35. 1 million in 1991. Similarly the savings made on direct labor would amount to $6. 3 million by decreasing the direct labor cost from $14. 1 million to $7. 8 million in 1991. The overheads on the production lines would depict savings of $36.
1 million by reducing the overheads from $79. 3 million in 1990 to $43. 2 million in 1991. This clearly presents that by employing outsourcing strategy for the manifold production line, the company can experience significant savings in terms of costs and overheads. Additionally the outsourcing of the manifold production line can also enable the company to decrease the overhead burden on the active production lines by a percentage of 256%. This is a significant reduction from the overhead burden rate of 563% in 1990 to 307% in 1991.
The strategic benefits that would be provided to a company by employing the outsourcing strategy pertain to the ability provided to the company to focus on their core activities, in this case the core production lines that are effective and profitable for Bridgestone Industries. Similarly outsourcing can also provide the company with cost efficiencies and savings as depicted above. The overheads associated with manufacturing the outsource production line can be significantly reduced leading towards lean operations and reduced costs of operations.
Additionally outsourcing can also provide the Bridgestone Industries with operational control as the poor management of the manifold production line which was increasing the costs and overheads for operation for the company can be eliminated. The Bridgestone Industries would also be able to take advantage of the staffing flexibilities available by employing the best possible staff for the currently active production lines. Moreover the company would also be able to ensure that their manifold production line is managed and manufactured by the experts in the filled with specialized skills.
Conclusion The main issue that is being faced by the Bridgestone Industries is the increasing costs associated with manufacturing and operations specifically in the automotive component and fabrication plant which has been depicting highly inefficient operations with high level of wastage. The management at the company has invested significantly in reducing the costs of operation by revaluating the processes and streamlining the operations of the company through the reengineering process.
However the company has not been able to sustain the benefits of the investment. Instead the passage of time has showed that the costs of the Bridgestone Industries are incrementally increasing and the company is facing excessive pressure ton reduce costs to increase the profitability as the volume of sales has been decreasing with the low level of demand for the products presented by the three big US automobile manufacturers. In order to resolve this issue, it has been presented that the company should seek to outsource its manifold production line.
This is mainly because the outsourcing of this production line can provide significant cost savings and increased profitability for the company while reducing the overhead burden that exists on the current production lines. Additionally the outsourcing of the production line would also enable the company to get the manifold component manufactured from a specialized third party that can dedicate resources and skilled human resource for the operations while providing savings from stream lined lean manufacturing.
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University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 5 June 2017
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