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Purpose/ objective

            I undertake the responsibility charged with my department to ensure as purchasing manager, activities to do with purchases flow in the right direction. I wish therefore to take it upon myself to draw a decisive opinion on a make or buy dilemma the company has been experiencing for a while. We have initially been having central stores from where our products are supplied. Usually we buy products in bulk in bulk and store them in our central stores. This has worked for a long time since we have been having the advantage of economies of scale and thus discounts as well as the ability to avoid stock outs. This has been convenient to our customers. We however have been contemplating the issue of outsourcing which I wish to carefully evaluate and come up with a viable solution for the same.

Relevant Facts

FUTRONICS CENTRAL STORE

COMPARISON ISSUE

OUTSOURCING

500 items

Number of items stocked

600 items

Building docks or reception area. These were made daily

Delivery

Delivery to each secretary’s desk

100% availability of varieties Overhead transparencies costs $23 per box

Product selectivity/variety

90% of current orders available. Overhead transparencies between $39-$45 per box

0ver 500 items are stocked. Personnel and space cost about $200,000 per year.

Facility space requirements/needs.

This will depend on the requirements of the firm. Orders cycles no more than ten working days.

Cost of space and personnel was about $200,000

Labor costs.

Personnel will have to be deployed elsewhere or actually laid off. The latter option will eliminate labor costs.

 

 

 

 

 

 

OPTIONS AND ANALYSIS

The most cost-effective approach is what we shall buy.

The costs involved in using the Central Stores Method are as follows:

Average inventory: $ 140,000

Personnel and space: $ 200,000

Costs associated with outsourcing

Average inventory: $ 131,600

IDEA

BENEFIT

FEASIBILITY

Reducing the ratio of staff to just a few to maintain an efficient running of the stores.

This is going to be cost-effective. The company will reduce amounts relating to payment of salaries and wages considerably.

 

This method is very feasible save for the worker on the wheel chair. We can deploy him to other areas. This as for purposes of corporate responsibility where the company should have the interest of the society at heart.

Continuing with the current source of overhead transparencies.

This will save on about $16 per box.

This is feasible. There are however constraints as regards the delivery of this product. It might be difficult to make small orders considering that you are outsourcing the rest

 

 

 

 

 

 

 

 

 

 

 

 

OUTSOURCING COMMENTS AND CONCERNS

Outsourcing is a viable option in that it will be cost effective. There are other advantages in this move:

1. It will save on costs of space. The store has been occupying space which is usually paid for. It will be good if the company outsources to save on these costs.

2. Eradication of labor costs. It will be important for the company to lay off some workers. The amount that was being used to pay these persons can be channeled elsewhere.

3. Higher deliveries. The company can order 600 items in outsourcing as opposed to the initial 500 items. This means reduced instances of stock outs.

3. The current staff should be evaluated based on performance. Non-performers should be laid off.

 Recommendations

            I recommend out sourcing. The company should however integrate stock management software to check on stocks. This will inform   us on the appropriate time to make orders. There should also be a qualified professional in the stores to advice on the same.

Outsourcing Issues

            Stock outs may arise. Supplies are made in a cycle. This may be inconvenient.

There shall also be constraints regarding which workers to lie off and who to keep.

The process is more procedural unlike the current simple method

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