Analysis of Outsourcing Central Stores for FUTRONICS Inc

Background of the Case

FUTRONICS Inc. is a private company located in Lexington mainly categorized for modems, monitors, disk drives and terminals. It is moreover in to sales and services. This case is about the replacement of Futronics’s central office stores by an outside service provider. In this case supply management manager have an opportunity for investigating selected outsourcing in-house services. Cost Status of the Company Description| Making Cost in Total| Buying cost in Total| Size of company: Raw | 2 Billion Dollar| | Cost of Goods sold| $ 900,000| |

Average Inventory (500 items in stocks)| $ 140,000| | Cost of Personnel and Space| $ 200,000| | Period of performance (Time Line) Description| Year| Target Serving Areas| Central Store Created| 1950 (middle of)| 21 area sites| | Present| 42 area sites| Place of performance Futronics Inc. is located at Lexington, Massachusettes. Stakeholders Analysis: 1. FUTRONICS Inc. 2. Central stores 3. Supply Management Department 4. Manager of Supply Management 5. Employees 6. Consumers 7. Government bodies 8. Vendors 9. Financial department 10. Outside store services 11. Litton 12. Boise-Cascade 13.

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L. E. Muran 14. Bay state office 15. New England supply 16. Other firms in Boston Focus areas 1. Make or buy decision 2. Multi-functional team 3. Risk analysis 4. Cost Estimate 5. Time Estimate 6. Ethics Scope of work The company has been into the supply chain management business for more than 60 years but in the recent years there has been decrease in sales due to heavy competitions. So the company is thinking of outsourcing central office stores as a part of their cost reduction programme. Now the company is in the initiation and planning stage of procurement and contract management.

The procurement division manager is into the through research and analysis on the all the external and internal factors to see whether this outsourcing step would be beneficial for the company in terms of cost, time schedule, risk, quality and ethic The case shows that the company still is in the Plan Procurement Phase and has been doing a deep analysis and research from different perspective and angle to see whether outsourcing is a good strategy to move ahead to increase sales and cost reducing mechanism. Plan Procurement Management Plan Procurement Management deals with two phases of procurement management initiating and planning. Initiating * The company came up with an initiative (idea) on how to reduce the overhead corporate cost to increase the profit margin. * Carried out some research to analyse how other competitors are addressing this issue. Planning * Develop vendor analysis comparative chart with selection criteria – Scoring Framework. Refer Annex 1. * Analysis on Risk Management Areas such as risk identification, risk involvement in the process, etc. * Analysis on quality management areas – whether they could get the same quality or not.

How much they need to compromise on the quality * Developed the comparative analysis chart on decision making process based on the focused areas: Advantages and Disadvantages analysing from both perspective Make Decision| Buy Decision – Outsourcing| Advantages | Advantages| Cheap price of goods when bulk buy| Less overhead cost| Quality Control| More concentration on other portion of the work| Transparency| | Good quality raw materials – quality output| | Chances of getting more business| Faster delivery service| Good name and reputation – Goodwill| | Product price – less expensive| | | Make Decision| Buy Decision – Outsourcing| Disadvantages| Disadvantages | High operating cost| Conflict might arises with vendors| Lay off of staff| Less Transparency| Unethical (as one of the employee is physically challenged)| Not timely delivered| More manpower required| Less quality raw materials | Loose the existing customer - Risk| High profit margin| | Finish goods might be expensive| | Long term contract | | | Acceptance criteria The company is taking a crucial decision although through analysis has been done using various tools and techniques.

But there is always a fear that what happens next. How would be the response from the consumer and stakeholders? Since now the company has become dependent, what would be the level of trust? Annex 1: Comparative Evaluation Sheet for Selecting Vendor Evaluation Criteria| Company Name| | Litton| Boise-Cascade| L. E. Muran| Bay State Office| New England| Total Score| Weighted Score| Sample Catalogues| | | | | | | | Price List| | | | | | | | Ranges of costs for certain delivery| | | | | | | | Contract Term – 3 year| | | | | | | |

Order Cycle Times – 10 Working days| | | | | | | | | | | | | | | | Levels:5 – Execellant4- Good3- Average2 – Fair1 – Not Satisfactory| The Report After analyzing all these risks and criteria Id like to present some points to demonstrate why we should go for outsourcing: * Closing stores operation the labour cost (4 employees) and space can provide $200,000 savings per year. * The employees can be allocated to another area or retired. I recommend one of them to work supporting with the contract management and for this job the disability worker can be trained to perform it. The costs related to the inventory can be reduced by 6%. * All the stores areas will become available for rent or designed for other operations. Also the management of those stores won’t be necessary, saving time to focus on other issues. * Another strong advantage of outsourcing is the delivery time that changes from three to four weeks to less than ten working days. This can also become an advantage among the competitors. * The launch of new items can be time shortened since we don’t have all the inventory and distribution tasks anymore. Will not be necessary to plan and create other stores to support our business as long it is growing. The contract will take care of it. These points clarify and justify the outsourcing procurement we should develop and administer. Cost and competitive advantages are the main points indicating our company to go for this project.

References

1. Flemng, Q. W. (2003). Project procurement management: Contracting, subcontracting and teaming. (First ed. , p. 273).
2. America: Mayori, F. (2013). Procurement slides - course study . Toronto, Canada: Centennial College, Progress Campus. www. centennialcollege. ca

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