Economic Team Analysis To Make In-House Vs Outsource

Economic Team Analysis: To Make In-House Vs. Outsource Sandblasting Operations Team 6 Organizer: Oscar Delgado Techies: Komkit Petprasit, Arman Then Summarizer: Adolfo Wurts

Racso Mold Company n n n Owner is Kelvin Modesto Location: Riverside, Ca 4 employees In business 5 years Part for analysis: Ejector Pins for Wheel Molds (approximately 18” length x 1 ½” Diameter)

Objectives n n n Particular Process/Problem: Sand Blasting Ejector Pins Outsource sand-blasting work versus buying the equipment and doing it inhouse Fixed Output Minimize Input

Scenario 1: In-House Sand Blasting n Fixed Cost: $340. 00 n n n Useful lifecycle of equipment (depreciative value per year of each piece: approximately 4 yrs. ) Wages: $3. 00 ea. Variable Cost: n n n Maintenance of equipment: Ceramic tips for sand blaster guns $0. 20 ea. Additional supplies: Fine Grit Sand @ $0. 31 ea. Power Usage to run Industrial Size Compressor: $. 08 ea.

Scenario 2: Outsourcing Sand Blasting n n Vendor: American Foundry; location Riverside, CA Costs: n n n $4. 00 $3. 80 $3. 65 $3. 60 ea. ea. @500 bars @1000 bars @1500 bars @ 2000 bars Shipping: Racso Mold Company Truck Vendor can produce 25 sandblasted bars in approximately 2 hrs.

Break Even Volume

ROR, EUAW and PV Analysis n n MARR of the company is 13% The ROR for doing in-house vs. outsourcing was 9% for 500 bars. Benefit decreases as volume increases because of vendor’s cost schedule It may become beneficial at the next level of automation which is far beyond current demands

Variable Cost of Labor

Variable Cost of Sandblasting Equipment

Conclusion n n The ROR for the lowest volume, 500 pcs/year, is below the MARR of the company Quality of the outsourced parts is better The reliability of the machine is unknown 12. 5 bars/hr from vendor vs. 4 bars/hr n n Highly sensitive cost Anticipation of future growth would decrease our benefit

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