Globe ltd. is a golf club, clothing, and equipment manufacturer, in Norland, England in 1938, providing golf shirts and knitwear to the Ryder Cup team.

In 2008 this company was heading for a financial loss and was deemed to have lost strategic direction. The business formula that had proved successful in the 1990s and early 2000s was no longer proving effective. A new chief executive was appointed to turn the company around.

He focused on the core competencies or skills of the business. These core skills were identified as essentially buying and selling, and from this analysis, the philosophy of outsourcing was developed.

The corporate philosophy and its outsourcing implication were thus evolved in this organization with anything that was not buying and selling becoming a potential candidate for outsourcing.

In the process, distribution has been outsourced and has been reduced in size from 250 staff to three; quality control, packaging, and design activities have followed a similar pattern and a total of 680 staff were redundant.

In relation to outsourcing the production of the golf club, clothing, and equipment feeling of senior management was that Production lines were performing reasonably well in an operational sense but not really delivering their potential for the business. Moreover, the brand was established as “MADE IN ENGLAND”. However, parts of the operation could be outsourced without affecting quality standards. The process, hence, involved the selection of a shortlist of vendors that the company felt to be capable of handling such contracts. A meeting was arranged with top managers and a brief was provided as follows:

Globe estimates the need for 20,000 specialized casings per year for the next 5 years for its custom golf club. It can either make the casings internally or purchase them from outside for $39 per unit.

Additional 150 staff members will be let go.

The production manager thinks the company should purchase the casings. His suggestion is based on the following information he gathered for the local production.

In the current capacity, Globe can manufacture 40,000 casings per year. Internal production cost is as follows:

	Per unit ($)
Direct Materials	$15.00
Direct Labor	$11.00
Variable Overhead	$6.50
Fixed Overhead	$5.00
Supervisor’s Salary	$2.50
Rent	$4.50
Total per unit Cost	$44.5

An additional supervisor will need to be hired if the casings are manufactured internally and the rent is based on the space occupied in the plant for manufacturing each casing.

Required

You have been appointed as a consultant to prepare a report analyzing the outsourcing.

The proposal, including both the financial and non-financial effects, and give your recommendations. Your report should include the following:

1. an introduction to the concept
2. an incremental costing analysis;
3. the effects on reported profits;
4. discussion of other factors that need to be taken into account before a decision is made;
5. recommendations with reasons;
6. an executive summary.