Acasestudy

Globe ltd. is a golf club, clothing, and equipment manufacturer, in Norland, England in 1938,providinggolfshirtsandknitweartotheRyder Cup team.

In 2008 this company was heading for a financial loss and was deemed to have lost strategicdirection. The business formula that had proved successful in the 1990s and early 2000s was nolongerprovingeffective.Anewchief executivewas appointedtoturnthecompany around.

He focused on the core competencies or skills of the business. These core skills were identified asessentiallybuyingandselling, andfromthisanalysis,the philosophyofoutsourcingwasdeveloped.

The corporate philosophy and its outsourcing implication were thus evolved in this organization withanythingthatwas notbuyingandsellingbecoming apotentialcandidate foroutsourcing.

In the process, distribution has been outsourced and has been reduced in size from 250 staff tothree; quality control, packaging, and design activities have followed a similar pattern and a total of680staffwereredundant.

In relation to outsourcing the production of the golf club, clothing, and equipment feeling of seniormanagement was that Production lines were performing reasonably well in an operational sense butnot really delivering their potential for the business. Moreover, the brand was established as "MADEIN ENGLAND". However, parts of the operation could be outsourced without affecting qualitystandards. The process, hence, involved the selection of a shortlist of vendors that the company feltto be capable of handling such contracts. A meeting was arranged with top managers and a brief wasprovidedasfollows:

Globe estimates the need for 20,000 specialized casings per year for the next 5 years for its customgolfclub. Itcaneithermakethecasingsinternallyorpurchase themfromoutsidefor$39 perunit. Additional150staffmembers willbe letgo.

The production manager thinks the company should purchase the casings. His suggestion is based onthefollowinginformationhegathered forthelocalproduction.

In the current capacity, Globe can manufacture 40,000 casings per year.Internalproductioncostisas follows:

	Per unit($)
DirectMaterials	$15.00
DirectLabor	$11.00
VariableOverhead	$6.50
FixedOverhead	$5.00
Supervisor'sSalary	$2.50
Rent	$4.50
TotalperunitCost	$44.5

An additional supervisor will need to be hired if the casings are manufactured internally and the rentisbasedonthespaceoccupied in theplant formanufacturingeachcasing. Youhave beenappointedasaconsultantto make areportanalyzing theoutsourcing. The proposal, including both the financial and non-financial effects, and give your recommendations.Report shouldincludethe following:

1. anintroductionto the concept
2. anincrementalcosting analysis;
3. theeffectsonreportedprofits;
4. discussionofother factorsthat needtobetakenintoaccount beforea decisionis made;
5. recommendationswithreasons;
6. anexecutivesummary.