Write 4 page essay on the topic Business Case: Outsourcing for Labor Cost Savings.Download file to see previous pages... As a production facility, inter-dependencies between operations, finance and ac

Write 4 page essay on the topic Business Case: Outsourcing for Labor Cost Savings.

As a production facility, inter-dependencies between operations, finance and accounting, research and development, and even shipping and receiving are currently over-staffed and require significant labor support. This is something the business can no longer afford during a period of economic recession and where profitability is being impacted. The purpose of the business case is to provide knowledge of the tremendous cost savings that business can achieve by outsourcing production to other facilities. The goal of this project is to streamline in-house production by allowing outsourced sub-assembly to occur, with this facility using partially assembled finished product to be completed in the final production run here at the organization. It is estimated this will result in cost reduction of approximately $2 million annually which can be better applied to more modernized technology and other competitive assets.

3. Project Description

3.1 Business Need

In 2004, the Bureau of Labor Statistics indicated that the average hourly wage for American employees was $13.92. Of this pay, which is comparable to the wages being paid at this facility, $3.83 is allocated to extended employee benefits (Rummery, 2004). Currently, this business maintains 150 production employees that work through the production cycle from raw materials until the finished product moves through quality assurance for final shipment approval. By downsizing production and eliminating 50 employees, outsourced materials will enter the production cycle one-third assembled by a third party production organization. This will represent a labor payment reduction of approximately $111,000 monthly.

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Currently, the business must maintain a high volume of raw materials needed for production, which puts significant expense on the business. In addition, the holding costs for these materials (e.g. lighting, taxation, inventory labor support, and depreciation) continue to strain the corporate budget. It is estimated that nearly one-third of all raw materials can now be procured by the third party production facility, reducing costs of inventory by approximately $800,000 yearly. It is recognized that companies with lean supply methods outperform other companies (Hazeltine, 2008). The business needs to establish a more effective marketing image on the business-to-business market and the consumer market and this business case foreshadows significant brand development through this outsourcing project. 3.2 Goals and Scope Foreign outsourced partners provide significant low-wage opportunities in countries where labor costs are much lower. It is the goal of this project to identify partners in India where the average labor rate is only $2.00 per hour, of this only half of the expense will be absorbed by this organization. Now, it is expected that transportation costs for shipment of sub-assembled products will rise, however this will be offset by changing the production supply chain to a leaner system. The most promising outcome of this outsourcing project is the improvements to productivity. Under most mathematical models of productivity, it is measured by unit outputs divided by the volume of resources consumed (Jain &amp. Dega, 2009). Vast reductions of resources needed for assembly in the business’ complicated production system will also improve output speed to market of final product.