Via outsourcing but can easily spend more than this

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 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...
View Full Document

Ask a homework question - tutors are online