Rondot Automotive produces small motors and was evaluating outsourcing some of its painting requirements. Glenn Northcott met with Terry Gibson and Dick Taylor to discuss the feasibility of outsourcing the painting of 5 housing families, representing 60% of production. Outsourcing these families could save $294,000 per year compared to the current in-house painting costs through lower per unit costs and increased production capacity.
Rondot Automotive produces small motors and was evaluating outsourcing some of its painting requirements. Glenn Northcott met with Terry Gibson and Dick Taylor to discuss the feasibility of outsourcing the painting of 5 housing families, representing 60% of production. Outsourcing these families could save $294,000 per year compared to the current in-house painting costs through lower per unit costs and increased production capacity.
Rondot Automotive produces small motors and was evaluating outsourcing some of its painting requirements. Glenn Northcott met with Terry Gibson and Dick Taylor to discuss the feasibility of outsourcing the painting of 5 housing families, representing 60% of production. Outsourcing these families could save $294,000 per year compared to the current in-house painting costs through lower per unit costs and increased production capacity.
Rondot Automotive produces small motors and was evaluating outsourcing some of its painting requirements. Glenn Northcott met with Terry Gibson and Dick Taylor to discuss the feasibility of outsourcing the painting of 5 housing families, representing 60% of production. Outsourcing these families could save $294,000 per year compared to the current in-house painting costs through lower per unit costs and increased production capacity.
purchasing manager, and the plant manager, Dick Taylor,
What action, if any, needed to be taken next.
Manufacturing plant in Jackson, Mississippi Rondot Produces small motors for engine cooling
Automotive HVAC and anti-lock brakes
Production capacity of approximately 7 million motors per year Motors shipped directly to OEM assembly facilities of Ford, GM, DaimlerChrysler, Honda, Toyota, BMW End Customers In house solution or outsourcing
Price reduction
Key Increased Global competition
Inexperienced Planner
Issues Lack of technology development
Total sales declined
Environment and sustainability
Current in-house paint production
6 housing families (100% volume)
7 million units produced per year $.10 for materials $.12 overhead expenses $.03 for labor $.25/housing for painting production Total of $.25/housing => 7 million units*$.25 = $1.75 million -Outsourcing of 5 housing families
- Represents 60% of volume 4.2 million units
- $.15/housing paint production
Outsource - $.03/housing for transport/packaging
- Total of $.18/housing => 4.2 million * $.18 = $756,000
Opportunity - Produce 1 family in-house: due to current manufacture technique
- Represents 40% of volume 2.8 million units
- Total of $.25/housing => 2.8 million * $.25 = $700,000
$756,000+$700,000 = $1,456,000 In-house Outsourcing Cost reductions Control over production capacities Exceed environmental standards Advantages Job security for production staff Access to new/efficient technology Increased production capacity
Increased cost to train skilled employees Increased lead time/ inventory to
Disadvantages Continuous upgrading and meet in-house motor production
maintenance of wet paint system requirement
Increased risk due to possible Exposure to supplier risk in-house production failure Outsource 5 motor housing families Recommendation Continue to make 1 housing family / Conclusion Creates a Gray Zone -60/40 split Cost saves of $294,000. Thank you!!
