Should lightwheel manufacture the new sensors in house

Assignment Help Operation Management

Reference no: EM131853189

Lightwheel Products, LLC manufactures motion sensors. They have been in business for slightly over four years and currently manufacture just one sensor. When they started, sales were about 5,000 units per month.

Currently, they are running at about 25,000 sensors per month. Their business model has been to source all of the raw materials and do all of the manufacturing in house. In their strategic planning sessions, they have adopted a goal of adding different varieties of sensors.

They currently operate out of a 25,000-square foot plant. If they wish to expand, they need an additional 25,000 square feet to produce in house. Here are some other facts to consider:

1. Land is a scarce resource in your target market. Prices have doubled since you last purchased land 3 years ago.

2. Land near your existing plant is difficult to find.

3. Production levels have been good and have kept up with increasing demand.

4. Quality complaints from customers have gone from .2% in prior years to a current level of .5%.

5. Plant employees have been grumbling about the workload and their rate of pay.

6. Supervisors believe plant employees are wasting time - extended breaks, a lot of chit chat and down time. However, they are in a tight labor market and have been hesitant to enforce company policies regarding this behavior.

7. The department heads had this to say about a potential expansion:

a. Marketing Manager: Bullish on growth and believes the company should expand. Forecasts heavy demand for new lines of sensors.

b. Finance Manager: Expansion will result in economies of scale, increasing profits.

c. Operations Manager: Has concerns about workforce availability and quality controls.

8. The planning group started talking about outsourcing. The President asked the group to put together a proposal for manufacturing in house versus outsourcing.

9. The team has gathered the following information to assist with this decision:

Producing in House Cost Annual

Increases

One additional Supervisor - annual salary $60,000 5%

Cost of additional facilities per year $1,000,000

Variable costs per unit:

Direct Labor $ 4.00 3%

Direct Materials $14.00 2%

Utilities $ 2.00 1%

Indirect Labor $ 2.00 3%

The sensors will sell for $45 per unit in 2018. Projections assume the sales price will increase by 2% per year. The marketing manager has projected sales (in units) of the new sensors for the next five years as follows:

2018	2019	2020	2021	2022
300,000	500,000	700,000	900,000	1,000,000

The costs of outsourcing are as follows:

Item	Cost	Annual Increases
Cost of units:	$20.00	10%
Transportation per unit:	$2.00	$0.20
Inventory carrying costs per unit:	5% of the unit cost

The President of the company would like the following questions answered?

1. Should Lightwheel manufacture the new sensors in house or buy them from a supplier?

2. Does the decision remain the same during the five year period?

3. What else, other than costs, should be considered when making this decision?

Reference no: EM131853189

Questions Cloud

What is the cost of source : D. M. Ferguson and Associates is considering the three alterna- tive sources of short-term funds shown here. What is the cost of each source?

Discuss primary and secondary activates of value chain : Explain the impact of the internet on the macro-environment on your company and review the impact of the internet on the five forces industry framework?

Write the pseudocod that defines the class : Design a class named House that holds the street address, price, number of bedrooms. Create the class diagram and write the pseudocod that defines the class.

Alternative sources of short-term funds : D. M. Ferguson and Associates is considering the three alternative sources of short-term funds shown here. What is the cost of each source?

Should lightwheel manufacture the new sensors in house : Should Lightwheel manufacture the new sensors in house or buy them from a supplier?Does the decision remain the same during the five year period?

Identify three different classes that might contain objects : Identify three different classes that might contain each of these objects: Wolfgang Amadeus Mozart, My pet cat named Socks and Apartment 14 at 101 Main Street.

Business cycle relative to real gdp : Briefly explain whether the sale of the goods in group A or B will fluctuate more during the business cycle relative to real GDP.

Difference between decision making and making a decision : Choose one of the following topics below to "show what you know." Do not copy text from the book unless you are quoting a specific supporting sentence.

Describe the five process groups of project management : List and describe the five process groups of project management and the ten project management knowledge areas as defined in PMBOK.

User Account

All Pages