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Buy or Make Alternative in FFLI Incorporation - Case Study Example

7 pages
1925 words
Harvey Mudd College
Type of paper: 
Case study
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The option whether to buy or make a product is always a challenging process to execute in every organization. Most organizations are torn between the two options because various decisions that need to be addressed before reaching an agreement faces the management. Purchasing a product from another firm or making your own is weighed by some factors. The cost of production incurred when making the particular product is one of the factors that dictate whether the firm will buy or produce a given product(Bianchi, Barnett, Dempsey, Giachinta, Hugenberg, and Talley,2016). The capacity of the firm to produce a product also dictates if it will be in a position to handle the production of the product or it will buy from an external supplier in the market. This paper will focus on the make or buy project of FFLI Incorporation which will later provide the outsourcing decision that the company should implement.

The costs associated with the buying and maintenance of the production equipment plays a crucial role in deciding question. The company should consider the buying option as making the products will lead to further costs of maintaining the production equipment. The equipment will also require trained personnel hence the available workers will have to be trained for them to be in a position to handle the production process. The buying option is also convenient to the company as it has the storage capacity of handling the products before presenting them to the final supplier. The supplier will be responsible for distributing and selling the products in the market thus reducing the storage burden that is associated with the delicate goods. Also, the additional labor needed to produce the products will result in more expenses. The labor includes all the people involved in the production process which are the personnel in the manufacturing work(Gerbl, McIvor, Loane, and Humphreys, 2015). There are also those who operate the machinery in the making of fitness machines and accessories. The products are delicate hence require qualified people for the job, or the firm could produce low-quality products. The buying option of these fitness machines and accessories will reduce the burden of hiring new people to deal with the production operations of the company. Also, deciding to make the products will make the organization to look for more space to put up their industries as they do not have spaces for expanding their industries. This will incur the firm additional costs as well as time because acquiring land is a long process that requires paperwork. The time that will be taken by the firm to settle down and make changes of making the product will lead to huge losses in the market as competitors will take advantage of the time. Other players in the market will have a chance of availing similar products that can perform the same functions to the consumers.

The totals in term of the revenue, gross margin and the cost of goods sold in a year include the following. Revenue 5,680,474

Gross margin 3,245,389

Cogs 2,435,085

If the company decides to make sales of the fitness machines and accessories, it will generate the figures above. Also, the company will make more if it decided to buy the products locally and sell them to its customers. It is because buying the products nationally or internationally will incur more transaction costs compared to purchasing them at the local level. The national level will associate taxes while the international level will involve additional charges such as the taxes and importation costs.

If the company decides to make the products, it will require the following figures in training the new personnel. Revenue 495,200

Gross margin 344000

Cogs 151,200

The small fitness accessories and the fitness education (DVDs, manuals) will lead the firm to these figures. Revenue 2,041,734+479,765=2,521,499

Gross margin 1,067,474+369,033=1,436,507

Cogs 974,260+110,732=1,084,992

Buying at the national level is the best option in this project because the firm will avoid various costs including the cost of importation, shipping cost, courier cost, damage costs, and immigration taxes.

The figures for East Coast Metalworkers are fair when compared to the other two companies. The figures are as follows

Shipment size Cost

One pallet $185

Six pallet $840

Ten pallet $1450

16 pallet $2180

Going by the figures provided, the revenue collected from the sales of Flexstrong machines and accessories, outsourcing will be a good choice for the company. The numbers in the charts prove that the premium fitness machines provide the company with an amount that can facilitate other business operations. The company has also made over two million dollars regarding revenue in some months. The amount of revenue generated by the company will be sufficient to cater for the buying costs of the machines. Getting the machines from outside sources will make the firm incur the price of the machines, the transportation costs and any tax charges that might come along with purchasing any product. Buying the products will provide the company an opportunity of having to inspect the machines before they can be distributed to different markets. The personnel handling of goods will enable the company to make the necessary adjustments to the machines hence be in control of the quality of the products. The costs of buying the products are low when compared with the costs of making them. It has been proved from the figures provided as all the machines make enough revenue that would facilitate the organization to buy and later provide the products in the market. Buying and renovating products for sale acts as a boost when dealing with wholesale goods especially in the sports field related machines and accessories. The fitness machines and accessories require the provision of after-sale services that should accompany clients when they buy the commodities. The organization would be in a better position of providing the after-sale services to customers after they purchase the machines of the accessories. The firm will not incur any costs for the repairs or transport the machines like these will be acts of appreciation to the loyal customers. After sale services are useful in any business, as they act as part of marketing strategies to lure customers to the seller in the market. Consumers always prefer companies that provide after sale services.

Customers are always concerned with the quality of goods issued in the markets thus they opt for the best goods available (Moschuris, 2015). The matter of quality control needs to be controlled by the company to present the products while in good shape. The supplier in question is a reliable partner thus will facilitate a smooth business operation within the company. The option of buying the machines will be a long-term deal that will take place for a period before the company acquires the financial capability of producing its products. Also, the fitness machines and accessories are crucial to the company as they are needed in the daily operations of the firm. Firms always provide priority to those goods that are crucial to their operations as they are the main income earners in the market. It is because companies are concerned with the profit-making agenda in the market thus every business entity guards its essential goods and services rendered to the consumers.

Having a strong relationship with suppliers builds a bond that is crucial to the survival of enterprises. Firms are sometimes faced with challenges and problems associated with the shortage of the essential products; an issue that only suppliers can rectify. Without the assistance of suppliers, the firm can easily collapse and result in other problems such as lack of the products in the market and unemployment of that personnel who work in the firm. The issue of maintaining a given quality of the fitness machines and accessories is a critical issue that can only be managed by the organization. The option of buying the products will enable the firm to have the final say in the quality of products that the organization presents to customers in the market. The inspection procedures will ensure that the firm avails the best machine and accessories in the market thus more customers will be attracted to the business thus generating more revenue for the company. The quality of the products will enhance the profitability of the organization because there will be more sales. Having a good reputation will enable the firm to be in a position to control the market as well as have the right channels of conducting its operations freely.

The company should pick East Coast Metalworkers. The firm has a better profile compared to the other two organizations; Steel-Town Fabricators and Music City Metals. East Coast Metalworkers has a huge capability and is a company that performs well in Atlantic Canada. The firm makes the highest annual sales ($50M to $70M) which are higher than the rest. The business was founded in 1981 indicating that it has been in operation for the past thirty-seven years. It has acquired the necessary experience in the industry thus becoming the perfect match to the task. The firm has focused on oil refining and marine industries among other operations. Also, the company serves consumers from all backgrounds and customers ranging from large organizations and small businesses. East Coast Metalworkers is the best fit for the job as it has various features that correspond to the operations of the FFLI Incorporation. The company has displayed an excellent performance in the Atlantic hence will be useful in making more sales of the products. The firm also makes high amounts of revenue which is better than the other two companies that FFLI should choose from when implementing this project. Being established in 1981, the company has acquired a lot of customers that will be useful in the implementation of this project. The customers being served by East Coast Metalworkers vary in different ways hence there will be more consumers benefiting from this project. The high number of customers in the market that is in need of the fitness machines and accessories play a huge role in sustaining the business because they are the major contributors to the success of the organization.

The customers of East Coast Metalworkers have described the firm as an organization that engages in high levels of professionalism can be depended upon to provide high-quality goods and future-oriented. The only negative element regarding the organization was the inability to address the adjustments made by clients at the last minute. The consumers pay a crucial role in the success of any business (Gerbl, McIvor, Loane, and Humphreys, 2015). The transaction time is a duration that can be managed by the client as it takes about six weeks to produce the samples, drawings and the sign-offs of the products. The orders are made available to the clients after three weeks. Also, the productions costs are fair when compared to the sales generated per year. The company has a good credit rating, provides an outreach program for young people and is concerned with the environment. This makes the company an all rounded firm thus equally fit to handle the fitness machines and the accessories. The other two firms Steel-Town Fabricators and Music City Metals makes low annual sales; $18M and $10 respectively. The transaction time of other two firms is almost similar to the East Coast Metalworkers. This will lure consumers to make more orders from the East Coast Metalworkers as the time taken to get the order done is encouraging to all people. The consumer will always go for the convenient services that fit with their budgets and time hence will opt to work with East Coast Metalworkers when purchasing the fitness machines and accessories.

Flexstrong should outs...

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