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Unformatted text preview: s by only $10,800,000 via outsourcing,
but can easily spend more than this on purchasing the same units. This results because the freed
capacity will be used to produce additional contribution margin that would otherwise be foregone.
One must be very careful to fully capture the true cost of outsourcing. Oftentimes, the costs of
placing and tracking orders, freight, customs fees, commissions, or other costs can be overlooked in
the analysis. Likewise, if outsourcing results in employee layoffs, expect increases in
unemployment taxes, potential acceleration of pension costs, and other costs that should not be
ignored in the quantitative analysis. Finally, a situation like that faced by Mueller may indicate the
need for additional capital expenditures to increase overall capacity. Capital budgeting decisions are
covered later in this chapter. Download free ebooks at bookboon.com
13 Business Decision Logic Analytics for Managerial Decision Making 2.5 Qualitative Issues in Outsourcing
Companies must be very careful to consider qualitative issues in making decisions about
outsourcing. Outsourcing places quality control, production scheduling, and similar issues in the
hands of a third party. One must continually monitor the supplier’s financial health and ability to
continue to deliver quality products on a timely basis. If goods are being moved internationally,
goods may be subject to high freight costs, customs fees, taxes, and other costs. Delays are often
associated with the uncertain logistics of moving goods through brokers, large sea ports, and
homeland security inspections. Hopefully rare, but not to be ignored are risks associated with
relying on suppliers in politically unstable environments; significant disruptions are not without
precedent. Language barriers can be problematic. Although global trade is increasingly reliant on
English, there are still many miscues brought about by a failure to have full and complete
communication. Additionally, some global outsourcing can be met with...
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