Essay on Scott Miracle Grow Speader; Make or Buy

1624 Words Nov 16th, 2012 7 Pages
Scott’s Miracle-Gro has a plant in Temecula, CA that produces seed spreaders. Management is deciding if it should keep the Temecula plant open or if it should outsource manufacturing either to mainland China or offshore China. Before Miracle-Gro became Scott’s Miracle-Gro, they outsourced to contract manufacturers for production. Scotts manufactured their spreaders since it acquired Republic Tool and Manufacturing. Scott’s Miracle-Gro manufacturing facilities have a plant in Temecula, CA. The Temecula plant improved productivity, efficiencies, and also different innovations including a new assembly process for their hand spreader. Also, they invented an in-mold labeling process that produced a label that did not fade, scratch, …show more content…
$350K in China, see attached appendix , which is 17X more costly to produce the spreader at the Temecula plant. Even if the plant can improve their operational efficiency in the out years and reduce labor costs it would still be difficult to compete with China during this 10 year period.
Electricity (Energy) Costs
Energy costs are still cheaper in China, by more than half the cost. However, the majority of energy which China uses is from coal plants and not environmentally friendly, more and more companies and US consumers are becoming sensitive to the issue of reducing one’s carbon footprint. Outsourcing based on energy costs is typically not the sole driver. However, if energy cost between China and the US become more competitive, such as in the case of the US using natural gas (i.e.fracking) to supply electricity to their plants the argument to bring manufacturing back to the US may become more compelling.
Overhead
The cost of overhead or Governance at the Temecula Plant is approximately $5M annually vs. China $500K (excluding $1M in year one for start-up costs) these are costs associated with Scott’s management to monitor, track and visit China to oversee operations.
Sensitivity Analysis
Due to the uncertainty in the future economic trends, there are three uncertain factors playing important roles in the decision making. They are labor cost in China, electricity price in China

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