Kai returns to the office and revisits a table $($Table $1)$ with numbers he has quickly jotted down to help him during the decision$-$making process. The table lays out the costs associated with producing in Germany vs$.$ Pakistan on the basis of $1,000$ units. He is estimating costs per unit to be $5$ EUR if outsourced to Pakistan. Freyhand will have remaining costs of $10,000$ EUR for fixed costs. Table $1$: Outsourcing vs$.$ In House Production $($Fictionalized for Case Study, Not Real Data$)$ Cost Type Processing Labor Variable Workshop Costs Materials Fixed Overhead Outsourced Production Costs Total Costs per Unit in House $156510-36/$Unit Total Costs per $1,000$ units $15,0006,0005,00010,00036,000\mathrm{.}00$ Costs remaining if Outsourced per $1,000$ units $---10,000-5,00015,000$ Kai has also gathered some estimates of additional costs $($see Table $2)$ that outsourcing would likely incur. These costs contain the original $5$ EUR per unit for production but also cover transportation, packaging, and quality control. $4$ Table $2$: The Costs of Outsourcing $($Fictionalized for Case Study, Not Real Data$)$ Cost Type Outsourced Production Costs Costs per unit Transportation $53$ Packaging Inspection $15$ Total Opportunities Multiply: Even More Decisions $14/$unit Kai$$s efforts to connect with suppliers on the ground in Pakistan have spread beyond the original group of people he has been in contact with. Three possible suppliers have emerged: Punjab, Sindh, and Balochistan. They are now pitching different opportunities to Freyhand. The first supplier, Punjab is being set up by Kai$$s original contacts from his past adventure to Pakistan. He trusts their commitment to quality but their pitch is slightly pricier than the other contenders. They are located in a convenient location, enhancing their connection to the main transportation routes. Kai is sure that they understand his commitment to improving working conditions but doubts if the infrastructure in the region will allow them to satisfy his concerns regarding environmental considerations to the full extend. The pitch from Sindh focuses heavily on low production costs. The supplier mentions that they understand the quality requirements but they don$$t go into much detail with respect to their quality control process. The supplier is also located in a remote area of Pakistan and therefore might have longer transportation times. Because the supplier is set up as a cooperative, working conditions should be enhanced as opposed to the regional standard. Kai is unsure about the environmental performance because the pitch doesn$$t include any information on the matter. The third pitch from Balochistan stresses past experience with polyurethane processing and demonstrates a strong commitment to quality. They even mention $6-\backslash$sigma as their quality standard although the details of their discussion in the pitch suggest they might be aiming high with respect to their promises. The company is founded by an influential business man in the region who has a record of putting environmental concerns higher on the agenda as opposed to the standard in Pakistan. However, close connections to government officials for extended periods of time also cast a potential shadow of cronyism. While Kai did not stumble upon any specific mishaps $($e$.$g$.$ his email correspondence with Balochistan$$s executives was routed through Gmail and not some shady private server$),$ the social performance of the company remains dubious. Faced with all of this information, Kai glances towards the clock on the wall. It$$s getting late and there are still so many things to finalize before Krakenfest commences in the morning. He is acutely aware that many of Freyhand$$s most loyal customers will make an appearance tomorrow and he knows that information spreads fast in the tightknit community of LARP fans. He can already hear the questions in his head with respect to future endeavors of the company. If only he had some help to provide solid answers... $5$ Your Turn: Use Your Tools to Provide Some Guidance Opportunities to provide good advice to Kai include $($but are not limited to$)$ the following: a$)$ Analyze the make$-$or$-$buy decision. Consider costs as well as other factors. b$)$ Use the appropriate tools to make a suggestion with respect to supplier selection. Make assumptions with respect to Kai$$s preferences as well as supplier$$s performance based on the details you have. Remember that the pertinent question for Kai is why as opposed to simply what. Be able to elaborate on the robustness of your suggestions. c$)$ Provide your take on the sustainability considerations of Kai$$s decision. Remember that he has a strong commitment to ethical sourcing. What are the risks and opportunities here?