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Case #3 Greenery Inc. is a successful online business, located in a small town in Newfoundland, and sells the seeds of fruits and vegetables
Case #3 Greenery Inc. is a successful online business, located in a small town in Newfoundland, and sells the seeds of fruits and vegetables to customers worldwide. Sales have steadily increased over the years and have reached the point where the exiting order-processing centre facilities is no longer able to keep up with demand. Management is currently deciding whether the order-processing operations should be outsourced to a company that specializes in such operations. If the company decides to outsource order-processing, all the employees currently employed in that division, including some with over 20 years of experience with Greenery Inc., will lose their job with the company. However, the vendor Greenery Inc. is considering hiring to conduct the order-processing operations has employees fluent in many languages and would be able to better serve many of Greenery Inc.'s international customers. To help make this decision, management has gathered the following information regarding costs in its order-processing facility: Labour Building rent Phone charges $910,000.00 $84,000.00 $49,000.00 Other overhead costs $58,800.00 3 If the order-processing operations are outsourced, the company can sell some equipment in the facility, that was initially purchased for $140,000, for $28,000. Greenery Inc. will be able to cancel its rental agreement without penalty. The outside vender has agreed to hire any of Greenery Inc's employees that are currently working in the order-processing facility. Those who do not choose to work for the vender will be laid-off by Greenery Inc. All overhead costs associated with the order-processing facility can be avoided by outsourcing the operations. If Greenery Inc. outsources these operations, the company's contact information will remain unchanged. That is, customers will still be able to use the same methods to order seeds and the outside vender will be responsible for accepting and processing the orders. For the outsourced service, Greenery Inc. will pay an annual expense of $700,000. Required (A) Based on financial analysis alone, should Greenery Inc. outsource the order-processing operations? (B) What non-financial factors should Greenery Inc's management consider before deciding whether the operations should be outsourced?
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