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Republic of the Philippines
Eastern Visayas State University
Tacloban City
College of Engineering
Industrial Engineering Department
Case Study 1
In Partial Fulfillment
Of the Requirements for the Course IE 433
(Supply Chain Management)
By:
RHOEL B. YADAO
MARK KEN TORLAO
DANNAH LYN BAJADO
JOHN ARTHUR OCAMPO
BSIE-4
October, 2022
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TABLE OF CONTENTS
Page
TITLE PAGE
TABLE OF CONTENTS …………………………………………………………………... i
ABSTRACT ………………………………………………………………………………… 1
SITUATION ANALYSIS …………………………………………………………………… 2
RESULT …………………………………………………………………………………….. 3
ANALYTIC CONCLUSION ……………………………………………………………….. 5
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I. ABSTRACT
Considering the worker's dissatisfaction and pay scale for manufacturing business.
It helps the business to find out a solution for solving the issue and make better decision
in the long run. Company problems including budgets, lack of man power, worker’s
behavior, and productivity capacity of the facility are the main topic of this case. This case
study was conducted to find out the reasons of employee’s attitude based on their own
satisfaction towards the jobs they are working and how the company solved it to retain the
employees. Company’s needs to anticipate the future needs by doing proper projection
and forecast to its sales, total cost and productivity in the near future.
The company needs to decide whether it will keep its operation internally or give
an opportunity to expand and top-up with other company to save much more effort, man
power and especially the cost. This may imply extensive thinking and proper computation
to determine whether the company will gain a profit.
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II. SITUATION ANALYSIS
Conceptual Framework
Profit
Process
Internal External
Manufacturability
• Capacity
• Productivity
• Financial
Self-Manufacture Capability Supplier Potential
• Cost • Cost
• Man Power • Transportation
• Machine • Capacity
• Facility
• Supply
Raw Material
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III. RESULT
1. The following table gives the cost comparison of internally production cost and
outsourcing cost.
Manufacturing Cost
YEAR 1 2 3 4 5 TOTAL
QTY PER YEAR 300000 500000 700000 900000 1000000 3400000
MATL COST / UNIT 14 15.4 16.94 18.634 20.4974
LABOR COST / UNIT 4 3.6 3.6 3.96 4.356
INDIRECT LABOR COST / 2 1.8 1.8 1.98 2.178
UNIT
POWER & FUEL COST / 2 2.2 2.42 2.662 2.9282
UNIT
VARAIBLE COST / UNIT 22 23 24.76 27.236 29.9596
TOTAL VARIABLE COST / 6600000 11500000 17332000 24512400 29959600 89904000
YEAR
SUPERVISOR SALARY / 60000 66000 72600 79860 87846 366306
YEAR
MACHINE COST / YEAR 1000000 1000000 1000000 1000000 1000000 5000000
TOTAL COST / YEAR 7660000 12566000 18404600 25592260 31047446 95270306
Procurement Cost
YEAR 1 2 3 4 5 TOTAL
QTY PER YEAR 300000 500000 700000 900000 1000000 3400000
MATL COST / UNIT 20 20 22 24.2 26.62
TRANSPORT COST 2 2.2 2.4 2.6 2.8
INVENTORY COST 1 1 1.1 1.21 1.331
VARAIBLE COST / 23 23.2 25.5 28.01 30.751
UNIT
TOTAL COST / YEAR 6900000 11600000 17850000 25209000 30751000 92310000
Considering the costs as per table above it is very clear that we should go for buying the
product from outside.
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2. We would still have chosen to buy the product from the supplier even if the costs for in-
house manufacturing and procurement had been the same. It is still preferable to buy from
outside if procurement costs are slightly higher than internal production costs because
doing so offers greater flexibility and poses less risks, even if the forecast is inaccurate
and actual demand ends up being lower than anticipated. In general, the following criteria
must be taken into account when deciding whether to outsource or keep manufacturing
in-house.
The following factors generally influence make-or-buy decisions:
a) Production Volume
The decision to make or buy is more significantly influenced by the quantity or
volume of production. High production volume favors make decisions, while low volume
favors buy decisions.
b) Cost evaluation
The word "cost analysis" refers to the process of estimating both an item's
manufacturing and acquisition costs. Materials expenses, direct lab costs, setup and
tooling costs, depreciation, administrative costs, interest, insurance, taxes, and inventory
carrying costs of raw materials and work in progress are all included in the cost of
production. The cost to make also accounts for reasonable allowances, lost productivity
or scrap, and business-related risk.
The price to purchase an item should take into account the component's or item's
buying price, shipping expenses, sales tax, procurement costs, carrying costs, receiving
costs, and incoming inspection costs. Making a decision about whether to make or buy is
aided by the analysis of these two expenses.
c) Employing Production Capacity
The business, which has increased production capacity, supports the choice.
d) System Integration for Production
While horizontal integration promotes buying decisions, vertical integration favors
making decisions.
e) The availability of labor
When trained and competent labor is available, making decisions is preferred;
when labor is in short supply, buying decisions are preferred.
f) Secrecy or Protection of Patent Right
This condition favors the make decision.
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g) Fixed Cost
A lower fixed cost favors the decision to make and higher fixed cost the make
decision.
h) Availability of competent suppliers or vendors
Competent suppliers are needed to ensure the quality and low-cost raw material.
i) Quality and reliability of vendors
The reliable the supplier is the more it can attain the needs or the standards of the
company demands of raw material.
Careful evaluation of these factors is required to arrive at final decision.
IV. ANALYTIC CONCLUSION
Both products and services are covered by the ruling. Businesses weigh the
advantages of producing the goods or services in-house vs the disadvantages of using an
outside provider to supply the goods and services. The benefits must include greater margins
(for in-house production) or a low capital requirement, and the value must cover all costs
related to manufacturing (including material, labor, space, machinery, and storage fees),
storing, moving, and taxes, among others (for outsourcing).
Making the decision to make or buy should be done so carefully, taking both the long-
and short-term rewards into account. Both making and buying have advantages and
disadvantages, but generally speaking, firms opt to outsource tasks where they lack a core
skill or if buying the goods or services from outside vendors is much less expensive.
