Frito-Lay manufactures and markets snack foods. Betsy Gonzalez manages the company’s fleet of 200 delivery trucks. Gonzalez has been charged with “reengineering” the fleet- management function. She has an important decision to make.
■ Should she continue to manage the fleet in-house with the five employees reporting to her? To do so, she will have to acquire new fleet-management software to streamline Frito-Lay’s fleet-management process.
■ Should she outsource the fleet-management function to Fleet Management Services, a company that specializes in managing fleets of trucks for other companies? Fleet Management Services would take over the maintenance, repair, and scheduling of Frito- Lay’s fleet (but Frito-Lay would retain ownership). This alternative would require Gonzalez to lay off her five employees. However, her own job would be secure, as she would be Frito-Lay’s liaison with Fleet Management Services.
Assume that Gonzalez’s records show the following data concerning Frito-Lay’s fleet:
Book value of Frito-Lay’s trucks, with an
estimated five-year life................................................................... $3,500,000
Annual leasing fee for new fleet-management software...................... 8,000
Annual maintenance of trucks............................................................ 145,500
Fleet Supervisor Gonzalez’s annual salary.......................................... 60,000
Total annual salaries of Frito-Lay’s five
other fleet-management employees ................................................ 150,000
Suppose that Fleet Management Services offers to manage Frito-Lay’s fleet for an annual fee of $290,000.
Which alternative will maximize Frito-Lay’s short-term operating income?