1. Perform a quantitative insourcing/outsourcing analysis using the data provided. What qualitative issues might affect your final decision? Identify any costs or issues that are not part of your analysis that might affect your decision. What is your recommendation regarding what FlexCon should do with its family of pistons? Support your arguments with evidence gathered during your analysis.
2. Assume your group decided to outsource the pistons to the external supplier.
   • Conduct a plan that would enable FlexCon to carry out a successful outsourcing strategy.
   • Perform a portfolio analysis to classify Flexcon Piston suppliers.
   • What further information would you collect to proceed with a purchasing strategy with the piston supplier. How would you proceed to collect this information?

Exhibit 1 Key Factors Supporting Insourcing/Outsourcing Decisions Factors Support Insourcing: Factors Support Outsourcing: 1. Cost considerations favor the buyer 1. Cost considerations favor the supplier 2. A need or desire exists to integrate 2. Supplier has specialized research and internal plant operations know-how, which creates differentials in cost and quality 3. Excess plant capacity is available that 3. Buying firm lacks the technical ability to can absorb fixed overhead build an item 4. A need exists to exert direct control 4. Buyer has small volume requirements over production and quality 5. Product design secrecy is an important 5. Buying firm has capacity constraints issue while the seller does not 6. A lack of reliable suppliers 6. Buyer does not want to add permanent characterizes the supply market workers 7. Firm desires to maintain a stable 7. Future volume requirements are workforce in a declining market uncertain-buyer wants to transfer risk to the supplier 8. Item or service is directly part of a 8. Item or service is routine and available firm's core competency, or links directly from many competitive sources to the strategic plans of the organization 9. Item or technology behind making the 9. Short cycle time requirements item is strategic to the firm. The item discourage new investment by the adds to the qualities customers buyer-using existing supplier assets is consider important logical 10. Union or other restrictions discourage 10. Adding capacity at the buyer requires or even prohibit outsourcing high capital start-up costs 11. Outsourcing may create or encourage 11. Process technology is mature with a new competitor minimal likelihood of providing a futureExhibit Z Aggregated Two Year Piston Demand Year One Expected Year Two Expected Demand Demand January 30,000 34,000 February 30,000 34,000 March 30,000 34,000 April 27,000 31,000 May 25,000 28,000 June 25,000 28,000 July 23,000 27,000 August 21,000 25,000 September 22,000 25,000 October 23,000 27,000 November 23,000 27,000 December 21,000 25,000EXMIDIT 3 Total Factory Overhead and Administrative Costs Previous Year Cost Category Expense/Cost Administrative staff $1,200,000 Staff engineering $900,000 Taxes $120,000 Utilities $1,500,000 Insurance $500,000 Plant Maintenance $800,000 Total $5,020,000