MCS Group Assignment

Bharat Polyplex Company

Alternatives

Options
No Change Material Labor Manager salary Rent Maintenance Other Expenses Admin Overhead Contract Fee Contract for Repairs Total % Saving 189350 188000 0.71 184100 2.77 189750 -0.21 125000 37500 125000 37500 22500 22500 22500 22500 4500 3600 15750 0 4500 3600 6500 9250 4500 5000 Depreciation 15000 70000 50000 8000 3000 Total Outsourcing Outsourcing only 63000 40000 8000 Outsource only 7000 10000 5000

manufacturing maintenance

Analyzing the Alternatives

1. Total Outsourcing
Cost saving: 189350-188000 = Rs 1350/No change in Admin overhead High layoffs and pension costs

2. Outsource only Manufacturing

Material o About 10 % of the materials used are used for maintenance and hence the amount comes to Rs 7000(10/100 of 70000) which includes all costs including that of GHL. Labor: o Only 1/5th of the labor would be required o Cost is (1/5 of Rs 50000)=Rs.10000/ Managers Salary: o The supervision would be transferred to a foreman and hence the salary would be decreased by Rs 3000 o Salary: Rs 5000/ Rent: No change Depreciation: Nil Other expenses: Rs 6500/Savings: Rs 5250/- (189350-184100)

3. Outsource only Maintenance

Material: o It is mentioned that about 10 % of the materials used are used for maintenance and hence the amount comes to Rs 63000(90/100 of 70000) which includes all costs including that of GHL. Labor: o Cost: Rs 40000(4/5 of Rs 50000). Managers Salary: The managers salary would remain constant Rent: The rent would not change Depreciation: No change would be observed and hence the depreciation would come to Rs 5000/Other expenses would decrease to Rs 9250/(Given that Rs 6500 is incurred for maintenance work which would not be incurred in case of outsourcing). No other change would be observed in all the other heads of expenses.

It is also assumed in the solution that if the company only outsources maintenance they would be saving on the costs that would be incurred under alternative 3 and hence the reduction in material and labor costs.

Conclusion
Amongst the alternatives available, outsourcing only manufacturing seems most viable. It has the maximum savings amongst all the other options. But still the machines would not be totally utilized and there would be some layoffs. It should be chosen as the long term implications of this alternative are better than the other ones which may seem good in the near future. The break-even can be achieved in about 3-5 years leading to higher cost savings in the future.