Assume you are in favor of outsourcing the clock springs and read the following scenario then answer the questions in detail.
The Grindstone Supply Company of New Jersey is attempting to expand its manufacturing of large wall clocks. In years past, the company has outsourced the manufacturing of clock springs to a company in Nebraska. This has been cost-effective in the past, but now that demand for the springs has increased, Grindstone is considering manufacturing the springs in-house. Currently, the factory works exclusively with wood and plastic.
Should the Grindstone Supply Company alter its manufacturing process to include the production of clock springs, or should it continue outsourcing to Nebraska as it has in the past? (Remember your role is to assume you are in favor of outsourcing) Be specific and answer in detail.
- What factors contribute to this decision?
- Will this be more profitable in the long run?
- How will the decision affect employee morale and relations?
If I want to continue to outsource the manufacture of clock springs, I will argue that it will be more profitable in the long run because the manufacture of clock springs is outside of our core competence and will be done more effectively by the firm in Nebraska. This decision will probably not have a huge impact on employee morale and relations because we will not be outsourcing tasks that are currently being performed by our employees in New Jersey.
In the past, we have found that it was cost-effective to outsource our manufacturing. There is no reason that this should be any different now that we are ramping up production. Our firm does not have expertise in working with metals. All we work with is wood and plastic. The firm in Nebraska is presumably good at making the springs. It will be much easier for them to increase production than it will be for us to create from scratch a facility and procedure for making the metal springs. In the long run, this will help us because we will be able to focus on the part of the clock-making process that we are good at. We will not be moving into areas where we lack expertise and where large amounts of money will have to be spent to create the infrastructure that we need.
In addition, it should be clear that employee morale and relations will not be harmed by this decision. Employee morale would probably be harmed if we were to take existing operations and outsource them. In such a case, our employees would be embittered because they might be losing their jobs. In addition, if we were to increase our work with wood and plastic and we were to outsource the additional work, we would anger our employees. They would feel that they were losing the chance to get more work and more money for themselves. They might fear that we would eventually outsource more of their work. But neither of these situations is in play here. Our workers do not make metal springs. They will not feel that their jobs (or jobs that could potentially be theirs) are being taken away.
Thus, outsourcing the increased production of springs simply makes sense. It allows us to focus on what we are good at rather than spending resources on trying to create a whole new operation in our New Jersey facility. Importantly, it does this without alienating our current employees.