Scotts Miracle Gro The Spreader Sourcing Decision

4029 words - 17 pages

Scotts Miracle Gro
The Spreader Sourcing Decision

1.What are the strategic risks and benefits of outsourcing production of the Temecula plant to a contract manufacturer(s) in China? RISKS • Perceived decrease in quality from abandoning in-mold labeling • Additional costs and problems in implementing in-mold labeling in China • Up-front investment in specialized equipment and training for the partner • Inflexibility of sourcing suppliers would result • Labor and electricity costs guaranteed to increase at uncertain rates • Undervalued Yuan; drastic shift in exchange rates would reduce outsourcing cost advantages • Net increase in transportation costs of $7 M per year • Finished goods ...view middle of the document...

25 $8.00 260 $6,591,000 16 $125,000.00 $2,000,000.00 $8,591,000.00 $10,071,000.00 $2,421,300.00 500,000 ‐100,000 $15,892,300.00

183.3 $16.25 $8.00 260 $6,195,540 15.84 $125,000.00 $1,980,000.00 $8,175,540.00 $9,480,116.00 $2,250,034.80 500,000 ‐100,000 $15,130,150.80

172.302 $16.25 $8.00 260 $5,823,808 15.6816 $125,000.00 $1,960,200.00 $7,784,007.60 $9,113,631.46 $2,146,029.44 500,000 ‐100,000 $14,659,660.90

161.96388 $16.25 $8.00 260 $5,474,379 15.524784 $125,000.00 $1,940,598.00 $7,414,977.14 $8,770,129.78 $2,048,859.53 500,000 ‐100,000 $14,218,989.32

152.2460472 $16.25 $8.00 260 $5,145,916 15.36953616 $125,000.00 $1,921,192.02 $7,067,108.42 $8,448,279.98 $1,958,126.39 500,000 ‐100,000 $13,806,406.37

143.1112844 $16.25 $8.00 260 $4,837,161 15.2158408 $125,000.00 $1,901,980.10 $6,739,141.51 $8,146,831.57 $1,873,455.44 500,000 ‐100,000 $13,420,287.02

138.8179458 $16.25 $8.00 260 $4,692,047 15.06368239 $125,000.00 $1,882,960.30 $6,575,006.87 $8,009,724.58 $1,838,029.28 500,000 ‐100,000 $13,247,753.86

134.6534075 $16.25 $8.00 260 $4,551,285 14.91304557 $125,000.00 $1,864,130.70 $6,415,415.87 $7,877,680.16 $1,804,064.84 500,000 ‐100,000 $13,081,745.00

130.6138052 $16.25 $8.00 260 $4,414,747 14.76391511 $125,000.00 $1,845,489.39 $6,260,236.01 $7,750,575.77 $1,771,525.91 500,000 ‐100,000 $12,922,101.69

126.6953911 $16.25 $8.00 260 $4,282,304 14.61627596 $125,000.00 $1,827,034.49 $6,109,338.71 $7,628,293.00 $1,740,377.55 500,000 ‐100,000 $12,768,670.55

Cost Difference (China ‐ US)

‐$7,801,961

‐$6,812,726

‐$6,108,317

‐$5,426,689

‐$4,765,899

‐$4,124,105

‐$3,688,205

‐$3,250,905

‐$2,811,807

‐$2,370,513

Interest Rate Net Present Value

15% ($71,781,116.67)

Outsourcing to China Costs Lease Electricity Annual Usage Hourly rate Electricity Costs Labor Costs Hourly Wage Hours Days Hourly Labor Salaried Workers Average Salary Salary Expense Total Current Labor Direct Manufacturing Costs Overhead Direct Investment  Manufacturing Cost Manufacturin Markup Freight Costs Yuan Rate Factor Total Annual Cost in China

2008 $200,000

2009 $200,000

2010 $200,000

2011 $200,000

2012 $200,000

2013 $200,000

2014 $200,000

2015 $200,000

2016 $200,000

2017 $200,000

8,000,000 0.065 $520,000.000

7,840,000 0.066 $519,282.400

7,683,200 0.067 $518,565.790

7,529,536 0.069 $517,850.169

7,378,945 0.070 $517,135.536

7,231,366 0.071 $516,421.889

7,086,739 0.073 $515,709.227

6,945,004 0.074 $514,997.548

6,806,104 0.076 $514,286.852

6,669,982 0.077 $513,577.136

195 $0.910 8 260 $369,096 2 $125,000.00 $250,000.00 $619,096.00 $889,096.00 $184,548.00 300,000 $684,548.00 $20,536.44 $7,000,000 0.05 $8,090,338.66

195 $0.940 8 260 $381,276 1.9 $125,000.00 $237,500.00 $618,776.17 $900,558.57 $190,638.08 300,000 $690,638.08 $20,719.14 $7,210,000.00 0.05 $8,317,425.09

195 $0.971 8 260 $393,858 1.805 $125,000.00 $225,625.00 $619,483.28 $912,424.07 $196,929.14 300,000...

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