To begin with, I would advise Behemoth Motors Corporation not to agree to the terms of Far East Enterprises in producing the Global Positioning System Navigator. Consider this; the cost of producing one gadget at BMC will be $425 per unit, which is $30 higher compared with $395 per unit of the Far East Enterprises. However, the conditions attached if they decide to get the gadgets from FEE are by far much expensive in terms of finances and reputation. If the workers are laid off, it will mean that BMC will have to pay $320,000 in the next five years and this will have a great effect on the company's marginal profit. In the same breadth, it is advisable to note that the FEE Company has only been in the existence for the last three years, although their progress is not bad. It is therefore wrong to make long-term investment decisions with such a young company that has faced little or no challenges at all.
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On the same note, considering the cost of the floor, if BMC stops renting the storage floor it will mean the $48,000 yearly will not be incurred. This is not possible and given that if the product when outsourced will mean the overhead will be reassigned to other operating divisions and the corporate overhead incurred will remain unchanged. The current arrangement by BMC is the only beneficial way since it does not affect its management and the employees at large. It would be advisable for BMC to make arrangements and construct their own storage facility, as this will reduce the cost in the end. Additionally, if BMC continues manufacturing the gadgets at their Detroit facility, they will add on their reputation and the customer's trust will remain. Going by that, it means then that the likely hood of them increasing on their sales national wide and worldwide are on the higher side.
Therefore, Wally Wizard as the manager of BMC should consider manufacturing their own GPSN though it may appear costly at $425 per unit, than to collaborate with FEE. This is because their cost per unit may be cheap ($395), but many other costs are going to be incurred making the whole partnership too costly.
Apart from the financial costs that may be faced in outsourcing, there are other negative impacts to a company and the whole economy in general. In the case of BMC the main negative impact that the company will face due to outsourcing will be layoffs of the workers. Outsourcing is also expensive as compared to local production. This means that the company will incur more expenses that it would have been if the GPSN were produced in the company. At the time of manufacturing the Global Positioning System navigator (GPSN), most of its facilities and the employees will be redundant. This will automatically call for the layoff of the workers. But in the long run, this will not continue benefitting the company. The workers may also feel dissatisfaction on realizing that they have all it calls for the production of the GPNS but the company is not involving them. This may also demoralize the staff and may suffer from job insecurity (Poulin, 2006).
After lying off its workers, BMC will have to pay a penalty of that will $64,000 per year, and this will continue for the next five years, whereas the contract goes for two years with no future obligations. In this case, I would recommend BMC to manufacture the GPSN for itself involving its employees for the sake of future obligations. Outsourcing will also lead t loss of knowledge among the employees of the company. This is because they will not get involved in the process and will therefore remain unable to handle such a requirement in the future. Letting the employees to gain experience by involved in such an exercise will also enable them in the future. The company and its employees may feel good and proud of what is theirs'. This also adds to the reputation of the company. Production of the GPSN in the company will also make the employees feel motivated and be proud of their company.
Outsourcing also lowers the productivity of the company. This is because the company will not have a chance to learn what it lacks, its strengths, and weaknesses. When a company takes the responsibility of producing goods itself, it is possible to learn the challenges of such processes some of which may be technological. When a company decides to take up production of a certain commodity, it gains experience, and also learns new things. BMC may therefore have a chance to encounter new technology that will be required in production of the GPSN. Employees will also get exposed to the new technology and this will improve their knowledge. This will improve the productivity of the company since it will make improvements in the production department that will benefit all their future undertakings (McIvor, 2005).
BMC will also have to incur unnecessary costs of its facilities that it is not putting in use. Since the company has the machinery and the facilities it requires to produce the GPSN, it will have to incur maintenance cost of equipments that it is not using. To avoid such expenses, it is necessary for the company to take up the production.
I would therefore recommend BMC to take up the production of GPSN to avoid the above negative impacts. It will avoid layoffs of the employees and the five year penalty that follows, it will help in raising or marinating its reputation since it will portray its potential in producing the GPSN, and also be able to understand its position regarding the company's ability to carry out such an enormous production process. The company will also not incur the extra expenses of outsourcing that are higher than in producing its own GPSN. It will therefore be better if BMC takes the opportunity as it will also benefit it in the long run.
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